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Barrick Gold Corp. and Newmont Mining Corp. have held merger talks numerous times in the past without getting a deal done. But conditions finally appear right to bring together the world’s two largest gold producers.
A rough gold market, along with new personalities on both sides of the negotiating table, have helped the two companies overcome their longstanding differences and put them on the cusp of a deal that analysts and investors have eagerly awaited for years.
Recent merger talks between the two sides broke down over a disagreement on what assets to put into a spin-off company, according to sources. However, the broad terms of the merger were largely agreed upon, with Toronto-based Barrick planning to buy Denver-based Newmont for close to US$13-billion in stock, representing a small 13% premium over its recent trading range.
The two gold miners hoped to announce the deal ahead of Newmont’s annual meeting on Wednesday, but that now appears unlikely. Newmont shares rose 6.4% on Monday. Barrick shares opened higher, but then declined as gold dropped and investors absorbed the merger news. They ended the day down 4%.
A Barrick-Newmont merger makes sense because the two companies have complementary operations in Nevada, which is the core operating region for both of them. Combining them would unlock hundreds of millions of dollars in synergies.
In a bear market for gold, those cost savings are more important than ever. All of the senior gold miners are focused on cost reductions as they try to adapt to a gold price that has plunged more than 30% from its peak in 2011. The challenging market conditions were a key factor in bringing the two sides to the bargaining table, sources said.
Another important factor is the new executives involved. On Barrick’s side, John Thornton is replacing Peter Munk as chairman this month, and Jamie Sokalsky has only been chief executive since 2012. Gary Goldberg became CEO of Newmont in March of last year. All of them have shown a willingness to get a deal done.
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