Merger Talks Between Gold Giants Break Down – by Gillian Tan, Alistair MacDonald and Dana Mattioli (Wall Street Journal – April 18, 2014)

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Barrick Gold, Newmont Mining Were Said to Be in Advanced Discussions

Barrick Gold Corp. ABX.T -1.88% and Newmont Mining Corp. NEM -0.88% recently held abortive talks over a deal that would have combined the world’s two largest gold producers at a time when they are battling a sharp drop in the price of gold, according to people familiar with the matter.

The two companies had intended to announce a deal as early as Tuesday, one of the people said. They have discussed combining a number of times before, people familiar with the matter have said, and it is possible they could do so again.

The deal talks come as the companies try to adapt to lower gold prices. The precious metal’s futures fell 28% last year—their biggest annual price drop since 1981.

Prices have fallen amid moves by the Fed to wind down its efforts to stimulate the economy. The stimulus steps had been a source of support for gold, which is used by investors as a hedge against the inflation that such efforts can spark.

Merging the companies, which have a combined market value of more than $30 billion, would create a natural-resources giant with mines ranging from Indonesia to Africa and throughout North and South America.

In arguing for the merits of the long-rumored deal, analysts have noted the two miners have neighboring operations in Nevada, the source of about 60% of Barrick’s production, and operations in proximity in both Peru and Australia.

While contending with lower gold prices, a combined Barrick-Newmont would have to grapple with some of the mining industry’s most problematic projects. In Indonesia, for example, Newmont faces a ban on the export of its raw mineral ores as the government looks to force miners to do the lucrative work of refining within the country.

For Barrick, the world’s largest gold producer, the effort to unite with its rival follows one of its toughest years. In February, the Toronto-based company posted a fourth-quarter loss of $2.8 billion after taking an impairment charge for troubled projects, notably its giant Pascua Lama operation, which straddles the border of Chile and Argentina.

The company also slashed its gold reserves by 26%, said it expected lower production in 2014 and cut its capital-spending plans.

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