According to the Wall Street Journal, merger talks between Barrick Gold Corporation (ABX) and Newmont Mining Corp (NEM) recently took place, but broke down over minor disagreements with hopes of a revival of talks in the future. This is the third time that Barrick Gold has tried to acquire Newmont Mining, failing before in 2008 and 2010.
The two largest producers of gold in the world had agreed to an all-stock merger and planned to disclose the deal this week. Barrick Gold was willing to offer Newmont Mining’s shareholders a premium of 13% to Newmont’s average stock price in the last 20 days before the deal, according to people aware of the matter. Talks of a possible deal between the two companies – which have a combined market value of $33 billion – broke down after they were unable to agree to terms related to a spinoff of Australian and New Zealand assets.
Both companies had also identified $1 billion per year in cost savings, mainly from operations in Nevada, which contributes around 60% of Barrack Gold’s total production.
Under the proposed new plan, the new entity’s CEO would have been Gary Goldberg, who is currently Newmont’s CEO. Barrick Gold’s co-chairman John Thornton would have taken the position of executive chairman in the would-be company.
In the past, both companies have made large acquisitions. Barrick Gold’s largest acquisition was the $10.4 billion takeover of Canadian gold miner Placer Dome Inc. back in 2006. Newmont Mining took over Australia’s Normandy Mining Ltd. and its biggest shareholder, Canada’s Franco-Nevada Mining Corp., for $4.4 billion 12 years ago.
Negotiations of a possible deal come at a time when both companies are currently battling declining gold prices. The SPDR Gold Trust (ETF) (GLD), which tracks the movement of one-tenth of an ounce of gold, lost 28% of its value last year. This was the second-largest decline in gold prices since 1981. Gold prices have recovered since the start of the year though. The value of the gold exchange-traded-fund has appreciated 8.1%, while the share prices of Barrick Gold and Newmont Mining have risen by 5% and 2.7%, respectively.
Overall, companies in the mining industry are heading for consolidation through mergers and acquisitions. In the past week, gold companies Yamana Gold Inc. (AUY) and Agnico Eagle Mines Ltd (AEM) had agreed to buy Osisko Mining Corporation for $3.5 billion, better than the offer from Goldcorp Inc. (GG). Glencore Xstrata plc (GLNCY) had also agreed to sell its Las Bambas copper project in Peru to a Chinese consortium for $5.85 billion in an all-cash deal.
We have done a thorough investment analysis of Barrick Gold, and are bearish on the company. Moreover, out of the 34 analysts covering the Toronto-based company, just eight analysts have given a Buy rating, while 21 have given the stock a Hold rating.
The average of the 12-month target price given by these analysts is $20.93, which translates into an upside of 16.4% from Thursday’s closing price of $17.98.
Newmont Mining is currently covered by 25 analysts on the Street. Only three analysts have given the stock a Buy rating, while 15 rate it as a Hold. The average 12-month target price of the Greenwood Village, Colorado-based company is $25.45, which is an upside of 8.1% from Thursday’s closing price of $23.54.