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Morningstar | Barrick Confirms That It Explored Acquiring Newmont, Which Is Currently Acquiring Goldcorp

After Newmont’s 2018 earnings announcement on Feb. 21, multiple news sources, including The Globe and Mail, reported that Barrick Gold had considered acquiring Newmont. Barrick, which just recently completed the $6 billion acquisition of Randgold on Dec. 31, issued a press release on Feb. 22 confirming the news that it explored an “all-share nil premium transaction” for Newmont (which is acquiring Goldcorp). Newmont shares trade roughly in line with our fair value estimate, so if a transaction were to occur, we think Barrick would be paying fair value.

Given the speculative nature of the news so far, we’re leaving our fair value estimates unchanged, with Barrick at $12 and CAD 16 per share. Newmont’s fair value estimate of $38 per share and Goldcorp’s fair value estimates of $11 and CAD 14.50 per share assume that their merger will close as announced in the second quarter. All companies retain their no-moat ratings.

This isn’t the first time that a Barrick-Newmont merger was explored. The last attempt was in 2014, when the companies broke off talks days before the expected announcement, with both companies issuing rarely seen biting press releases that blamed the other for the abandoned transaction.

The merger strategy has always made some sense. The companies’ overlapping assets in Nevada could realize some synergies through a combination, and the merger could allow the combined company to cherry-pick the best assets out of both portfolios and divest the others. Furthermore, 2014’s Barrick is very different from 2019’s. The late founder and then co-chairman Peter Munk was still at Barrick’s helm, and Newmont had cited a media quote from him in its press release after talks fell apart. Today’s Barrick is under different leadership, so cultural differences are a lot less likely to arise than five years ago.

However, a new challenge exists, with Newmont in the process of acquiring Goldcorp. Newmont Goldcorp would be the largest gold miner in the world, producing 7 million to 8 million ounces annually at all-in sustaining costs of more than $900 per ounce. After its acquisition of Randgold, Barrick will produce 4 million to 5 million ounces annually at AISC of roughly $900 per ounce. Given size differences, Barrick would likely need to get Newmont to cancel its acquisition of Goldcorp and pay the $650 million break-up fee. Attempting to acquire Newmont Goldcorp would leave Barrick as the smaller owner in the combined company, and we would be surprised to see Barrick Chairman John Thornton enter a deal that could threaten his control of the combined company.