Report
Kristoffer Inton
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Morningstar | Newmont and Barrick Agree to Nevada Joint Venture, Ending Barrick’s Unsolicited Bid

Following Newmont’s rejection of Barrick’s unsolicited acquisition and proposed alternative for a joint venture of their Nevada assets on March 4, the two senior gold producers formally agreed to and announced their joint venture agreement. Based on consensus net asset values for the contributed assets, Barrick will own 61.5% of the joint venture while Newmont will own 38.5%. The difference in ownership from Newmont’s initially proposed ownership split of 55% Barrick and 45% Newmont stems from the exclusion of Newmont’s Cripple Creek & Victor mine.

Barrick will contribute Goldstrike, Cortez, Turquoise Ridge, Goldrush, and South Arturo, while Newmont will contribute Carlin, Twin Creeks, Phoenix, Long Canyon, and Lone Tree. Barrick’s contributions are more valuable and establish its larger ownership in the joint venture. This also gives Barrick operational control of the operator of the joint venture as well as three board seats governing the joint venture compared with Newmont’s two seats. Finally, Barrick also agreed to withdraw its unsolicited bid for all of Newmont. As a result, Newmont will continue to pursue the completion of its acquisition of Goldcorp independent of the joint venture announcement.

Based on the estimated synergies and announced ownership splits, we’ve raised Newmont’s fair value estimate to $40 per share from $38 and Barrick’s fair value estimates to $14 per share and CAD 19 per share from $12 and CAD 16, respectively. We continue to expect Newmont’s acquisition of Goldcorp to close, so our Goldcorp fair value estimates of $11 and CAD 14.50 are unchanged. All three companies’ no-moat ratings also remain intact.

The companies reaffirmed the $4.7 billion net present value of synergies that Barrick had included in its initial bid, although the figure is subject to change as operation of the assets in unity progresses. Based on ownership percentages, this results in $1.8 billion net present value attributable to Newmont shareholders and $2.9 billion net present value attributable to Barrick shareholders. Annual run-rate synergies of $500 million comprise about 20% of the combined direct production cost of the assets, which doesn’t include savings on capital equipment that can be shared. Due to the proximity of the mines included in the joint venture, the synergy targets and net present value seem reasonable.
Underlying
Goldcorp Inc.

Goldcorp is a gold producer engaged in the operation, exploration, development and acquisition of precious metal properties in Canada, the United States, Mexico, and Central and South America. Co.'s metal properties consist of gold, silver, copper, lead and zinc.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Kristoffer Inton

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