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Goldcorp saga to end in mega-merger

New Barrick-Newmont joint venture in Nevada will not impact proposed merger between Newmont-Goldcorp
Goldcorp’s Borden mine is among the company’s Canadian properties. The mine and other Goldcorp assets will change hands under a merger with U.S.-based Newmont Mining Corp. | submitted

(Editor’s note: The online version of this story has been updated to reflect the latest development in Barrick’s hostile takeover bid for Newmont.)

In one of the largest mining mergers in recent history, Newmont Mining Corp. (NYSE:NEM) will absorb B.C.’s second-largest mining company, Goldcorp (NYSE:GG; TSX:G) in April, to create the world’s largest gold mining company.

That’s provided shareholders for the two companies approve the US$10 billion offer, and Barrick Gold Corp. (TSX:ABX).

Newmont is offering US$10 billion to acquire Goldcorp, which has a market cap of US$9 billion. The offer represents a 17% premium.

After the merger, Newmont COO Tom Palmer will replace departing CEO Gary Goldberg as Newmont’s new CEO. Goldcorp chairman Ian Telfer will become Newmont’s deputy chairman.

Newmont’s headquarters will remain in Colorado, while Goldcorp’s Vancouver headquarters office, which employs 160 people, will become Newmont’s regional office for North American operations.

Goldberg recently told analysts that the merger would result in $265 million annually in “synergies” and operational savings, about $100 million of which would come from job rationalization.

It is speculated that the elimination of redundant positions and a sell-off of some assets could come at Goldcorp’s expense. Newmont confirmed it is looking at $1 billion to $1.5 billion in divestitures post-merger, but that could include both Goldcorp and Newmont assets.

There could be short-term losses for Vancouver, but a long-term gain for its junior mining sector, said Rick Rule, president of Sprott U.S. Holdings, who predicted the merger in November, although he characterizes it more as a takeover.

In November, Rule told BNN Bloomberg that Goldcorp had good assets, but it had underperformed operationally, setting itself up for a takeover.

He said a recent merger between Barrick and Randgold Resources had set the tone for other big mergers and takeovers, as gold miners come under pressure to put together bigger and “more liquid entities.”

Goldcorp’s poor third-quarter financials, which reported a $101 million net loss, were worse than analysts had expected, Rule said, which made Goldcorp ripe for acquisition.

“My sense is that, within 12 months, the company will have a new symbol,” Rule predicted in November.

Sure enough, in mid-January, Newmont announced its US$10 billion offer.

“This isn’t a merger – this is a takeover,” Rule told Business in Vancouver. “This is a company with five Tier 1 assets taking over a company with one Tier 1 asset.”

The merger would make Newmont the largest gold mining company, something Barrick appears not to like much, since it already held that title, even before its US$6 billion takeover of Randgold.

Two weeks ago, Barrick announced a US$18 billion hostile takeover bid for Newmont. That’s less than Newmont’s market value.

“I don’t think it’s a serious offer,” Rule said. “It’s a take-under. You don’t offer under market if you really want to succeed.”

Newmont’s outgoing CEO said the board will consider Barrick’s offer, but he doesn’t seem to be taking it very seriously.

Goldcorp shareholders will vote on the Barrick offer in early April. Rule thinks there will be some short-term losses for Goldcorp’s head office, and that Newmont may sell off some of Goldcorp’s assets, which would be good for B.C. junior miners.

“It isn’t so good in the near term for the people who lose their jobs,” Rule said. “Longer term, my suspicion is it’s even good for them.”

He points to what happened when Placer Dome was acquired by Barrick. Junior miners picked up some of the assets that got pieced off, as well as some of its talent to create new companies.

“In Vancouver I see this great surge in mergers as being hugely beneficial for the juniors,” he said. “I see these people having the ability to lavish extra care and attention on properties that, while they’re not top-tier properties, could really benefit some of the more efficient Vancouver juniors.”

While there will be some job rationalization in Vancouver, there will also be gains, since Newmont plans to move its North American operations office from Nevada to Vancouver.

It also spends more on exploration than Goldcorp has, and Newmont sees opportunities to increase the exploration spend on some of Goldcorp’s development projects, most of which are in Canada.

“That regional office out of Vancouver will be responsible for all of the operations and projects and reserves and exploration in North America,” said Omar Jabara, Newmont’s corporate communications executive. “It will be responsible for roughly three million ounces of the companies’ combined production, which I believe is more than Goldcorp’s current production.

“Our exploration team is very eager to get up there and begin investing in exploration on those properties to see what additional value they can find, because we see there’s a lot of value that’s gone untapped and unexplored.”

All of Goldcorp’s seven operating mines are in the Americas – four in Canada and one each in Mexico, the Dominican Republic and Argentina. It also has five development projects in Canada and two in Chile.

Newmont is the larger company, with three mines in the U.S., three in Australia, two in South America and two in Africa.

In a presentation to analysts last week, Goldberg dismissed Barrick’s negative premium offer, characterizing Barrick’s new management as inexperienced and Randgold’s shareholder returns as “anemic.” Barrick CEO Mark Bristow returned fire by calling Goldberg “a loser.” 

Despite that heated rhetoric, the two companies managed to sit down and hammer out a new agreement.

Barrick and Newmont announced March 11 that they have agreed to enter a new joint venture that will combine their respective mines and talent in Nevada. That will result in an estimated $500 million in “synergies,” the companies said in a joint release.

As a result of the new joint venture, Barrick has withdrawn its takeover bid for Newmont.

The new Barrick-Newmont joint venture in Nevada will not have an impact on the Newmont-Goldcorp merger, which is going ahead as planned, with special shareholder meetings being set for April.

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