Gold mining giants reportedly neared merger, but talks failed

Barrick Gold (ABX) and Newmont Mining (NEM) - the world's two largest gold producers - had hoped to have a merger deal announced as soon as Tuesday, reports the WSJ, but talks have broken down. The talks come after a particularly tough year for the gold miners has them shifting focus from empire-building to cutting costs, and analysts note the two have neighboring operations in Nevada, as well as operations in proximity to each other in Peru and Australia.

The merger would have created a combined company with a market cap of more than $30B.

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Comments (19)
  • PACKER man
    , contributor
    Comments (938) | Send Message
    makes sense and cents!
    19 Apr 2014, 09:55 AM Reply Like
  • economist11
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    Comments (80) | Send Message
    The merger of two struggling gold mining companies would just create on big struggling gold mining company.
    19 Apr 2014, 10:08 AM Reply Like
  • King Rat
    , contributor
    Comments (1904) | Send Message
    If, as many cash-starved railroads did 100 years ago, they merged without consolidating anything, then yes.


    However, if they have learned from the past 100 years, not quite.


    A combined organization that effectively reduced management count and bureaucracy would have a lower fixed cost. That would mean less mining of high cost/low GPT mines at razor thin marginal profit to cover fixed cost. Less production means higher spot prices which is good. What is even better is that gold otherwise sold at 1300 spot today to cover fixed costs could be saved for 10 years from now to be sold at perhaps 2000 spot. Thus the long term value of the mines and thus credit rating would increase and credit risk and therefore borrowing costs decrease.


    I am not long either of these two companies, but in an odd way see the rejection as bullish for NEM. Their ability to reject the deal does not prove but does suggest with confidence that NEM is comfortable with the current market, their strategy for success, and the outlook of their industry.
    19 Apr 2014, 11:33 PM Reply Like
  • james.
    , contributor
    Comments (1395) | Send Message
    I agree 100%. Well said ! 4-20-14.
    20 Apr 2014, 12:55 PM Reply Like
  • maxflatus
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    Comments (8) | Send Message
    We can go down in flames together.
    19 Apr 2014, 10:51 AM Reply Like
  • techy46
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    Comments (12668) | Send Message
    Great! Doubling the problems would not solve the problems but there could've been some real cost cutting considering the proximity of their properties. They'll both need to hunker down and stick with a lower cost and production mode until the future of gold prices becomes clearer.
    19 Apr 2014, 11:15 AM Reply Like
  • james.
    , contributor
    Comments (1395) | Send Message
    The P&F Chart for GLD has a Price Objective of 169, which is equivalent to $1760 per oz Gold price; I used a widely available Software Package to get this result with my selection of a 1.2% Box Size for best accuracy. Moreover, $1760 per oz is only the 1st Leg-Up within this ongoing 3rd Leg Super Cycle which will carry Gold price to new all-time highs of $2700 per oz circa May 2015. Using Jason's Ratio Plot of HUI/(Gold price) that he recently published on his website as per his article on, that Ratio will rise to at least 0.25 as Gold price rises to $1760 per oz; thus HUI = 445 at that time, which implies NEM = $45 per share then. At Gold price of $2700 per oz, that Ratio will be at least 0.33, and thus HUI = 900 and NEM will be over $90 per share then, and paying a Dividend over $3 per share. Look to it !
    This historic ongoing Gold Bull Market started at $253 per oz circa 2000, and then completed a normal 50% Bull Market correction to its 2nd Leg-Up-Super-Cycle in Dec 2013 when Gold price did Double-Bottom at $1186 per oz. 4-19-14 at 12:40 pm PDT.
    19 Apr 2014, 03:41 PM Reply Like
  • TDWelander
    , contributor
    Comments (624) | Send Message
    To techy46. If Newmont and Barrick Gold where really smart, they would figure out where they could share resources on adjacent properties, placing a cost on that sharing to reduce each companies over all costs.


    The obvious costs sharing to me are: top management, the geologists, commonizing mining equipment and security; especially since adjacent ore bodies likely require the same or similar mining methods. Trading a few less obvious operating synergies, maybe even some trade secrets and/or patent rights, might save both firms real money.


    Individually, these functional areas may not be much. But together, would likely be a noticeable cost saving.


    Where the line is between vertical integration and what the government calls collusion is a moving target. The attorneys would probably working over time on this one eating up at least some of the cost savings.


    These thoughts seemed worth sharing at any rate.
    21 Apr 2014, 12:36 PM Reply Like
  • James1870
    , contributor
    Comments (9) | Send Message
    Brilliant idea... it seems that it is Newmont which is resisting reality. Why?
    19 Apr 2014, 03:06 PM Reply Like
  • Herbert Samuel Jennings
    , contributor
    Comments (299) | Send Message
    I couldn't open the WSJ...but I'll make a wild guess at why NEM would resist: The allocation of shares must be balanced according to value, and NEM's market cap has arguably been lowballed because of its 2 stalled operations (Peru, Indonesia) which are (hopefully) about to come back online. The terms of a lowball merger could cause shareholder lawsuits. Therefore it could make better sense for NEM to delay merging, and bring its operations online first.
    19 Apr 2014, 11:43 PM Reply Like
  • Patent News
    , contributor
    Comments (1475) | Send Message
    Newmont does not want to lose control to cut costs. It would be a net win for both shareholder if costs can be cut and excessive salaries for both companies can be cut by 50% or more.
    19 Apr 2014, 04:39 PM Reply Like
  • 11146471
    , contributor
    Comments (1397) | Send Message
    This merger could be a true catalyst for the future price of gold. These two miners combined powers could drive gold price to much higher price!
    19 Apr 2014, 05:54 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13623) | Send Message
    It also makes a bigger target for organized labor protests. Even as gold drops demands for wages increase and mining cost skyrocket. In reality, gold miners must go to governments and let them know, if you want us to mine more (even though there's plenty for electronics and jewelry for decades if not centuries in vaults) you must guarantee to buy it at a given price because, in the end its government demand that requires the heavy mining not industry.


    Strangely enough, it is also government that leads it out and tries to crash the price regularly as well (presumably to create the impression of low inflation and/or buy it all back cheaper).
    19 Apr 2014, 10:18 PM Reply Like
  • King Rat
    , contributor
    Comments (1904) | Send Message
    Moon Kil Woong, you often have really good points and I enjoy reading your comments. However when it comes to labor, these two companies have mines far apart in different jurisdictions, nations, and continents. Each mine has its own labor and each labor has its own unique needs, cultures, languages, and values. Other than having the same employer, there is little to unite the various labor groups.
    19 Apr 2014, 11:39 PM Reply Like
  • TDWelander
    , contributor
    Comments (624) | Send Message
    To Moon Kil Woong. Ignoring the figurative 600 pound gorilla in the room,
    the 99% problem; or the joy in the case of gold holders and gold company
    stock holders is the larger than ocean size fiat currency floating around on the Earth; especially the U.S. Dollar; though it is not alone.


    Gold will never, never, never; at least in our life times; be without demand sources. There will always be people, organizations, or governments more than happy to trade their currency for gold and other precious metals nearly any time; except during an upward price spike. And you can bet they watch the markets close enough to know exactly when that is.
    21 Apr 2014, 12:48 PM Reply Like
  • blueice
    , contributor
    Comments (4179) | Send Message
    I approve of this merger, as long as they call
    the new company either United or General Gold Corp.
    20 Apr 2014, 09:17 AM Reply Like
  • Drumstar
    , contributor
    Comments (27) | Send Message
    I believe that the biggest take away from this news is that Newmont is confident in its current restructuring strategies; and, as it was mentioned, their stock price is so dramatically depressed from historic averages, that they would not and could not get a fair value in a merger. What is more surprising to me is that I haven't heard of any other major gold players merging or going bankrupt. I had been hoping for that to help my long Newmont position. Now, I'm mostly hoping for gold to push back over $1,300 and stay there. That will help Newmont and the rest make their companies whole again.
    20 Apr 2014, 10:03 AM Reply Like
  • james.
    , contributor
    Comments (1395) | Send Message
    The P&F Chart for GLD has a Price Objective of 169, with my selection of Box Size = 1.2% on a widely available Software Package; when GLD = 169 , then Gold price = $1760 per oz. Gold is now rising up on its 3rd Leg Super Cycle to new all-time highs of $2700 per oz circa May 2015. The Ratio Chart of HUI/(Gold price) published by Jason recently on his website does imply the Ratio will rise to 0.25 when Gold price = $1760 thus yielding xx:HUI = 445 and NEM = $45 per share; then when Gold price = $2700 per oz, Ratio likely to be at least 0.33 , thus giving HUI = 900 and NEM at least $90 per share and its yearly Dividend over $3 per sh. Look to it !
    This ongoing historic Gold Bull Market started at $253 per oz circa 2000, and then completed a normal 50% correction to its 2nd Leg Super Cycle in Dec 2013 when Gold price did Double-Bottom at $1186 per oz. 4-20-14.
    20 Apr 2014, 01:06 PM Reply Like
  • Jason Burack
    , contributor
    Comments (2164) | Send Message
    This would have been a huge disaster! In mining, bigger does not mean better!
    20 Apr 2014, 07:32 PM Reply Like
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