Newmont Mining (NEM -6.3%) is blaming Barrick Gold (ABX -2.1%) for the collapse of merger talks between the two companies, with NEM Chairman Vincent Calarco saying ABX co-chair John Thornton told him twice last Thursday that the process was "dead."
The latest round of talks appears to have ended acrimoniously, with NEM saying in a letter to ABX that a constructive, respectful relationship did not exist between the two companies, and also did not like that ABX Chairman Peter Munk said in a newspaper interview that NEM was "extremely bureaucratic and not shareholder friendly."
Speculation about a possible hostile bid by ABX could heat up, but Munk has said he would be reluctant because of the potentially large premium he would have to pay.
Peter Munk, stepping down next week as chairman of Barrick Gold (ABX +1.7%), hails the potential benefits of a merger with Newmont Mining (NEM -0.4%), saying investors should welcome the cost cuts and lower political risk that a combination could deliver.
Munk tells FT there are “obviously synergies available” from a potential combination of ABX and NEM, pointing out that the two companies had many assets “cheek by jowl” in Nevada, the top U.S. gold producing state.
Such comments could be an indication the companies are keeping open the possibility of resuming high-level negotiations, although talks would be unlikely to happen before NEM's annual general meeting Wednesday or ABX's annual meeting next week.
Deutsche Bank analysts wonder if the merger report was “a trial balloon... a matter of posturing to allow market participants an opportunity to opine and stock prices time to reflect a merger scenario."
NEM debt maturing in 2042 was the second-most-traded U.S. corporate bond today, with ~$65M of bonds changing hands, trading with a yield of ~5.90% vs. ~6.15% earlier this month; ABX debt maturing in 2043 was yielding 5.64%, down from ~5.80% earlier in the month.
Bonds from investment-grade metals and mining companies have performed well YTD, returning 4.51% vs. 3.59% for investment-grade companies overall.
Newmont Mining (NEM +6%) shares are on the move because of a deal that isn't happening - at least not yet; WSJ reported Friday that NEM was in advanced merger talks with rival Barrick Gold (ABX -3.5%) that had broken down.
J.P. Morgan hopes a deal happens: With overlaps in Australia and Peru plus bigger buying power helping to drive down costs, it thinks the combined entity could claim as much as $3B in savings, improve free cash flows and better service combined debt.
However, Cowen analysts see little benefit for ABX shareholders in such a merger: construction of Donlin, Goldrush, and the completion of Pascua Lama during 2016-19 would require additional balance sheet size, which could be the underlying motivation for a merger, but as with past mergers between the largest gold producers, it does not believe that being the biggest creates significant value for the shareholder.
Cowen analyst Adam Graff approves of the deal as it would help generate some tax savings for AUY in Canada, but he doubts the savings will offset the negative impact of the purchase premium.
Investor Adrian Day says the implied price AUY would pay doesn't look grossly high, but the deal structure, where Yamana will not get control, is unusual; if hostile takeover bidder Goldcorp (GG) comes back with a better offer, he thinks many shareholders will find it easier to wrap their heads around than AUY's deal.
Analysts had not expected another mining company to challenge Goldcorp, and some see a higher bid coming: "They have been chasing this asset for five years and there is no reason they would let it slip through their fingers."
AUY shares -2.2% on the day, but most gold miners gained: OSKFF +7.7%, GG +2%, NGD +4.4%, ABX +4%, AGI +4%, NEM +3.3%, ANV +3.3%, NG +3%, GFI +2.7%, KGC +2.6%.
Barrick Gold (ABX +4.4%) shares spike on rumors the company has been approached by many different buyers about its assets. Shares already were higher after Q4 adjusted earnings came in at a better-than-expected $1.11/share.
Commodity prices are rebounding, but don’t expect megadeals in mining as a new crop of CEOs takes over, WSJ reports. At least 20 mining CEOs have stepped down in the past year, some related to unsuccessful acquisitions, and big deals are unlikely when many CEOs are new to their roles. "There will be M&A but it is likely to be very strategic, brownfield-related and very carefully thought through.”
African Barrick Gold (ABGLF.PK) plummets 21% in London after parent company Barrick Gold (ABX) ends talks to sell the unit, in which it owns 74%, to state-owned China National Gold. Barrick Gold "will only proceed with opportunities that generate acceptable value," CEO Jamie Sokalsky said. African Barrick, which is worth $1.4B, will now conduct a review of its operations in order to improve returns. (PR)
China National Gold moves closer to making a formal offer for Barrick Gold's (ABX -1.1%) 74% stake in its African Barrick subsidiary, FT reports, as detailed price talks are expected to start in the next two weeks. China's appetite for gold seems to be growing: It has imported ~458.6 metric tons YTD to September, 4x the amount it bought from overseas in the preceding year.
China National Gold's look into acquiring African Barrick Gold (ABX) is the latest in a series of moves by the country's producers to fill a supply shortfall - China consumes 800 tons gold/year, but produces just 360. The gold is nice, but there is knowledge too - foreign technology allows drilling 3X deeper than is currently done in China.
Barrick Gold (ABX +0.4%) confirms speculation it's looking to sell its 74% stake in Tanzania-focused African Barrick Gold (ABG), saying it's is in preliminary talks with China National Gold about the asset. Should the latter obtain over 30% of the voting rights in ABG, it would be required to make a full takeover offer. (PR)
Barrick Gold (ABX +1.3%) is working with UBS to explore a sale of its 74% stake in African Barrick, Tanzania's largest gold producer, FT reports, in a move that could trigger an offer for the whole company. China's Zijin Mining may be interested; the report also mentions Randgold (GOLD) and AngloGold Ashanti (AU) as potential suitors.
Kinross Gold (KGC +3.8%) rallies on a report from Veritas Investment that speculates Canadian peer Barrick Gold (ABX) will make an offer. Veritas argues Barrick is motivated to increase its scale at a time when major new gold discoveries are difficult to find, and that the recent drop in Kinross' shares will make the miner amenable to a deal. Stifel thinks Kinross' valuation and growth profile will appeal to Barrick, though Barrick's high debt load makes an all-cash offer unlikely.
The last real hurdle to Barrick Gold's (ABX) $7.5B acquisition of Equinox Minerals falls, as Zambian authorities give an unconditional OK. The country dropped a requirement that its state miner retain a 2.2% interest in Equinox.
Minmetals pulls out of the bidding for Canada's Equinox, its CEO saying "the price offered by Barrick (ABX) is above our most optimistic assessment of value." Equinox closed yesterday at $8.37, above Barrick's $8.15 bid as investors expected Minmetals to try and top it.