Barrick Gold's Pueblo Viejo gold mine in Cotui, Dominican Republic. The Toronto-based miner is considering an IPO for North American mines including its Pueblo Viejo operation.Ricardo Rojas/Reuters
At the risk of spoiling what promises to be a blockbuster corporate drama, Barrick Mining Corp. ABX-T is going to end up merging its North American operations with those of rival Newmont Corp. NGT-T
It’s the end game the mining crowd has been predicting ever since Barrick dropped a hostile bid for Newmont six years ago.
Monday’s announcement that Toronto-based Barrick is considering an initial public offering of top-tier properties in Nevada and the Dominican Republic is simply a sign the miner’s board, led by deal-making chair John Thornton, is determined to negotiate a potential agreement from a position of strength.
Since Barrick and Denver-based Newmont struck a truce in 2019, Barrick’s valuation has suffered compared with that of its peers. The miner faced operational issues and the perceived risk of owning mines in countries such as Mali, Tanzania and Pakistan, where there is only passing acknowledgment of the rule of law.
With its stock performance lagging, any deal discussions started with Barrick’s leaders playing a weak hand.
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Monday’s decision to embrace an IPO would create a Barrick-controlled subsidiary with roughly US$47-billion of assets, all in politically stable jurisdictions.
This is a deft piece of financial engineering meant to boost the miner’s valuation. Shareholders such as Elliott Investment Management, which owns a $1-billion stake in the miner and has been pressing for such a move, are being heard.
Barrick’s math is simple. The IPO would create a company that owns a 61.5-per-cent stake in subsidiary Nevada Gold Mines, a 60-per-cent holding in the Pueblo Viejo mine in Dominican Republic and 100 per cent of the promising Fourmile project in Nevada.
Newmont owns the remainder of both Nevada Gold Mines and Pueblo Viejo, in part owing to previous takeovers that Barrick unsuccessfully tried to block.
Barrick’s spin-out of what analysts are calling NewCo would trade at 1.2 times the value of its US$46.5-billion in assets, said Josh Wolfson at RBC Capital Markets in a report. In contrast, the company’s legacy mines in Africa and Asia would change hands at 0.8 times their asset value. Those assets would remain with parent Barrick.
The IPO could boost Barrick’s stock price by 20 per cent, according to analysts. And in a spoiler alert, Mr. Wolfson said: “Newmont could still maintain an interest in consolidating Barrick’s NewCo, given its high existing ownership of Barrick’s NewCo assets.”
Other mining experts reached the same conclusion.
“The logic behind an IPO would be to unlock value of the North American assets, which the company believes are undervalued in the broader portfolio,” said analysts Alexander Hacking and Steven Stroup at Citigroup in a report. “In addition, it would provide a market-based valuation should Newmont want to consolidate these assets.”
In 2014, Barrick and Newmont held takeover talks that ended in acrimony. The two sides couldn’t agree on who would run the show.
Barrick tried again in 2019, making a hostile bid that failed after Newmont pointed to its potential buyer’s “poor track record on delivering shareholder returns and unfavourable jurisdictional risk.”
In September, that poor track record led Barrick to cut ties with chief executive officer Mark Bristow. At the time, Mr. Thornton, former president of Goldman Sachs Group Inc., said the board was committed to finding a new CEO who could “fully capitalize on Barrick’s world-class assets and capabilities.”
The same day Mr. Bristow departed, Newmont announced CEO Tom Palmer planned to retire on Dec. 31 after six years at the helm.
Newmont’s new CEO is Natascha Viljoen, who served as chief operating officer for the last two years and was previously CEO of Anglo American Platinum, the world’s largest platinum producer.
Barrick is still looking for a new CEO. Interim boss Mark Hill is overseeing the IPO process and expected to update shareholders when the miner reports financial results in February.
By the time Barrick finishes its work on a possible IPO this winter, it should have a new leader. That CEO will have the muscle that comes from owning a NewCo that ranks among the world’s five largest gold producers and holds controlling interests in its key North American mines.
Across the table, Ms. Viljoen will be looking for a reason to justify the Newmont’s board’s decision to give her the top job. Neither newly minted CEO will be burdened by the legacy of more than a decade of poisonous takeover talks.
There will be all sorts of action before the final scene in this movie. However, the ending has to feature Barrick and Newmont setting aside bad blood and combining their operations.