April 21 (Bloomberg) -- Talks to merge the world’s biggest gold-mining companies, Barrick Gold Corp. and Newmont Mining Corp., broke down three days ago amid minor disagreements that leave open the possibility that a deal could be revived, two people with knowledge of the matter said.
The companies had agreed to an all-stock merger and planned to announce the deal this week, the people said, asking not to be identified discussing private information. Barrick was to offer Newmont shareholders a premium of 13 percent more than Newmont’s average share price over the latest 20 trading days, one of the people said.
The companies had agreed to all terms not related to a spinoff of Australian and New Zealand assets, the person said. They’ve identified $1 billion a year in cost savings, mostly from their mines in Nevada, the people said. Toronto-based Barrick and Newmont of the U.S. have a combined market value of about $33 billion and operate on five continents. The merger talks follow gold’s 28 percent plunge in 2013, the most in three decades, which squeezed profits and spurred at least $30 billion of writedowns by producers.
The merger plan hit a snag only when Barrick and Newmont failed to come to a complete agreement on which mines to include in the spinoff, the people said. Unable to finalize a deal before a self-imposed deadline today, the companies instead agreed to call off the plan for now, they said.
Both companies wanted to have a deal announced before their annual meetings, the people said. Newmont’s meeting is scheduled for April 23 and Barrick’s for April 30. The two have tried to merge several times in the past and still have interest in getting a deal done, the people said.
Spokesmen for Barrick and Newmont both declined to comment on the merger talks. The breakdown in the latest talks was first reported by the Wall Street Journal.
Newmont rose 6.4 percent to $25.05 at the close in New York, the biggest increase since Sept. 18, while Barrick fell 3.9 percent to C$19.03 in Toronto.
The success of the latest potential merger would depend on the value of the spinoff and the enlarged company achieving the envisaged cost savings, Greg Barnes, an analyst at TD Newcrest Inc. in Toronto, said in a note.
“Without the savings, we see little merit in merging the two companies since production growth would remain challenging and the combined balance sheet would carry significant net debt,” he said.
Under the most recent merger plan, the combined company’s chief executive officer would have been current Newmont CEO Gary Goldberg, while Barrick Co-Chairman John Thornton would have been executive chairman, the people said. Newmont Chairman Vince Calarco was slated to become a lead director of the new company, while Barrick CEO Jamie Sokalsky was to run the new spinoff.
The combined company would have been based in Toronto while keeping an operating headquarters in Colorado, where Newmont has its head office, according to the people.
The purchase of Newmont would have been a dramatic final move by Barrick founder and Chairman Peter Munk, who is due to retire at the April 30 shareholders meeting. He will be succeeded by Thornton, a former Goldman Sachs Group Inc. president.
Munk, 86, has pursued big deals in the past, including Barrick’s 2006 acquisition of Placer Dome Inc. for $10.2 billion, which made it the biggest gold producer in the world. That deal remains a record for the gold industry.
Barrick and Newmont held merger talks in 1991 and 2000, according to the book “Going for Gold: the History of Newmont Mining Corporation” by Jack H. Morris. Further discussions had taken place since 2009, a person with knowledge of the discussions said in September.
Based on the latest discussions, the merged company would have a 14-person board comprising seven people from Barrick, five from Newmont and two new directors, one of the people said.
Talks could resume as soon as today, though no agreement is likely before Barrick’s annual meeting, with the company due to gain new directors who would then have a chance to weigh in on a deal, the people said.
Both companies have made leadership changes in the past two years. Barrick CEO Jamie Sokalsky was promoted from chief financial officer in 2012 while Goldberg, who joined Newmont about two years ago, became CEO in March 2013, replacing Richard O’Brien. Sokalsky is a 20-year veteran of Barrick, while Goldberg worked at diversified miner Rio Tinto Group before he joined Newmont as chief operating officer.
Argentina to Zambia
Barrick operates mines in Argentina, Chile, Canada, Australia, the Dominican Republic, Papua New Guinea, Peru, the U.S. and Zambia. It also owns 64 percent of African Barrick Gold Plc, a producer in Tanzania that was spun out of Barrick in 2010, and has a stalled mine in Saudi Arabia. Newmont operates in the U.S., Australia, Peru, Indonesia, Ghana, New Zealand and Mexico.
Barrick and Newmont already jointly own the Turquoise Ridge mine in Nevada, with Barrick controlling 75 percent. They are also 50-50 partners in the Kalgoorlie mine in Australia.
The companies both produce more than a third of their gold in Nevada, from which they originally built out their businesses, and where Sokalsky has described the miners as “next-door neighbors.”