May 17, 2020

Inside Look: Why the Barrick-Newmont Deal Collapsed and How it Could of Been Avoided

Newmont Mining
Barrick Gold
Merger
Acquisition
Admin
5 min
Barrick Gold
Why the biggest merger of all-time fell apart and how can future companies can avoid it from happening to themThe merger between Newmont Mining and Barr...

Why the biggest merger of all-time fell apart and how can future companies can avoid it from happening to them

The merger between Newmont Mining and Barrick Gold was said to be all but done. Both companies had agreed upon terms and were reportedly in the final stages of agreements. Then in the blink of an eye it all ended. Days later war of words broke out with finger pointing occurring on both sides to why the deal wasn’t going to happen.

It was going to be the biggest deal in history for the mining industry; combining two of the world’s largest gold mining companies into one powerhouse. The possibilities were endless for the companies, including a potential $1 billion in cost savings. So why did the merger discussions fail?

Clash of personalities

The two firms have tried numerous times over the years to merge, going back at least as far as 1991. Under the now-abandoned proposed terms, the merged companies were set to spin off their assets in Australia and New Zealand. That move would have allowed the companies to focus on their most productive assets in Nevada as well as squeeze the most synergies, while offering investors the choice to participate in a separate company.

For a marriage to be successful, both parties have to consent. In the proposed marriage between Barrick Gold and Newmont Mining, the two parties could not find common ground.

The merger talks didn’t work out because two companies could not agree on how the combined business would run. According to Barrick Gold, Newmont had reneged on three key elements to the proposed deal: a Toronto headquartered company, the composition of the combined company and the roles of the chairman, chief executive officer and lead director.

On April 28, Barrick Gold released a press release stating that merger talks between the two gold giants were over. Barrick’s outgoing Chairman Peter Munk openly criticized Newmont, claiming that the company is “not shareholder friendly.” The actions by Munk were very antagonizing towards Newmont’s board, especially when the two companies are negotiating a partnership.

Newmont then released a letter it sent to Barrick co-chairman John Thornton and the company’s board of directors.

"While our team has found your management team's engagement to be constructive and professional, the same constructive nature cannot be said of our discussions with your co-chairman on certain fundamental strategic and structural issues over the past two weeks," Newmont chairman Vincent Calarco wrote.

"Our efforts to find consensus have been rejected out of hand repeatedly. And, as we contemplated further dialogue, we read in the continuing reporting of the transaction in the financial press a pointed characterization of our company as 'extremely bureaucratic and not shareholder friendly.' Nothing could be further from the truth."

A difference in culture also played a role in the collapse. Barrick Gold is well-known for being a very aggressive company by nature. Throughout its history, it has not shied away from big acquisitions in its effort to grow. On the other hand, Newmont is very much more conservative. The company does not engage in the same level of empire building.

The failure of the Barrick/Newmont deal demonstrates that clashing personalities and a difference in company culture can destroy a transaction that seemingly makes sense in every other way.

How to avoid failure

Successfully implementing a merger is not easy. Roughly two in three mergers and acquisitions don’t succeed.

"I like to tell my clients that you can learn lessons from successful transactions, from failed transactions, from any transaction," says Fentress Seagroves, a principal with PricewaterhouseCoopers' transaction services group, which advises on merger and acquisition strategy. "All will raise different challenges."

To maintain and complete a successful merger, companies must have three common traits: a disciplined corporate strategy, a thorough due-diligence process and attention to transitional risk.

"Failure in a transaction is often created by the lack of a disciplined approach," Seagroves says. "You have to do the same amount of research in an acquisition as you would trying to grow it organically."

"Spend a lot of time on how the contract can create protections for you," Seagroves says. "You have to be sure all those things you planned in the beginning--why this is a strategic fit--actually happen. These aren't things you start thinking about at close."

Once you’ve negotiated a deal and signed the papers, the work isn’t done.

"In a lot of ways, that's just the beginning," Seagroves says, noting that a successful transaction requires planning, even for the unexpected, like losing key employees or customers. "It's very hard to change a business effectively if you don't know what you're going to be up against, post-close."

No matter what, one fact will always remain true about mergers: they are very difficult to implement. 

What's next? 

Although the merger between Newmont Mining and Barrick Gold didn’t pan out, some analysts remain optimistic the two sides will eventually reach one. Both companies are in dire need of bringing down their all-in sustaining costs and the deal would greatly benefit investors of both companies.

However, mergers often have more to do with glory-seeking than business strategy. One of the major driving forces behind mergers and acquisitions is ego, which are typically bolstered after buying the competition. Another driving force behind failed mergers can be fear. Uncertain outlook and factors all play a role in the diminishing of a potential

For a successful merger to happen, both companies should 100 percent agree on: financial compatibility, cultural compatibility, equal market opportunities, and systems and infrastructure. Focusing on these four main areas should enable companies to conduct their due-diligence and successfully complete their deals.

And while it’s a mistake to assume that personnel issues are easily overcome, it’s a necessity for any business to grow.

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May 7, 2021

Lithium producers bullish as EV revolution ramps demand

Lithium
Electric Vehicles
Albemarle
SQM
3 min
Lithium producers are drawing optimism from rising prices for the electric vehicle battery metal

Rising demand for lithium is stoking prices for the electric vehicle battery metal, fueling long-delayed expansions that still may not produce adequate supplies that automakers need to meet aggressive production plans.

Lithium

Growing industry optimism from higher lithium prices is a change from last year when funding for mines and processing plants dried up during the pandemic.

Albemarle Corp, Livent Corp and other producers are scrambling to make more lithium, but some analysts worry the recent price jump will not spur a big enough expansion to meet a planned wave of new EV models by mid-decade.

Since January, General Motors Co, Ford Motor Co LG Energy Solution and SK Innovation Co, along with other automakers and battery parts manufacturers, have said they will spend billions of dollars on EV plants.

U.S. President Joe Biden has proposed spending $174bn to boost EV sales and infrastructure. The European Union has similar plans, part of a rush to catch up with global EV leader China.

Those moves have helped an index of lithium prices jump 59 percent since April 2020, according to data from Benchmark Mineral Intelligence, a commodity pricing provider.

The rising demand “reflects what feels like a real and fundamental turning point in our industry,” said Paul Graves, chief executive of Livent Corp, which supplies Tesla Inc. On Monday, it said it would more than double its annual lithium production to 115,000 tonnes.

Graves warned, though, that “it will be a challenge for the lithium industry to produce sufficient qualified material in the near and medium term.”

Albermarle

Albemarle, the world’s largest lithium producer, aims to double its production capacity to 175,000 tonnes by the end of the year when two construction projects are complete. Albemarle's Q1 profit beat expectations thanks to rising lithium prices. Chile’s SQM, the No. 2 producer, said its goal to expand production of lithium carbonate by 71 percent to 120,000 tonnes should be complete by December.

Australia’s Orocobre is paying $1.4 billion for smaller rival Galaxy Resources, a strategy designed to boost scale and help it grow faster in regions closer to customers.

“The next few years are going to be critical in terms of whether there’s enough available lithium supply, and that’s why you’re starting to see commodity prices start to ramp,” said Chris Berry, an independent lithium industry consultant.

The price gains helped Albemarle and other major producers, including China’s Ganfeng Lithium Co and SQM, post big gains in first-quarter profit and boost forecasts for the year.

Even China’s Tianqi Lithium Corp, saddled with debt due to years of low lithium prices, signaled that recovering demand should help it swing to a profit this year.

Electric Vehicles

Forecasts call for demand for the white metals to surge from about 320,000 tonnes annually last year to more than 1 million tonnes annually by 2025, when many automakers plan to launch new EV fleets, according to Benchmark.

Still, demand is expected to outstrip supply in 2025 by more than 200,000 tonnes, so lithium prices may need to rise to encourage producers to build more mines. That could boost the prices consumers pay for EVs. “Companies across the lithium-ion supply chain are in the best position they’ve been in for the last 5 years,” said Pedro Palandrani of the Global X Lithium & Battery Technology ETF , which has doubled in value in the past year.

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