Newmont, Barrick End Merger Talks: What Went Wrong?
Disagreements and accusations causes gold mining giants to terminate talks of $13-billion merger
Merger talks between Barrick Gold Corp. (ABX) and Newmont Mining Corp. (NEM) have collapsed after Barrick accused its American rival of going back on its deal and changing key provisions.
According to Barrick Gold, the two companies had agreed to terms April 8, including economic and governance matters, only to see Newmont renege three key elements of the deal: a Toronto-headquartered company, the composition of the combined company and the roles of the chairman, chief executive officer and lead director.
The Denver-based company said a firm deal hadn’t been reached and blamed Barrick’s co-chairman John Thornton for making a “unilateral declaration” that the talks were over. In a letter to the Barrick board April 25th, Newmont Chairman Vincent Calarco wrote that Thornton had twice told the Nevada-based company their merger talks were “dead.”
“It has become evident to us over the past several weeks that the type of constructive, mutually respectful and partnership-oriented relationship necessary to realize the potential benefits of that combination does not yet exist,” Calarco wrote to Barrick’s board and Thornton.“Our efforts to find consensus have been rejected out of hand repeatedly.”
“None of this suggest that we have the mutual respect or shared values today,” the Newmont letter said. The efforts to reach a consensus with Thornton were “rejected out of hand repeatedly.”
Under the terms of their latest proposal, Barrick would acquire Newmont Mining for about $13-billion, including a 13 percent premium for Newmont shareholders. The deal included chief executive officer Gary Goldberg becoming CEO of the combined entity, Newmont’s Calarco as vice-chariman and lead independent director, and Barrick’s incoming chairman Thornton as executive chairman.
Things went from bad to worse when Barrick founder Peter Munk blasted Newmont’s culture in an interview with the Financial Post last week, saying the firm is “not shareholder friendly.” Munk, who is set to retire on April 30th, will be replaced by Co-Chairman John Thornton.
Insiders to Barrick Gold believed Newmont wanted to downgrade Thornton’s role, giving the Newmont insider too much authority over the combined company.
Although the merger between Barrick and Newmont would have been the biggest deal in the history of the gold mining sector, its failure reveals how a seemingly perfect deal can be ruined by clashing personalities.
By combining their operations, the two companies would have capitalized on $1 billion of cost savings annually. Munk and other insiders still expect the merger to happen one day, shareholders are not holding their breath.
“They’re like two kids in the sandbox,” said John Ing, president and gold analyst at Maison Placements Canada. “The logic of the merger is there, but when you get down to board seats and personalities, it’s a different kettle of fish.”
The gold miners, which would have been called Barrick Newmont Mining, were gearing up to announce their deal ahead of Newmont’s annual shareholder meeting April 23rd.
The fall out between Barrick Gold and Newmont shows how falling gold prices and egos can ruin a good thing, no matter how much money is at stake.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.