Barrick, Newmont decide to work together.

TORONTO• Bar rick Gold Corp. and Newmont Mining Corp., the two largest gold producers in the world, ended their feud Monday and agreed to work together in the Nevada desert where both companies operate vast mining complexes.

Almost immediately, questions surfaced about whether it was a prelude to a larger deal between the two giants and Barrick chief executive Mark Bristow declined to rule out such an idea. Asked by one analyst whether the Nevada joint venture is merely “a stepping stone” to greater consolidation, Bristow chuckled. “I’m not prepared to comment on that,” he said.

As part of that agreement announced Monday, however, Toronto-based Barrick agreed to drop its US$17.8 billion hostile bid for Colorado-headquartered Newmont and to commit to a two-year standstill that prevents further action.

Such a combination would have changed the competitive dynamics of the gold mining industry by creating a single dominant player, multiple times larger than its nearest competitor. Even though Barrick was offering an eight-per-cent discount on Newmont’s price, its offer stirred many analysts’ appetite for greater consolidation in the space on the belief that generalist investors have fled the sector after years of poor returns as most companies lack adequate liquidity and diversification.

“Barrick-newmont ... could be best-positioned to start to turn that tide and to convince investors to reallocate dollars back to the producer space,” Michael Siperco and the team of analysts at Macquarie Capital Markets wrote in one note.

But that deal looks dead, at least for the moment, and Barrick and Newmont will remain rough equals, with the latter still planning to close a Us$10-billion purchase of Goldcorp Inc. by late April, which could provide it the slightest edge in size.

Assuming Newmont now acquires Goldcorp, it would operate mines together with Barrick in Australia, the Dominican Republic and Nevada; and the pair would jointly produce more than 5 million ounces of gold per year. That would account for slightly less than half of their expected combined production, and potentially much more if both companies move forward on plans to sell assets.

Gary Goldberg, Bristow’s counterpart at Newmont, has vocally opposed merging the two companies, arguing it would create an unwieldy company with mines scattered around the globe and impossible to manage. His board formally rejected the idea, questioning the proposed synergies.

He stuck to that line on Monday, saying, “This is a lot better for the gold space. It really sets the standard for how you can work together.”

Goldberg plans to retire later this year but his successor Tom Palmer, chief operating officer and president, has expressed the same views.

Both Goldberg and Bristow were in Elko, Nev., on Monday where they had met to hash out the framework for a joint venture in Nevada. Under the deal, expected to close in the next few months, Barrick will operate both companies’ mines in Nevada, and control 61.5 per cent of the entity compared to Newmont’s 38.5 per cent.

Rising early for a conference call with investors on the East Coast, they both said sharing assets in Nevada, including processing facilities, trucks and private roads would save US$5 billion over two decades.

Goldberg, who had questioned Bristow’s estimated $4.7-billion in synergies while the hostile bid was in play, still sounded somewhat skeptical on Monday.

“Whether its 4.7 or something above or below that, it’s something we both believe is achievable,” he said on the call in response to one question.

It marked an awkward end to a feud that started two weeks ago when Barrick announced its hostile bid, which Bristow said he felt compelled to make before Newmont acquired Goldcorp’s assets because the latter’s mines are less than desirable.

Newmont had responded last week by releasing an email Bristow sent in May 2017 to Goldcorp chairman Ian Telfer — when Bristow was still chief executive of Randgold Resources Inc. — in which he heaped praise on Goldcorp’s assets.

Some analysts questioned whether Barrick’s hostile bid for Newmont was posturing to create leverage to negotiate favourable terms for a joint venture in Nevada.

A majority of Newmont shareholders must vote to approve any deal, and having a second option of a Barrick bid on the table could have split the vote. Thus, Goldberg likely felt increased pressure to consum- mate a joint venture deal in Nevada, and have Barrick withdraw its hostile bid, before his shareholders voted on the proposed Goldcorp acquisition in April.

“If (Newmont) shareholders have multiple deals on the table, we think there is a heightened risk that they split the vote, resulting in a no-deal scenario,” Scotiabank analyst Tanya Janusconek wrote in a note.

Mike Parkin, of National Bank of Canada, wrote that he had questions about the ownership ratio of the joint venture.

“We recently sat in on a presentation by Newmont’s incoming CEO, Tom Palmer, who stated it would take a tremendous amount of time and effort to accurately determine the real synergy potential of a potential JV, which brings up a question of how the JV ownership ratio was determined,” Parkin wrote.

On the conference call, Goldberg responded to this question by noting certain assets have been left out of the joint venture including Barrick’s Four Mile deposit, which is still not a mine; and also two mines held by Newmont.

In the future, both companies can add new deposits to the joint venture entity — expected to be the largest gold complex in the world with 4.1 million ounces of gold production this year — if they provide an agreedupon rate of return and meet other criteria.

In a remaining potential hurdle to the deal, in which Newmont would pay a 17-per-cent premium to acquire all Goldcorp shares, the Shareholders’ Gold Council, an advocate for industry investors, took issue with Goldcorp executive chairman Ian Telfer’s $12.4-million compensation package, due if the deal is completed.

The group, which formed last year after being spearheaded by U.S. billionaire John Paulson, “condemned” the pay package and others for additional executives, noting the buyout comes as Goldcorp’s shares trade around US$14, well below the $30 received in 2014.

“While Goldcorp is telling its shareholders to sell their shares close to a 13-year low, Goldcorp management stands to reap over US$33 million in potential changeof-control payments,” the group wrote.

Still, the group said that consolidation is necessary to “rid the industry of poor stewards of capital.”

THIS IS A LOT BETTER FOR THE GOLD SPACE.