Barrick, Newmont settle dispute with $1.9B deal

Barrick Mining (TSX: ABX; NYSE: B) and Newmont (NYSE, ASX: NEM; TSX: NGT) have settled their Nevada Gold Mines disputes in a deal that brings key projects into the joint venture and requires Newmont to pay Barrick $1.95 billion (C$2.7 billion).

Under the agreement, Barrick’s Fourmile and Newmont’s Fiberline and Mike projects will be part of Nevada Gold Mines. Newmont will make the payment within 30 days, while the partners have also agreed to revised governance provisions.

Newmont also consented to Barrick’s planned initial public offering (IPO) of its North American gold assets, removing a potential complication as the major works towards completing the separation by year-end.

The settlement removes uncertainty surrounding the relationship between the world’s two largest Western gold producers at Nevada Gold Mines, while allowing Barrick to move ahead with an IPO that has become increasingly important as investors scrutinize its performance and leadership.

Costs weigh

The end of the dispute came as Barrick reported second-quarter adjusted earnings that missed analysts’ estimates as higher production costs and retrospective tax penalties in Mali offset stronger-than-expected gold output.

Adjusted profit was 82¢ per share for the three months ended June 30, below the 88¢ average analyst estimate compiled by LSEG.

Gold production increased 11% from the first quarter to 796,000 oz., beating guidance of 730,000 to 770,000 ounces. Barrick attributed the increase to the ahead-of-schedule ramp-up at Loulo-Gounkoto in Mali, a faster-than-expected recovery at Pueblo Viejo in the Dominican Republic following planned first-quarter maintenance and record underground tonnes at Cortez in Nevada as Goldrush continued to ramp up.

Gold cost of sales was $1,993 per oz., while all-in sustaining costs were $1,866 per ounce. Mining and processing cost discipline kept expenses within guidance despite pressure from fuel prices, Barrick said.

Operating cash flow rose 28% year over year to $1.7 billion.

Barrick maintained its full-year production and cost guidance while reducing expected attributable capital expenditures to $3.8 billion-$4.2 billion.

IPO pressure

Barrick’s North American IPO remains on track for completion by year-end, with Mark Hill set to become CEO of the new company following the separation, the company said Monday.

The company first floated the IPO in December but did not name a CEO for the business until Monday, adding to criticism and frustration among some investors over Barrick’s direction.

Benoit Gervais, portfolio manager at Mackenzie, a subsidiary of Power Corp. and Barrick’s 10th-largest shareholder, has publicly called for chairman John Thornton to step down.

It would be good if someone else took over the chairman role, Gervais told Bloomberg News.

The IPO could represent Thornton’s last opportunity to reverse Barrick’s fortunes after more than a decade at the top of the company. He has led Barrick since 2014, first as executive chairman and, since last year, as chairman.

Under Thornton, Barrick shares have underperformed rivals Newmont and Agnico Eagle Mines (TSX, NYSE: AEM) while the company has struggled to fully capitalize on gold’s historic rally. Barrick slipped to third place among global gold producers last year after Agnico Eagle overtook it.

Thornton subsequently pushed out longtime CEO Mark Bristow and installed Hill at the helm. Hill’s selection to lead the proposed North American company puts him at the centre of Barrick’s effort to unlock value from its premier assets and regain investor confidence.