Barrick Gold (TSX: ABX; NYSE: GOLD) is attempting to “bite off substantially more than it can chew,” and has “a poor M&A track record,” Newmont Mining (NYSE: NEM) CEO Gary Goldberg said in a conference call listing the many reasons why its board of directors has unanimously rejected Barrick’s hostile takeover bid.
“Barrick’s egocentric proposal is designed to transfer value from Newmont shareholders to Barrick,” Goldberg said, noting that it is “inferior” to the agreement Newmont reached in January to combine with Goldcorp (TSX: G; NYSE: GG) in an all-stock transaction valued at US$10 billion.
Instead, Newmont is proposing a joint-venture framework with Barrick on all of the companies’ Nevada-related operations, with Newmont holding a 45% interest and Barrick 55%.
The split was based on consensus net present values and an “equal” division of Barrick’s estimated synergies, Newmont’s president and chief operating officer, Tom Palmer, told analysts and investors on the March 4 conference call.
Under Newmont’s proposed joint-venture model, Palmer explained, management and technical committees would have equal representation, “enabling Newmont to provide input and leverage our technical expertise, which is critical to maximizing the benefits of the joint venture. Operational management roles would be jointly agreed upon and they would be responsible for day-to-day operations and decision-making.”
Barrick CEO Mark Bristow denounced Newmont’s proposition, claiming it was “essentially based on the stale and convoluted process that foundered previously” and, “as usual, it comes with unrealistic preconditions including swapping the chairmanship and the leadership of the JV. Experience has shown us that JVs only work well when the majority owner is also the operator.”
Bristow also noted that Newmont’s joint-venture terms would not unlock as much value from the two companies’ assets in the state. “Nevada, with a combined 76 million ounces, will be worth a whole lot more if it is run by one operator,” Bristow said in a brief statement. “We know we can do that more efficiently than Newmont, and that it will be worth a lot more to both Newmont and Barrick shareholders under that scenario.”
Based on analyst consensus net asset value, Bristow charged, the ownership breakdown of any Nevada joint venture “should be 63/37%, without the full potential of the Goldrush-Fourmile project taken into account. If you factor that in, it’s materially more than 2/3-1/3 in favour of Barrick.”
Newmont’s Goldberg argues that its joint-venture proposal with Barrick in Nevada and its transaction with Goldcorp “are not mutually exclusive” and Newmont shareholders “can benefit from both.”
“To be crystal clear, we can do both of these things,” Goldberg elaborated during a question and answer session on the conference call. “We can deliver the value from the Goldcorp transaction, and we can work with Barrick to deliver the value from the synergy potential in Nevada.”
Goldberg also challenged Bristow’s characterization of Goldcorp’s assets as being “lower quality” and “second-tier,” releasing an email Barrick’s new CEO had written to Goldcorp’s chairman Ian Telfer in 2017, in which he told Telfer: “… in Goldcorp, you have assembled a strong portfolio of assets located in world-class districts.”
As for Barrick’s all-share bid for Newmont valued at roughly US$18 billion, Goldberg fleshed out comments he made at the BMO conference in Florida last week, saying it was not in the best interests of Newmont’s shareholders.
“The Goldcorp transaction delivers nearly twice the accretion to Newmont’s net asset value per share, compared to Barrick’s proposal, even when factoring in Barrick’s unsubstantiated synergy assumptions,” Goldberg said. “One hundred percent of the potential value creation from Barrick’s proposal relies on delivering synergies from a new management team that lacks global operating experience and is only two months into its own transformational integration efforts. We believe Barrick’s proposed share consideration and a portfolio filled with assets in unfavourable jurisdictions carry significant risks.”
Those jurisdictions include the DRC, Tanzania, Mali and Papua New Guinea, among others, Goldberg clarified.
In addition, Barrick has not yet provided guidance beyond 2019, he said, and the Toronto-headquartered company “is approaching a clear production decline and needs Newmont’s mines and processing facilities.”
Goldberg also took jabs at Barrick Chairman John Thornton, and the “value destruction” he had overseen at Barrick and questioned Bristow’s ability as an operator.
While Barrick is “going through a time of great change,” he noted, “one of the major factors that hindered Barrick’s ability to create value in the past remains the same … John Thornton is still firmly in control of Barrick … Although Barrick’s transaction with Randgold resulted in new management, we have no reason to think that investors should have any more confidence in Barrick’s ability to effectively operate a global portfolio.”
As for Bristow himself, “there is no doubt that Mark has been successful as an explorer and a geologist,” and created a number of joint ventures that created value for Randgold shareholders, Goldberg continued, “the numbers do not lie. As an operator, he has not created shareholder value, and he has yet to prove that he can successfully manage or integrate a global portfolio … Barrick’s new management has no experience integrating acquisitions.”
“Additionally, prior to assuming his new role at Barrick just two months ago, Mark managed only five assets on one continent,” Goldberg said. “He has never managed a global portfolio like Barrick’s, with 24 assets in 15 countries across five continents, let alone the scale or complexity contemplated by Barrick’s proposal to total 37 assets on five continents.”
Barrick’s all-share proposal on Feb. 25 to combine the two companies in an at-market deal that equates to 2.5694 of its shares for each Newmont share would give Barrick shareholders 55.9% of the merged company, and Newmont shareholders, 44.1%.
“Barrick is trying to tell you that ‘bigger is better,’” said Palmer, who will be replacing Goldberg when he retires in the fourth quarter. “We simply don’t agree and believe that competition is good for both the industry and for investors.”