Barrick reaches agreement with Newmont on reworked Nevada Gold Mines pact

Investors are giving a cold reception to Barrick Mining Corp.’s ABX-T new agreement with Newmont Corp. NEM-N to bring Fourmile and other projects into their Nevada Gold Mines joint venture.

Under the pact announced on Monday, Newmont will pay Barrick US$1.95-billion in cash within 30 days.

The NGM joint venture includes giant Nevada mines such as Carlin, Cortez and Turquoise Ridge, with Toronto-based Barrick and Denver-based Newmont holding 61.5-per-cent and 38.5-per-cent stakes respectively. The revamped JV will maintain the ownership structure but bring in new properties such as Newmont’s Fiberline and Mike developments, as well as Barrick’s promising Fourmile project.

Some analysts were surprised that Barrick did not receive a substantially higher payout from Newmont, given that the Canadian miner has characterized Fourmile as “one of the century’s greatest gold discoveries.”

Josh Wolfson, an analyst with RBC Dominion Securities, estimated in a note to clients on Monday that Fourmile in its totality is worth US$11-billion, with Newmont’s 38.5-per-cent stake valued at US$4.2-billion.

“Newmont got a pretty good deal here,” said John Ing, president of Maison Placements Canada Inc. in Toronto.

“They didn’t have to write as big a cheque as some had speculated.”

Shares in Barrick fell by more than 9 per cent in early trading on the Toronto Stock Exchange on Monday, and closed down 6.45 per cent to $57.03 apiece.

Newmont shares rose by 3.8 per cent on Monday to close at US$117.27 apiece on the New York Stock Exchange.

In a conference call with analysts on Monday, Barrick chief executive Mark Hill defended the new pact with Newmont, and said the total value of the agreement is worth around US$4-billion. That comprises the reworked JV, as well as the cost of resolving historical disputes and litigation between Newmont and Barrick.

“Our interests now are completely aligned as joint venture partners,” he said.

Earlier this year, Newmont alleged that Barrick was mismanaging NGM. In February, Newmont sent the Canadian miner a notice of default under the agreement, related to alleged infractions, including the claim that Barrick was diverting resources away from the JV toward its wholly owned Fourmile project instead.

Later this year, Barrick plans to spin off a 10-per-cent stake in its North American operations, which includes its stake in NGM and its 60-per-cent stake in the Pueblo Viejo mine in the Dominican Republic.

While Barrick had said that consent from Newmont wasn’t needed for the transaction to proceed, the new NGM pact “reduces the friction costs of the planned IPO,” Mr. Hill said in the call.

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Barrick has long traded at a discount to peers such as Toronto-based Agnico Eagle Mines Ltd. AEM-N, owing to its heavy exposure to risky jurisdictions such as Africa, the Middle East and Pakistan. By creating a pure play spin-out with exposure solely to its lower-risk North American operations, it is hoping that will result in a “re-rate” of its stock.

But not all Barrick stakeholders are on board with the plans for the spin-out.

Mr. Ing isn’t a fan, and says it’s a financially engineered solution to a problem that doesn’t exist, dreamt up by Wall Street.

“I never did like the logic of the spin-off,” Mr. Ing said.

A summary of a preliminary economic assessment completed by Barrick last year said that Fourmile, which will now be part of NGM, could produce up to 750,000 ounces of gold a year for at least 25 years. That would make it one of the biggest gold mines in the world.

Anita Soni, mining analyst with Canadian Imperial Bank of Commerce, asked Mr. Hill in the conference call why a full preliminary economic assessment for Fourmile had not been disclosed, and requested it be filed in the future. She said that pressure on the share price could be explained in part by lack of information on the project, including around costs and the mining method.

“We don’t really have a barometer right now, outside of a slide deck, that’ll give you the bare essentials in terms of how to model this,” she said.

Mr. Hill replied that the company would work on the issue.

“We’ll take that away and see how we can do a better job,” he said.

Barrick on Monday also announced that Mr. Hill will be the CEO of the spin-out. The former head of the company’s Latin America and Asia-Pacific region only became the permanent CEO of Barrick in February, after serving on an interim basis since last September.