Merger may lead to relocation for Barrick

Toronto-based American Barrick Resources (TSE) could ease the way toward a proposed merger with Newmont Mining (NYSE) and 90.1% owned Newmont Gold (NYSE) by incorporating as a U.S. company, analysts say.

A move to the U.S. makes sense because almost all of the merged company’s production will come from open pit mines along the Carlin gold trend in Nevada, according to analysts interviewed by The Northern Miner. While Barrick executives make biweekly visits to the company’s huge Goldstrike mine by way of a 4-hour flight in a corporate jet, Newmont recently moved its head offices from New York to Denver. Market watchers are betting that Barrick will make a similar move.

Spokesmen at Barrick and Newmont are refusing to comment on the proposal which they say is in the early stages of discussion. But Douglas Silver, a mineral economics specialist and senior partner at Balfour Holdings of Colorado, says there are a myriad of technicalities to be overcome before a merger of this magnitude is approved.

For instance, under anti-trust laws, the companies may have to wait for the U.S. Justice Department and Federal Trade Commission to decide whether or not to oppose the proposal, says Silver.

As a merger would give the combined company control of 20% of U.S. and 4% of world gold production annually, a favorable accounting ruling from the U.S. Securities and Exchange Commission is also crucial to the US$5.6-billion deal.

By proposing to account for the merger as a pooling of interests, the companies are attempting to avoid the heavy depreciation that would result from writing up the value of the assets. (Under the pooling of interest method, shareholders of the combining companies must receive or retain mainly common stock.)

Also to be decided is the question of who is going to run the day-to-day operations of a company with at least 10 U.S. and Canadian mines and initial annual production of about 2.6 million oz.

Figuring out the fairness of Barrick’s offer to exchange 1.8 of its own shares for each share of Newmont Mining and 1.845 shares for the outstanding 9.9% minority interest in Newmont Gold is also expected to keep accountants busy for months.

But Catherine Gignac, a precious metals analyst with McNeil Mantha Inc. in Toronto, says Barrick Chairman Peter Munk and Sir James Goldsmith, who owns 49% of Newmont, have too much to gain from the merger for it not to go ahead.

Newmont Gold has already stated publicly that it will maintain production levels at 1.5 million oz. annually while it attempts to find the most efficient method to refine its refractory ore.

Once American Barrick has completed the $440-million expansion of its Goldstrike mine next year, gold production is expected to level out at about 1.1 million oz., compared with 596,220 oz. in 1990. As analysts are no longer counting on large gold price swings to send share prices upwards, Gignac says both companies need the merger to get their shares moving upwards.

Newmont Mining’s 67.6 million issued shares were trading recently at US$37.25 in a 52-week range of US$54.75 and US$32.88, while the 133.9 million issued shares of Barrick traded at $24 in a range of $28.25 and $18.88.

Gignac says both companies will benefit from economies of scale, the depth of skilled mining expertise available at Newmont and the autoclave technology which Barrick is using to process sulphide ore at Goldstrike.

In addition, a standstill agreement preventing Goldsmith and his British partners from increasing their stake in Newmont Mining above 50.1% could be removed if they were to swap their investment for shares of Horsham Corp., which owns 21.5% of Barrick, according to a U.S. analyst who preferred to remain anonymous. While Horsham has 77.2 million issued subordinate voting shares carrying one vote each, Munk owns all of Horsham’s 7.5 million multiple voting shares which carry 50 votes each. Other analysts have complained about the lack of information on which to evaluate the proposal that has yet to be presented to the boards of the companies involved. However, Barrick spokesman David Smith has confirmed speculation that advanced reports of the merger discussions contained in an article in Britain’s Daily Telegraph forced the companies to reveal their intentions before they were ready.