U.S.REPORT Barrick, Newmont merger would represent new tier

If American Barrick Resources (TSE) and Newmont Mining (NYSE) proceed with plans to merge their North American assets into a single company, the amalgamation will automatically create a new class of gold producer.

With 10 mines in the U.S. and Canada, the merged company would be capable of producing 2.6 million oz. annually, or about 1 million oz. more than any other North American gold producer.

Based on 1990 production figures, three “second-tier” companies would follow behind this new mega producer with output in the million-ounce range. In North America they include Placer Dome (TSE) with annual production of 1.5 million oz., Homestake Mining (NYSE) with 1.2 million oz. and LAC Minerals/Bond Gold (TSE) at 1.03 million oz.

A larger pack of third-tier companies with production of between half a million and a million ounces would include Echo Bay Mines (TSE) (817,000 oz.), Corona (TSE) (734,000 oz.) and Teck (TSE) (503,000 oz.).

While the acquisition of Noranda’s (TSE) gold assets is expected to increase Hemlo Gold’s (TSE) production by about 30,000 oz. from 441,000 oz. last year, Hemlo still lags below half a million ounces. Amax Gold (TSE), FMC Gold (NYSE) and Pegasus Gold (TSE) each accounted for about 350,000 oz. in 1990.

By utilizing economies of scale after the proposed merger, analysts say Newmont and American Barrick could produce over three million ounces by 1995 and rival South Africa’s largest mining houses. The amalgamated company would also rank as one of the world’s most efficient producers with costs of around US$200 per oz. By comparison, South Africa-based Freegold, the world’s largest gold mining company, expects to produce 3.4 million oz. this year at a cost of US$384 per oz.

Meanwhile, Utah exploration company Gold Standard (NASDAQ) says the merger will have no effect on its bid to sue Barrick, Texaco Inc. and Getty Oil for the return of the Mercur gold mine in Utah. Gold Standard, which owns a 15% net profits interest in Mercur, is attempting to win full control of the operation through a lawsuit launched in 1987.

“The company that emerges will inherit the suit,” predicts Gold Standard President Scott Smith.