World’s biggest gold miner in the making — Barrick, Newmont talk

American Barrick Resources (TSE) and Newmont Mining (NYSE) are discussing the possibility of marrying their vast gold producing assets into a single entity that analysts say will be the world’s largest gold mining company by 1995.

While both companies say a number of issues have still to be resolved, a merger of Barrick with Newmont Mining and 90.1% owned Newmont Gold (NYSE) would produce about 2.6 million oz. gold next year from mines on the Carlin gold trend in Nevada.

If the Deep Post deposit on the Carlin claims held by both companies is factored into the equation, the merged company could surpass the 3.4 million oz. to be produced this year by South Africa-based Freegold, the world’s biggest gold miner.

Analysts say an amalgamation would fulfil the ambition of Barrick Chairman Peter Munk, who in the space of seven years has built the company to its current status as North America’s seventh largest gold producer. For the past few months Munk has been locked in discussions with British financier Sir James (Jimmy) Goldsmith, who owns 49% of Newmont Mining.

Under the US$2.8 billion proposal, Barrick could remain as the surviving company by exchanging 1.8 of its 132 million issued shares for each share of Newmont. If Newmont Gold is included, management of the Denver company would recommend that Barrick acquire the 9.9% minority stake in Newmont Gold on a basis of 1.845 Barrick shares for each Newmont Gold share.

As a result, Goldsmith’s 49% stake in Newmont would drop to 23% in the combined company, while Munk’s Toronto-based holding company Horsham (TSE) would see its 21% equity stake in Barrick reduced to 11%.

Shares of Barrick reacted to the proposal by advancing $1 to $23.38 on the day it was announced, while the Newmont Gold and Newmont Mining issues gained US$3.25 and US$2.75 respectively. (Some of those increases may have been tied to a US$7-per-oz. increase in the price of gold.)

Analysts interviewed by The Northern Miner say they are excited about the possibilities for future exploration along the Carlin gold trend where both companies are using state-of-the-art technology to process oxide and refractory ore.

According to Richard Cohen, analyst at BBN James Capel Inc. in Toronto, refractory ore mined by Newmont could be treated in the autoclave units at Barrick’s Goldstrike mine where a US$440-million expansion should accelerate production to 900,000 oz. gold in 1992, up from 352,880 last year. He said Barrick in turn could run some of its oxide material through Newmont’s five Carlin mills and utilize economies of scale in doing so. All of the 1.5 million oz. produced by Newmont last year came from Carlin.

Spokesmen at both companies say discussions are very preliminary and a number of substantive issues remain to be resolved. But the very fact that exchange ratios have been proposed indicates that both sides may be further along in their talks than everyone is being led to believe, says Ian Lamont, mining analyst at Yorkton Securities Inc. in Toronto.

As Goldsmith is a wealthy entrepreneur and not known to stick with anything for very long, others speculate that it is Munk who will emerge at the top of the merged entity while Goldsmith cashes out.

“It makes a lot of sense for the two of them to get together,” said Lamont during a telephone interview with The Northern Miner. He believes the merger could shake up the North American gold industry and persuade producers like Placer Dome (TSE) and Corona (TSE) to consider a similar move.

A combination of Newmont and American Barrick would put the merged company well ahead of Placer Dome and Homestake Mining (NYSE) which reported production of 1.5 million oz. and 1.1 million oz. respectively last year. Placer Dome plans to hold steady at 1990 production levels while basing its growth on base metals, according to Chairman Fraser Fell.

Significantly, analysts expect the amalgamated company to produce gold for about US$180 per oz. less than it cost Freegold to mine the yellow metal from its South African mines last year. Freegold’s cash costs are currently running at US$384 per oz.