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Newmont & Barrick Form JV in Nevada, Creates Long-Term Value

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Newmont Mining Corporation (NEM - Free Report) and Barrick Gold Corporation (GOLD - Free Report) have landed an implementation deal to form a joint venture (JV) in Nevada by combining their respective mining operations, assets, reserves and resources.

The two gold mining companies have been operating independently in Nevada for decades but were unable to agree terms for cooperation. The JV will enable them to generate estimated average annual pre-tax synergies worth $500 million in the first five years of the combination. This is forecast to capture total pre-tax net present value of $5 billion over a period of 20 years.

Per Newmont’s CEO Gary Goldberg, the agreement is an effective way to generate long-term value from joint assets in Nevada, and also represents a major step in expanding shareholders value creation.  

Following the completion of the JV, the Nevada complex is expected to become the single-largest gold producer globally with pro forma output of more than 4 million ounces in 2018, three Tier One assets (with potentially another underway) and 48 million ounces of reserves.

Moreover, Barrick will be the operator with 61.5% ownership while Newmont will own 38.5% in the JV. The board’s representation will be based on ownership, and the advisory committees will have equal representation.

The formation of the JV is subject to regulatory approvals and other usual conditions and is expected to be completed in the coming months. The JV does not include Newmont’s Fiberline and Mike deposits and Barrick’s Fourmile project, which are pending commercial feasibility.  

As a result of this JV agreement, Barrick has withdrawn its proposal to buy Newmont.

In February 2019, Newmont received an acquisition proposal from Barrick for an all-stock merger. Per Newmont, the deal was proposed at a negative premium based on market prices as of the close of business on Feb 22, 2019. Also, the proposal was conditional upon Newmont not advancing with the proposed combination with Goldcorp Inc.  

Earlier this month, Newmont announced that its board has unanimously decided that Barrick’s all-stock negative premium acquisition proposal is not in the best interests of Newmont’s shareholders.

Newmont’s shares have lost 12% in the past year against the industry’s 4.5% rise.

Zacks Rank & Key Picks

Newmont currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd. (KL - Free Report) and Ingevity Corporation (NGVT - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland has an expected earnings growth rate of 8.8% for 2019. The company’s shares have surged 122.6% in the past year.

Ingevity has an expected earnings growth rate of 17.9% for 2019. The company’s shares have rallied 41.1% in a year’s time.

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