Newmont/Barrick: Gold giants circle as M&A mood returns
View: Source
When gold prices rise, so does the urge to merge. That old mining truth may be back in play, as UBS reckons the sector could be heading towards another bout of deal-making; this time between its biggest names, Newmont Corporation (NYSE:NEM, TSX:NGT, ASX:NEM, ETR:NMM) and Barrick Gold Corp. (TSX:ABX, NYSE:GOLD).
The two are already bound together in Nevada Gold Mines, a joint venture that combines Barrick’s 61.5% stake with Newmont’s 38.5%. It is the crown jewel for both, churning out some of the richest ounces on the planet.
But the partnership has always been uneasy, and UBS’s analysts say a fresh round of executive changes and asset valuations could revive long-running talk of consolidation.
The bank sketches out three possibilities. One, Newmont simply buys Barrick’s share of the Nevada venture. Two, it goes the whole way and bids for Barrick itself. Or three, Barrick decides to break itself up, stripping out its copper mines to leave a cleaner, pure-play gold business.
A sale of Barrick’s Nevada stake would not come cheap. UBS estimates it could fetch between $40 billion and $50 billion — more than half Newmont’s current market value.
That alone might make such a deal hard to swallow for Newmont shareholders, especially since the company’s stock already trades on a relatively modest valuation multiple.
A full takeover, then, might look more efficient. Newmont could in theory scoop up the Nevada assets at a lower effective price.
But investors have long memories, and the US group’s recent record on acquisitions, notably Goldcorp in 2019 and Newcrest last year, has done little to build confidence. Another blockbuster transaction, followed by years of asset sales and integration, may be a step too far.
Still, the balance sheet can handle it. UBS calculates that Newmont’s zero net debt and roughly $14 billion in annual cash earnings would allow it to borrow comfortably, even if it used debt to buy the Nevada stake outright.
The bank expects the miner to keep returning cash through buybacks and dividends while building a small net cash position before a key project milestone at its Fourmile deposit in 2029.
As for Barrick, its mix of assets remains both its strength and its weakness. It owns some of the safest, most profitable gold mines in the world.
But it also carries exposure to riskier copper projects in Pakistan and Zambia. Investors looking for a clean story have struggled to price the two together, leaving the shares lagging behind peers such as Agnico Eagle on the gold side and First Quantum or Ivanhoe Mines in copper.
UBS’s view is that the valuation gap will persist until Barrick chooses a clearer direction. A break-up, or at least a simplification, might finally let each part of the business shine.