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Newmont Ends Merger Talks with Barrick

Zacks Equity Research

Newmont Mining Corporation (NEM) announced that it has decided to end its merger discussions with Barrick Gold Corporation (ABX). Newmont stated that initially they were hopeful that combination of the two companies would reap benefits.  However, Newmont realized that the type of constructive and partnership-oriented relationship necessary for potential benefits of the integration were not in existence.

As per Barrick, the company had negotiated a term sheet for a proposed merger between Barrick and Newmont, which was agreed upon and signed by both parties on Apr 8. Since then, Newmont went back on its words on three foundational elements – the location of the head office of the combined company in Toronto, the identification of any specific assets that would be included in a spin-off company, and the matters related to the governance arrangements, especially with respect to the roles and authority of the Chairman, the Lead Director and the CEO.

However, Newmont said in response that it did not renege on those terms and talks with Barrick’s Co-Chairman on specific fundamental strategic and structural issues were unproductive and, hence, a deal could not be reached. While Barrick believed that its shareholders would have gained from the merger, Newmont considered staying independent to be the best option for the company and its stakeholders.

Newmont recently released its first-quarter 2014 results. Adjusted earnings of 22 cents a share for the quarter slumped roughly 69% from the year-ago quarter’s earnings of 70 cents a share. However, the results beat the Zacks Consensus Estimate of 18 cents.

On a reported basis, the company posted net income from continuing operations of $117 million or 23 cents per share in the quarter, down from net earnings of $314 million or 63 cents per share a year ago. The bottom line was largely impacted by declines in average realized gold and copper pricing, offset by improved production and a stable operating costs.

Newmont’s revenues fell nearly 19.4% year over year to $1,764 million in the quarter and missed the Zacks Consensus Estimate of $1,829 million.

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

Other companies in the gold mining industry worth considering are AngloGold Ashanti Ltd. (AU) and Lake Shore Gold Corp. (LSG), both carrying a Zacks Rank #1 (Strong Buy).

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Read the Full Research Report on ABX
Read the Full Research Report on LSG
Read the Full Research Report on AU

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