Shares of Barrick Gold (NYSE: GOLD) rose 11% in March, according to data provided by S&P Global Market Intelligence. The rise was fairly steady through the month, even though the stock ended the span off of its highs. That said, the real story here started back in February.
In the shortest month of the year, Barrick made a hostile bid for peer Newmont Mining (NYSE: NEM). It isn't the first time these two gold mining giants have held discussions about linking up. However, Barrick was taking a more aggressive stance this time around, explaining that a pairing would help to lower costs in an industry facing material cost pressures.
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Far from simply rejecting the offer, Newmont sat down with Barrick and discussed different options. Being bought wasn't on the table, but as a March 11 announcement made clear, partnering up in the U.S. was a viable option. The pairing of assets in a joint venture brings together the Nevada businesses of these two miners and is expected to allow the pair to eventually reduce costs by as much as $500 million a year. Barrick will have a 61.5% ownership stake in the joint venture, with Newmont owning the remainder. (For reference, Newmont shares gained just under 6% in the month.)
Although the Newmont deal was the big story in March, there was another piece of news in the month out of South America. The Chilean Supreme Court overturned a lower court ruling on the long-stalled Pascua Lama project. Although this move will actually delay a final outcome, the ruling requires a new set of judges to examine a case that effectively brought the project to a halt. That, in turn, opens up the possibility of a more positive ruling. It's too soon to get excited about Pascua Lama moving forward, but this development is probably more of a positive than a negative.
The two big news items in March (the Newmont joint venture and the Pascua Lama court update) highlight the fact that gold mining is a complex affair. Finding a place to put a mine, building that mine, and then operating it profitably is not an easy set of tasks. While Barrick had generally positive news to tell last month, conservative investors looking at the stock might want to step back and consider streaming and royalty stocks as an alternative. They provide precious metals exposure but limit the impact of some of the operational issues that made headlines for Barrick in March.
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