LONDON/NEW YORK - There is value to be had from merging the neighboring mines of Barrick Gold and Newmont Mining in the U.S. state of Nevada. But that potentially good deal is being buried under two shinier ones. Newmont’s rejection on Monday of Barrick’s $18 billion merger proposal, in favour of its own deal to buy Goldcorp, further gets in the way of an outcome that would benefit both sides.

The merger envisaged by Barrick chief Mark Bristow would create the world’s biggest gold miner, with his company on top, and create pre-tax value he weighs at $7.1 billion. Tax that at 45 percent and parcel it out in a 56-to-44 ratio, and it suggests a 9 percent uplift to both companies’ undisturbed market capitalizations, according to Breakingviews calculations. The downsides are that the two don’t get along, Barrick isn’t paying a premium in any traditional sense, and it only just bought another big miner, Randgold.

Newmont says its bird in the hand – a $10 billion agreed acquisition of Canada’s Goldcorp – is better. That’s not obviously the case mathematically. It would end up with a 65 percent stake in a company that Newmont reckons would be worth $4.4 billion more, pre-tax, and that’s after aggressively jacking up its estimate of synergies. Deduct tax at 35 percent, and Newmont shareholders would in theory end up only around 5 percent better off.

Simply doing a joint venture in Nevada might yield $5 billion of extra pre-tax value in total, a Barrick figure also referred to by Newmont. That’s the bulk of Bristow’s touted benefits, and more than Newmont’s deal with Goldcorp offers. But it would involve the partners overcoming their differences and agreeing who runs what. The odds of that aren’t great. For starters, Newmont reckons Barrick should get just over half the JV, whereas Barrick thinks it ought to have more like two-thirds.

If Bristow decides to stick to his guns, he probably needs to offer a sweetener. He could, say, give 46 percent of the new company to Newmont rather than 44 percent – worth roughly an additional $1 billion. At least then Newmont couldn’t say there’s no premium, and it would cover the $650 million break fee that could be due to Goldcorp. That might get Bristow what he wants – but with less upside, and a double integration challenge.

CONTEXT NEWS

- Newmont Mining on March 4 rejected Barrick Gold’s $18 billion unsolicited acquisition offer and instead proposed a joint venture in Nevada.

- Newmont said its Canadian rival's all-stock offer was not in the best interest of its shareholders, and instead argued for its planned merger with Goldcorp, which it said could create $4.4 billion of value.

- Barrick says its proposed merger with Newmont, made public on Feb. 25, would create pre-tax benefits worth around $7 billion in present-value terms. It would leave Barrick shareholders with 56 percent of the merged company.

(Editing by Richard Beales and Martin Langfield)

(( george.hay@thomsonreuters.com ; john.foley@thomsonreuters.com Reuters Messaging: george.hay.thomsonreuters.com@reuters.net ; john.foley.thomsonreuters.com@reuters.net  ))

© Reuters News 2019