Mega-Merger of Barrick and Newmont Could Generate a Divestment Free for All

Gold prices are grinding higher, as the dollar remains soft. This comes in the wake of Fed Chair Jay Powell’s Humphrey Hawkins in front of both houses of Congress. He continued to keep to the script discussing the need for patience. He also said that the runoff in the Fed’s balance sheet, which has had a tightening effect, would end in 2019. While prices have been rising slightly, merger and acquisition news hit the tape.

Barrick Is Bidding for Newmont Mines

In the latest bid to scoop up targeted assets, Barrick Gold launched a hostile 18.8 billion dollar bid for Newmont mines. Barrick is a Canadian company looking to add to its assets and the combined company would add synergies, which could free up a group of assets that would no longer be considered vital. This includes their Kalgoorlie super pit joint venture in Western Australia.

Bristow is Making the Rounds

Since this bid is hostile and in some circles seen as a way for Barrick to disrupt Newmont’s bid for rival Goldcorp, Barrick CEO Mark Bristow has been making the rounds. He is trying to convince shareholders that this acquisition would generate value to them. Bristow was on CNBC on Thursday morning pitching the idea and describing in detail how it would bring value to both Newmont and Barich shareholders. He said that he had already been in contact with parties that are interested in the company’s Australian assets. Newmont and Goldcorp have announced several divestments and the recent merger of Barrick and Randgold has provided an opportunity for Australian gold companies.

Other Assets that Are Available

Besides the Super Pit, which both Barrick and Newmont co-own, there are many regional assets that will be up for grabs – including the Porgera mine in the Northern Territory of Australia and the Boddington open pit in Western Australia. Analysts have estimated that the portfolio, which would be divested, is approximately 5.6 billion dollars. This would be very attractive and would allow the combined company to monetize assets.

The merger would create a company with a market cap of nearly 42 billion dollars. This is about 3 times the size of the number 2 gold producer Newcrest Mining, which has a market capitalization of 14 billion dollars. If Newmont moves forward with its planned acquisition of Goldcorp, it would take the top spot with Barrick in second and Newcrest in third.

Why is Gold Continuing to Climb

With geopolitical events continuing to remain in the headlines, gold prices continue to grind higher. Gold is valued as a currency and trades mainly against the US dollar. With the Federal Reserve likely on the sidelines for the balance of 2019, the dollar is unlikely to climb any further. Some even believe that the softer than expected data recently released in the United States could present an opportunity for a rate cut instead of a rate hike. With the dollar rise halted, gold prices will have the opportunity to move higher.

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