The most interesting thing about Barrick Gold’s hostile bid for Newmont Mining is exactly what I said about Newmont’s bid for Goldcorp. If it goes through, there will be opportunities and dangers for the juniors in the orbits of these giants:
- All this M&A activity makes this a great time to speculate on takeover targets.
- Avoid juniors with marginal JVs, or projects that rely on mines that will be marginal to Newmont and Barrick.
- Look for juniors with options on great projects the majors are likely to drop.
To this we can now add:
- Goldcorp becomes an interesting trading sardine in this game.
Personally, I don’t own any of these major producers and I’m not looking to buy any, so I have no horse in this race. But I could see Goldcorp being a good day- trade, if the company gets a severance payment from Newmont.
What about the Barrick-Newmont mega-company—let’s call it Barrmont—wouldn’t such a mother of all gold companies be interesting?
Well, let’s say Barrmont prunes the less profitable operations from its portfolio and runs with the best. That could indeed make for a big, profitable gold miner that grabs a lot of investor attention. It would likely be the first stop for cash flowing back into the gold mining space when gold starts hitting new record highs.
But I just can’t get excited about it myself.
Big means slow. And growth? Fuggedaboutit.
Let’s say gold breaks through $1,400 and settles in that range for a while. That would boost Barrmont’s bottom line, but would the stock deliver a high multiple for shareholders? I doubt it.
On the other hand, gold above $1,400 would light a fire under many juniors, which could easily double or triple on this alone. Some could go on to be 5-baggers and 10-baggers.
Paraphrasing Doug Casey, Barrmont’s chances of doing this are slim to none—and Slim’s out of town.
That’s assuming the merger goes through, of course, and that’s far from a sure thing.
Honestly, I can’t come up with any good reason for Newmont shareholders to accept Barrick’s offer.
Okay, the consolidation of Nevada assets makes sense. But we’re not talking about just the Nevada assets. Barrick has exposed itself to considerable risk in Africa, among other high-profile issues that would be part of the package.
If I was a Barrick shareholder, I’d be in very much favor of the deal; it would be a defensive move that would reduce my risk profile.
But if I was a Newmont shareholder, I’d fight this tooth and nail. I might consider it if there was a huge premium offered, but that’s not the case—there’s no premium offered at all. Why would I see that as a good thing? Gobbling up Goldcorp is a much better idea.
That’s my take.
Caveat emptor,
