DEALTALK-Barrick-Newmont union: is the third time the charm?

Mon Apr 21, 2014 2:46pm EDT
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By Euan Rocha, Allison Martell and Nicole Mordant

TORONTO/VANCOUVER, April 21 (Reuters) - Barrick Gold Corp has tried and failed to buy Newmont Mining Corp twice in the past decade, but the rationale is now more compelling than ever for a merger between two of the world's largest gold miners.

The two companies have been weakened by massive asset write-downs and the derailment of two vital growth projects in Latin America in the last two years, as the price of gold has slid 33 percent since peaking in 2011. These issues have led to credit rating downgrades and forced both miners to sell some assets.

But the slide in gold also means that the value of goodwill attached to Newmont's portfolio has tumbled, lowering the cost of a deal and reducing the risk of more major write-downs at Barrick should gold prices fall further.

Investors, long skeptical of big, unwieldy mining entities, seem more open now to the view that a combined Barrick-Newmont can generate more cash and better service its debt than the companies can on their own.

"We suspect investors would welcome the deal, especially, if the new company was able to use the opportunity to do serious surgery to non-contributing assets," said JPMorgan analyst John Bridges in a note to clients.

Barrick and Newmont had reached the broad outlines of a deal that they had hoped to complete this month before talks hit a snag and broke down, according to sources familiar with the matter. Even so, the companies remain keen on reaching an agreement and merger discussions are likely to resume, the sources said.