Barrick Mining Corp (TSE: ABX) (NYSE: B) (ETR: ABR0) has reached a deal with Newmont Corporation (TSE: NGT) (NYSE: NEM) (FRA: NMM) that clears a major obstacle to its planned North American initial public offering after months of tension over their Nevada mining partnership.
The companies announced Monday that Newmont will pay Barrick USD$1.95 billion as both sides contribute previously excluded assets to the Nevada Gold Mines joint venture. Barrick will add its Fourmile gold discovery, while Newmont will contribute the Fiberline and Mike development projects. Barrick shares fell as much as 6.9 per cent in pre-market trading following the announcement.
The agreement marks an important step for Barrick as it prepares to list its North American assets in New York later this year. Agnico Eagle Mines Ltd (NYSE: AEM) (TSE: AEM) has outperformed Barrick and Newmont during the recent gold rally. This happened as Barrick has struggled with operational setbacks and leadership changes.
Bloomberg News reported in February that Newmont wanted Barrick to improve operations at the Nevada venture before moving ahead. Earlier this year, Newmont also issued a notice of default after alleging Barrick had mismanaged the joint venture.
Barrick had long planned to fold the Fourmile discovery into the Nevada operation but had not disclosed a timeline. The company previously described the project as one of the century’s most significant gold discoveries. This came after an early assessment suggested it could eventually produce as much as 750,000 ounces of gold annually.
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Citigroup values new IPO between USD$10B and USD$20B
However, some analysts questioned the value assigned to Fourmile under the agreement. Bloomberg Intelligence analysts Grant Sporre and Emmanuel Munjeri said the implied valuation of roughly USD$325 per ounce appeared low given the project’s quality. They suggested the pricing may favour Newmont. This is despite that the agreement removes a key hurdle for Barrick’s IPO plans and improves relations between the companies.
Meanwhile, Citigroup analyst Alexander Hacking estimated investors value the planned North American business between roughly USD$10 billion and USD$20 billion. He wrote that Newmont’s 38.5 per cent interest alone could have been worth between USD$4 billion and USD$8 billion before accounting for the Fiberline and Mike assets entering the venture.
Barrick also named Mark Hill as chief executive officer of its planned North American business on Monday. The company continues targeting an IPO before the end of the year despite resistance from several major investors.
Additionally, Chairman John Thornton said separating the North American assets would allow investors to better recognize their value. Some shareholders remain unconvinced. Bloomberg News previously reported that Van Eck Associates Corp., Mackenzie Financial Corp. and Franklin Equity Group oppose the plan because it could reduce investors’ exposure to Barrick’s strongest assets.
Barrick also released second-quarter financial results on Monday. Adjusted earnings reached USD$0.82 per share, matching analysts’ median expectations. Gold production increased 11 per cent from the first quarter to 796,000 ounces, exceeding market forecasts.
Furthermore, the company reaffirmed full-year guidance of approximately 2.9 million to 3.25 million ounces of gold and 190,000 to 220,000 tonnes of copper production.
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Barrick’s decision reinforces strategic importance of Nevada trends
However, higher capital spending and lower operating cash flow reduced free cash flow to USD$515 million during the second quarter from USD$1.58 billion in the previous quarter.
Barrick’s decision to fold Fourmile into the joint venture also reinforces the strategic importance of Nevada’s Cortez and Carlin trends. This is where producers and junior explorers continue advancing new discoveries. Companies including NevGold Corp (CVE: NAU) (OTCMKTS: NAUFF) (FRA: 5E50) have expanded drilling programs elsewhere in the state as investor interest in Nevada gold assets remains strong.
Decades of mining have established extensive infrastructure, yet exploration continues to uncover new mineralization across the region. That combination has attracted major producers seeking additional mill feed and junior explorers pursuing stand-alone discoveries elsewhere in the state.
NevGold Corp is a sponsor of Mugglehead news coverage
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