Early in 2019, gold mining giant Newmont Goldcorp (NYSE: NEM) formed as the result of a $10 billion merger. However, many Newmont investors disliked this deal, and Barrick (NYSE: GOLD), another gold mining giant, attempted to buy Newmont via an unsolicited bid with the intent of cancelling the Goldcorp acquisition and realizing synergies between Barrick and Newmont's operations in Nevada. Although Barrick's attempt to buy Newmont failed, the companies announced a joint venture called Nevada Gold Mines, allowing the two partners to share facilities and infrastructure in Nevada to cut costs. This joint venture allows Barrick and Newmont to attain most of the cost-savings of a merger while remaining separate, sturdy gold companies.
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Nevada Gold Mines
The Nevada Gold Mines joint venture will combine significant assets across Nevada, allowing both Barrick and Newmont to improve their operations via cost savings. Barrick will own 61.5% of the joint venture, called Nevada Gold Mines, while Newmont will hold the remaining 38.5%. The venture consists of eight mines in Nevada along with the associated infrastructure and processing facilities: four contributed by Barrick and four contributed by Newmont. Thanks to synergies between these operations, the deal is expected to generate around $5 billion in cost savings, which will be shared by the two companies.
The joint venture will form a massive mining complex generating an estimated 4 million ounces of gold annually . This makes it the single largest gold-producing operation in the world, pending regulatory approval.
Takeaways for investors
Barrick had originally wanted to buy Newmont because of the synergies that could be unlocked in Nevada, but this joint venture allows Barrick and Newmont to capture those cost savings in Nevada while allowing each company to operate other mines independently. For investors, this is good news since they have more options to choose from. Newmont Goldcorp and Barrick are both massive gold producers with international portfolios. Both are currently profitable, likely to remain profitable, and large enough to withstand setbacks.
Barrick's management seems to be focusing more on efficiency and cost reduction while the managers at Newmont Goldcorp seems to be more focused on maintaining their position as the largest gold producer in the world well into the future. Barrick has the lowest cost of gold production out of all the major producers and has focused aggressively on cutting its costs-per-ounce by selling off higher-cost assets and flattening its management structure. Newmont Goldcorp's management pushed through a merger over shareholder opposition in order to build the largest portfolio of properties with potential for development. Newmont Goldcorp has higher costs of production than Barrick but also has more properties that have potential for development into operational mines.
Investors generally invest in gold mining companies to get exposure to gold prices without having to buy and store physical gold. During a gold bull market, the increase in share price of gold miners often exceeds the increase in the price of physical gold itself. However mining is risky and owning shares in mining companies is much riskier than owning physical gold. Investors can choose between Barrick which is more focused on efficiency and Newmont Goldcorp which seems to be more focused on size. Or, they can buy some of each so they don't have to rely solely on one company to give their portfolio exposure to gold.
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