/FP Dealmakers: Inside Barrick’s attempt to gatecrash Newmont and Goldcorp’s party

FP Dealmakers: Inside Barrick’s attempt to gatecrash Newmont and Goldcorp’s party

All through the holidays, Rick McCreary kept disappearing from his family, hopping on conference calls for long stretches without explaining what was going on.

So it goes for a deputy chair of investment banking at TD Securities when a major merger is in the works.

In this case, it was between December 2018 and January 2019, and McCreary was advising Vancouver’s Goldcorp Inc. on its US$10-billion acquisition by Colorado-based Newmont Mining Inc., one that triggered a wave of other deals, and only closed after a series of bumps almost derailed it entirely.

“Honestly, it was the most stressful one I’ve worked on,” said McCreary.

For McCreary, it carried a strong emotional weight because of the long and tangled history of the companies and people who worked on it.

McCreary had known Newmont’s head of corporate development Randy Engel for at least a decade; and in 2014, when McCreary was head of corporate development at Barrick Gold, he sat across from Engel at Newmont when the two companies grappled with the idea of a merger.

But negotiations broke down leaving a pool of acrimony on both sides, and McCreary retreated to TD not long afterwards. Now, he was helping Goldcorp be acquired by Newmont.

His relationship with Goldcorp’s head of corporate development, Russell Ball, stretched back more than a decade to when they both worked for CIBC Capital Markets and helped defend Placer Dome Inc., unsuccessfully, against a hostile takeover by Barrick Gold Corp.

Everyone was wondering how Barrick would react to Newmont’s acquisition of Goldcorp, which would turn it the world’s largest gold producer.

“We suspected Barrick would do something,” McCreary said.

Honestly, it was the most stressful (deal) I’ve worked on

Rick McCreary

Barrick had only just taken back the title as world’s largest gold producer in late 2018, through a merger with the African-focused Randgold Resources Ltd. That deal injected fresh blood and purpose into the gold giant by installing Randgold’s highly respected chief executive, Mark Bristow, at the helm of the new company.

True to form, Barrick did not take the news sitting down. In February, Bristow called investors and suggested a “far superior proposal” — a hostile takeover of Newmont.

In a press release, he said such a deal would be “a radical and long-overdue restructuring of the gold industry, and a transformative shift from short-term survival tactics to the long-term creation of sustainable value.”

The two companies had long vied for the title of the world’s largest gold producer, and had joint ventures in Australia and the Dominican Republic. Engel said that for two decades the companies had been dabbling with different forms of collaboration on an almost yearly basis.

“We’ve been through many discussions with Barrick, some about a joint venture, some about a combination,” said Engel, who added such discussions occurred nearly every year, “but never did we have one company attempt a hostile takeover.”

It was the ultimate threat, and the idea gathered enough steam that the two companies’ CEOs even met for dinner.

Barrick CEO Mark Bristow.

Barrick CEO Mark Bristow.

Simon Dawson/Bloomberg files

Engel said multi-billion dollar deals always involve days of sleepless or nearly sleepless nights, and Barrick’s attempt to break up the merger with Goldcorp and instead swallow Newmont added multiple layers of stress.

As McCreary and Engel contemplated the prospect of the Newmont-Goldcorp deal falling apart, they pushed another idea: Barrick and Newmont should just combine assets in Nevada where both owned major assets. That’s exactly what happened in a joint venture estimated to have created billions of dollars in annual synergies.

“That value would not have been created if Newmont and Goldcorp had not created a deal,” McCreary said.

The power punch, Goldcorp’s acquisition followed by the Barrick-Newmont joint venture in Nevada, helped rejuvenate the precious metals sector. And when gold came roaring back in the second half of 2019, rising from below US$1,300 per ounce to above US$1,550, more deals soon followed.

Suddenly, Newmont and Barrick needed to shed assets that no longer fit their newly expanded portfolios.

“After the big deals we saw, it was inevitable that they were going to be selling assets,” said Tom Jakubowski, global head of mining at Canaccord Genuity Corp. in Toronto.  “There could be more, there could be other assets that could fall out of those companies.”

Jakubowski cited Barrick Gold’s sale of its Massawa mine in Senegal for up to US$430 million to Teranga Gold, which already operates one mine in the country plus another in Burkino Faso.

Teranga is likely to have cost synergies because it can use existing infrastructure to process ore from the mine, and Jakubowksi, who helped arrange financing for the deal, said it is the type of consolidation that the sector needs to attract investors.

Indeed, Teranga’s stock is up roughly 37 per cent since announcing the deal in late December.

But with gold prices and valuations rising, dealmakers also found new enthusiasm for acquisitions. For example, China’s Zijin Mining Group Co. Ltd. bought Continental Gold Inc., which is building a mine in Colombia, for $1.4 billion, while Kirkland Lake Gold Ltd. bought Detour Gold Corp. for nearly $5 billion.

“We’ve seen a big sea change in terms of investor sentiment,” said Greg Huffman, global head of mining sales at Canaccord Genuity. “Investors are coming back to the sector for the right names under the right circumstances and the right pricing. That’s very different from where we were in the first half of 2019.”

Investors are coming back to the sector for the right names under the right circumstances and the right pricing

Greg Huffman, global head of mining sales at Canaccord Genuity

In 2019, equity financings including convertible debt started coming back to the Canadian mining sector after two consecutive years of double-digit declines. Roughly $1.8 billion was raised by precious metal miners, more than twice as much as the $821.37 million raised in 2018 (excluding explorers that have not yet defined a resource deposit), according to Financial Post Data.

“One of the things we are hearing repeatedly is the days of single-mine companies are over,” said Peter Collibee, head of global metals and mining at Scotia Capital, “and the investor community has to a large degree shunned that part of the market.”

He pointed to consolidation among intermediates, citing as an example the $770-million merger of Leagold Mining Corp. and Equinox Gold Corp., which he advised on and was announced in December, as the likely next stage for the mining industry.

One question that remains for 2020 and beyond is what effect the expected consolidation will have on Canada’s mining sector. Barrick, once based in Toronto, no longer has any executives based in Canada and U.S.-based Newmont’s acquisition of Goldcorp also eliminated another major Canadian mining company.

“The Canadian mining industry has an incredible track record of reinventing itself and creating new companies,” Collibee said. “It’s gone through a tough period the last few years, but it’ll go through this period of consolidation and what’ll emerge out of it is stronger companies.”

Jay Kellerman, a lawyer at Stikeman Elliot LLP, said the Canadian mining industry has evolved. Deposits have become more challenging geologically, and social licence issues have also assumed a new focus, both of which have increased the importance of strong operational performance.

In years past, he said most CEOs spent half their time running the company, and the other half talking to investors, or “running the market.”

“I don’t think that anymore,” said Kellerman. “Now, I think a good CEO spends 80 per cent of their time running their company.”

Financial Post

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