A Deal Investors Did Not Love
Barrick's bad day started with a deal that was supposed to clear the way for its big stock market debut. Barrick plans to list its North American business in New York through an initial public offering, or IPO.
Investors wanted a bigger number, and they said so with their selling.
That gave Barrick shares their biggest drop since March.
The deal also gives Newmont a 38.5% stake in Barrick's Fourmile project. Mark Hill, the CEO of Barrick's planned North American business, says that $4 billion figure already nets out Newmont's payment, Barrick's cost for the Newmont properties it receives, and fees to settle litigation over their Nevada joint venture.
That explanation did not calm everyone. Bloomberg Intelligence analysts Grant Sporre and Emmanuel Munjeri wrote that Newmont appears to have gotten the better terms, saying the $4 billion figure looks thin for a project of Fourmile's quality even though the accord removes a major obstacle to the North American IPO and repairs relations with Newmont. They also calculated the implied value of the gold in the ground at about $325 per ounce, a price that arguably favors Newmont.
The Fight Behind the Deal
This deal ends a messy argument. Newmont had earlier sent Barrick a notice of default over alleged mismanagement at their shared Nevada operation.
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That dispute was hanging over the IPO, and this agreement takes it off the table.
Barrick, the world's third-largest gold producer, wants to spin its North American mines into a new publicly traded company. Barrick has targeted the end of this year for that listing.
But several major shareholders have pushed back against the plan, so the listing still has opposition.
Fourmile, the project at the center of the deal, has serious upside. A preliminary assessment from September says it could produce up to 750,000 ounces of gold per year.
Alexander Hacking at Citigroup says the market's general view is that Fourmile is worth roughly $10 billion to $20 billion. With a range that wide, it is easy to see why a $4 billion deal felt light.
The Business Behind the Headlines
Forget the legal drama for a second. Barrick's core numbers came in okay.
In the second quarter, adjusted profit per share, known as EPS, hit 82 cents, matching analyst estimates. Gold output rose 11% to 796,000 ounces compared with the previous quarter.
The company also maintained its full-year outlook of 2.9 million to 3.25 million ounces of gold and copper output between 190,000 and 220,000 tons. Free cash flow, the cash left after keeping operations running, was $515 million in the latest quarter, compared with $1.58 billion in the prior one.
That drop is separate from the Newmont deal, and it could matter just as much.
What This Means for Your Portfolio
Monday's move shows how quickly the mood can change.
What matters for your portfolio is the gap between the investor consensus of roughly $10 billion to $20 billion for the asset and what another major gold miner is willing to pay. In gold mining, the metal in the ground only helps if the price attached to it makes sense.
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