Barrick Gold Corp. (ABX.TO) said earlier this week it’s pressing ahead “expeditiously” with its plan to swallow Newmont Mining Corp. (NEM.N) in an all-stock US$17.8-billion deal. For investors, that may bring back unpleasant memories.
Billing the takeover as an “Unprecedented value creation opportunity,” Toronto-based Barrick said it doesn’t need to devote too much more time to actually assess the quality of Newmont’s assets.
“We have completed extensive due diligence and analysis of this transaction based on publicly available information,” Barrick said in its news release on Monday. “As a result, our diligence requirements are limited and confirmatory in nature and would be able to be addressed within a compressed timeframe.”
But Barrick has previously moved fast and ended up breaking things, and there may be some lessons to learn for its latest takeover attempt.
In February 2013, the company took a writedown of US$3.8 billion on its copper business. Most of that was on the Lumwana mine in Zambia, which was acquired in the 2011 takeover of Equinox Minerals for more than $7 billion.
“As most of you know, the operating results at Lumwana have been disappointing since we acquired Equinox,” then-CEO of Barrick Jamie Sokalsky said. “They've been unacceptable actually.”
Lumwana might have been less disappointing if Barrick had spent more time checking out the asset. But the company bought the mine in the middle of takeover battle, outbidding an offer from China's Minmetals Resources Ltd. As such, there was scant opportunity for extensive due diligence on the African mine.
The rushed deal, backed by Barrick’s founder, the late Peter Munk, was unpopular with investors who wondered why Barrick was plunging into copper.
Within a year then-CEO Aaron Regent was fired. The Equinox takeover “was my first major mistake – entirely attributed to hubris," Munk later admitted to the Globe and Mail.
Nevada – which accounts for almost 40 per cent of Newmont’s mining assets, according to Scotiabank – is familiar territory for Barrick. For years, the company has looked at combining its operations in the state with Newmont’s.
“There’s always things that come out of the closet,” Livermore Partners Managing Director David Neuhauser told BNN Bloomberg on Tuesday. “But they know this asset.”
Still, if Barrick does end up issuing almost $18-billion worth of shares in a successful bid for Newmont, cautious investors will be keeping a wary eye on that closet door.