BIDDING FOR GOLD SUPREMACY

Bidding for Gold Supremacy:Takeover Battle Shows Attractiveness of Gold Assets

In a reflection of the resurgent market for gold mining assets, Barrick Gold launched a hostile takeover bid for Newmont Mining. The unsolicited $18 billion all-stock bid would combine the world’s largest miner, Canadian-based Barrick, with America’s largest, Newmont. The offer comes just weeks after Newmont announced an agreement to purchase Goldcorp, a deal which would leapfrog Barrick to create the number one mining company.

The gold mining industry has been consolidating, as mining output has slowed, in part because it now requires more effort and expense to extract gold from existing mines. So gold companies are trying to reduce expenses. A quick way to do that is through mergers, which offer the opportunity to consolidate operations. In fact, Barrick itself recently purchased African miner Randgold Resources.

Meanwhile, the price of gold has rebounded sharply since the summer of 2018, making gold mining assets more attractive.

Barrick did not offer a premium to Newmont’s share price, which Newmont’s CEO Gary Goldberg said, “doesn’t make sense.” He criticized Barrick management, arguing, “Look at our record of good delivery and their record of destruction of value.”

While the two companies may not resolve their differences to strike a deal, the trend towards consolidation and cost-cutting in mining has bullish implications for the price of gold: fewer companies are going to be spending a declining amount of money extracting gold from the earth. As long as demand for gold remains stable, or increases, over the long term gold prices should rise.