By Clara Ferreira-Marques
(The author is a Breakingviews columnist.)
NEW YORK, March 6 ( Breakingviews) - Big diggers can learn from the golden oldies. Barrick Gold appears to be warming to the idea of a joint venture with Newmont, the $18 billion rival that rejected an all-out merger this week. Australian miner BHP too turned a hostile bid for rival Rio Tinto, into friendly talks over a tie-up a decade ago. That failed, but this time can be different.
Plus, it means Newmont can forge ahead with its plan to merge with another miner, Goldcorp. Ditching that deal could trigger a $650 million break fee.
Pooling major operations in a joint venture is rare, but there is precedent. After BHP climbed down from its hostile bid for Rio Tinto in 2008, the two sides put their enmity aside and agreed to focus on their deposits in the Pilbara region of Australia, creating a dominant powerhouse in iron ore.
Barrick and Newmont would still face some issues - like how to split the assets. Newmont thinks it should get 45 percent to Barrick's 55 percent. That probably doesn't fully reflect Barrick's lower costs and richer resources. There's also the issue of management. Barrick has argued that a joint venture would be too complex to get the benefits it covets.
BHP and Rio offer clues as to how to solve both problems. BHP planned to make an extra payment to Rio in 2009 to even out their share of the venture. And the two had intended to set up completely independent management with guarantees that the companies would not meddle. In a highly complex set of mines, that would be almost essential.
In the end, BHP and Rio's plan failed. Regulators were minded to block the deal, they said at the time, and some big customers had lobbied to have it nixed. Those risks are smaller here because gold mining is more fragmented. There's a chance to turn past failure into present success.
- Barrick Gold Chief Executive Mark Bristow and Newmont Mining boss Gary Goldberg met in New York on March 5 to discuss a possible joint venture in Nevada, where the two have adjacent mines. Newmont said the talks were "productive and a good starting point".
- Barrick made an unsolicited $18 billion offer to merge with Newmont on Feb. 22. Newmont rejected that idea on March 4, but proposed the joint venture instead.
- Joe Foster of Van Eck International Investors Gold Fund, Barrick's top shareholder, said on March 5 that he would prefer a joint venture to a full-scale merger.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.