Barrick Gold issued its 2014 first quarter results today, which are sobering for the heavily indebted gold miner. With the substantial drop in gold prices, of 28% in 2013 alone, and continuing into 2014, net income fell to just US$88 million, on revenues of 2.6 billion, compared to net income of ten times as much, or US$847 million in the first quarter of 2013 on revenues of US$3.4 billion.
Two days ago merger talks with competitor Newmont Mining blew up publicly with mutual recriminations, and then some tit for tat comments from both companies. After Barrick had tersely confirmed the talks had ended, Newmont released the text of a letter it had sent to the Barrick Board of Directors complaining bitterly about premature press disclosures being used to position Barrick to its detriment and about some of Barrick’s tactics in their discussions.
Next Barrick, not to be outdone, then released a second press release outlining that in its opinion there had been an agreed set of principles surrounding the proposed merger but that Newmont has sought to renege on what it termed three foundational elements of what it called a “signed” term sheet. The three principles concerned:– location of a joint head office in Toronto, identity of assets suitable to be spun off and ‘“carefully constructed” governance arrangements. This latter item presumably refers delicately to the expected ultimate constitution of the Board of Directors.
Not to be left without the final word, Newmont immediately responded with another release of its own confirming only that the two companies had settled a “preliminary draft summary of indicative terms for discussion purposes.” Newmont then strongly disagreed with Barrick’s characterisation of the events that had followed, and again confirmed that in its opinion discussions with a Co-Chairman of Barrick on certain fundamental strategic and structural issues proved to be unproductive and that agreement could not be reached. They did not specify which “Co-Chairman” by the way – i.e. whether it was Peter Munk himself or John Thornton, though many will guess it likely denoted the former.
Fair enough, and as Newmont’s own Annual General Meeting was all set to take place just one day later, too, one could see why they should wish to set the record straight quickly. In the end all Newmont’s shareholder resolutions passed at their own meeting yesterday, including all its nominees for the Board of Directors by 99% voting majorities.
In its own first quarter results Newmont also ended up making more money than Barrick, which must have rubbed things in a bit too. For the 2014 first quarter Newmont reported continuing net income attributable to its own shareholders of US$117 million on revenues of nearly US$1.8 billion, compared with US$314 million on revenues of nearly US$2.2 billion, in the first quarter of 2013.
Since it definitely takes two to tango, at least in what was nominally supposed to be a friendly arrangement, before it all blew up in everyone’s face, this now leaves Barrick having to soldier on and be content to chip away steadily at their own internal cost structures. Nothing wrong with that; a merger would not have been a substitute for this in any case, and perhaps in a few months the environment for resumed discussions may improve again.
John Thornton, who later today becomes sole Chairman, with the retirement of Peter Mr Munk at Barrick’s own Annual General Meeting, may also now go cap in hand to the Chinese as a source of partnerships and of liquidity, as a number of mining companies already have before him.