By Alistair MacDonald
TORONTO--Two decades of intermittent merger talks between
Barrick Gold Corp. and Newmont Mining Corp. were off again Monday
amid public mudslinging about who killed a deal that would have
created a global mining giant.
As the monthslong negotiations descended into recriminations on
Monday, it became clear that the talks were scuttled by personality
clashes and tussles over governance similar to those that former
executives say sank earlier efforts to merge.
The two mining companies now face all of the problems--lower
gold prices, high costs and declining accessible gold grades--that
the combination aimed to alleviate. With operations in five
continents and around 13% of global gold production, the companies
expected the deal to produce $1 billion in cost reductions.
"Personalities, I don't care about that," said Caesar Bryan, a
portfolio manager at the Gabelli Gold Fund that owns shares in both
companies and believes they should still merge. "To the extent that
there are synergies for the harvesting, let's do it."
The two sides agreed to terms, including economic and governance
matters, on April 8, according to Barrick. But the agreement,
Barrick said, unraveled over the next weeks as Newmont tried to
renegotiate three "foundational elements": the location of the new
company's head office in Toronto, the spinning off of some assets
into a separate company and the issue of governance.
Newmont said a firm deal hadn't been reached and blamed
Barrick's co-chairman John Thornton for making a "unilateral
declaration" that the talks were over.
On the eve of the long Easter weekend, Mr. Thornton twice told
Newmont that merger talks were "dead," according to a letter
Newmont Chairman Vincent Calarco wrote to the Barrick board April
25 and which Newmont released to the public Monday morning. Mr.
Thornton led Barrick's negotiations, according to people familiar
with the matter.
"Efforts to find consensus have been rejected out of hand
repeatedly," Mr. Calarco wrote.
Both miners have recently taken write-downs for deals made in
headier times. Last year, gold miners wrote down $36 billion of
value, according to BMO Capital Markets, and almost a third of that
came from Barrick. Newmont has taken several billion dollars of
write-downs, including $1.77 billion in the second quarter of last
year.
Investors have punished their shares in equal measures, sending
them both down around 64% from their highs when gold peaked nearly
three years ago. Gold futures have fallen 30% from that peak.
The urgency failed to patch differences between the two sides,
which included the roles of senior personnel, according to
Newmont's letter and people familiar with the matter.
The two sides disputed the reporting line for Gary Goldberg, the
Newmont chief executive who was to become CEO of the combined
company, according to a person familiar with the matter. At one
stage, Mr. Calarco, who was set to be lead director, wanted Mr.
Goldberg to report to the new board rather than directly to Mr.
Thornton and wished to make joint decisions on strategy with Mr.
Thornton, according to that person.
Mr. Caralco declined to comment through a spokesman.
The two companies have talked about a deal off and on for almost
two decades, and could resume the discussions.
Some investors had hoped that a changing of the guard at Barrick
with the departure of founder Peter Munk this week would help
smooth a merger.
Mr. Munk, a larger-than-life character in Canadian business
circles known for his deal-making penchant, alienated Newmont
during the talks by giving interviews and at one point calling
Newmont "not shareholder-friendly," a point raised by Mr. Calarco
in his letter.
But the collapse in talks, and Mr. Calarco's comments about Mr.
Thornton's role, is likely to stoke shareholder frustration with
Mr. Thornton and Barrick, a company that has been repeatedly
criticized on the issue of corporate governance and boardroom
pay.
On Monday, Canada's giant pension fund, the Canada Pension Plan
Investment Board, said it plans to oppose Mr. Thornton's $9.5
million compensation for 2013, which was reduced from the $17
million he was paid a year earlier.
"We continue to be concerned with the company's practice of
granting outsized awards on a largely discretionary basis, which we
believe is inconsistent with the governance principle of
pay-for-performance," the pension fund said.
Now, both Newmont's Mr. Goldberg and Barrick CEO Jamie Sokalsky,
who, in the merger scenario, was to have headed the spun-off
company, will be under pressure to continue to cut costs while
steering clear of the sort of big-vision deal they attempted to
seal.
They likely can't count on help from higher gold prices.
While gold is up year-to-date, most gold watchers expect the
metal to end the year flat to lower as Chinese demand falters and
as the U.S. Federal Reserve winds down its efforts to stimulate the
economy. That stimulus had supported gold, which is used by
investors as a hedge against the inflation that such efforts can
spark.
Ben Dummett and John W. Miller contributed to this article.
Write to Alistair MacDonald at alistair.macdonald@wsj.com
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