Newmont, Barrick disagree on mine value

Bloomberg

A split between the world’s two largest gold producers over the value of their jointly owned Australian mine is more about future economic expectations than what’s in the ground.
That’s the view of Newmont Mining Corp.’s Gary Goldberg, who has been saying for over a year he’d be interested in buying Barrick Gold Corp.’s half of the Kalgoorlie Super Pit — at the right price. Since Barrick officially started a sales process of the 50 percent stake in July, a wide field of potential bidders is said to have formed to vie with Newmont for the stake in Australia’s largest open-pit gold mine.
“We’re not misaligned in terms of where we see some of the value of the resource that’s there,” Newmont’s chief executive officer said in an interview with Bloomberg TV Canada. “But people have different assumptions on exchange rates, and gold price, those sorts of things.” Gold has been on a wild ride this year. After the largest first-half increase in almost four decades, futures have toppled as speculation increases that the U.S. will raise interest rates, curbing the appeal of the metal as a store of value. The Australian dollar has been similarly choppy, strengthening against the greenback in the first and third quarters and weakening in the second quarter. The surge in gold prices this year comes after three straight
annual declines. That prompted gold miners to cut costs, delay projects and sell assets, creating a situation
for many large miners in which maintaining future levels of production is more difficult.
Both Greenwood Village, Colorado-based Newmont, which operates Kalgoorlie, and Toronto-based Barrick have declined to say how much they think the 50 percent stake is worth, and observers’ views have varied. The sale may fetch as much as $1 billion, people familiar with the matter said in July, while analyst valuations have ranged from $400 million to about $1.5 billion.
Barrick is considering various ways to structure the sale, people with knowledge of the matter said last week, including selling shares in the holding company that owns the mine.That could avoid triggering Newmont’s Right of First Refusal on the sale, which allows the U.S. miner to supplant any bid.
“Goldberg confirmed Barrick
could structure the transaction as a share sale, but said that could
have implications for buyers. “Does it make sense to a future buyer who’s got less flexibility when you buy it at that level, around things like depreciation and tax?”
“We are prepared to consider any structure that makes sense, Andy Lloyd, a Barrick spokesman, said Friday in an e-mailed comment on the sale of its Kalgoorlie stake.
Newmont’s agreement to operate Kalgoorlie expires in 2020. Since taking over the mine’s operation in May 2015, it has cut costs by 30 percent and boosted production 20 percent year-over-year, Goldberg said.
Asked if Newmont would want to retain ownership of its half of the mine if a new partner wanted to operate it, Goldberg said the company would decide at the time. “We’d like to follow the path that makes the most sense from a value standpoint,” he said. “Ultimately I do think that’s us operating it but we’ll just have to see.”