Colorado-based Newmont Mining Corp. and Canada's Barrick Gold Corp. have agreed to form a joint venture, a move that cancels Barrick’s nearly $18 billion offer to buy its American rival.
The end of the buyout bid, at least for now, means that one of Colorado's 10 Fortune 500 companies will remain headquartered in the state.
The joint venture creates the world’s single largest gold-producing operation in Nevada.
Last month, Barrick proposed an unsolicited, all-share deal that would combine the world’s biggest gold miners and squeeze billions of dollars of costs from their large Nevada operations.
Newmont, headquartered in Greenwood Village, rejected that deal but offered to form a joint venture in Nevada to achieve the savings, a partnership both companies have talked about for two decades.
Nevada generates nearly one-third of Newmont’s revenue and more than 40% of Barrick’s.
On Monday, the two sides said they had sealed a joint venture that will allow them to save an estimated $500 million in average annual pretax costs in the first five full years of the combination, which is projected to total $5 billion over a 20-year period.
Barrick said that it has withdrawn its proposal to acquire Newmont. If this joint venture was a separate company, it would be the third largest gold miner in the world after Barrick and Newmont.
“If both parties manage to realize the synergies in Nevada with a well-run JV then that is good,” said Simon Jäger, a fund manager at Flossbach von Storch AG, one of Barrick and Newmont’s largest investors, according to data from FactSet.
“It’s not about the format or size per se; it’s about generating free cash flows,” he said.
In early trading in New York, Barrick shares rose 1.6%, while Newmont shares were down 1.8%.
The merged operations produced more than four million ounces on a pro forma basis in 2018 and contain 48 million ounces of reserves, Barrick said in a press release.
“We listened to our shareholders and agreed with them that this was the best way to realize the enormous potential of the Nevada goldfields’ unequaled mineral endowment,” Mark Bristow, Barrick’s chief executive, said in an emailed statement.
Some investors, including Barrick’s largest shareholder, VanEck International Investors Gold Fund, had said that they would rather see a joint venture than a takeover, given it would achieve most of what the merger set out to do but without the risks of a full-blown deal.
Gold miners are under pressure from investors after years of poor returns. Newmont’s chief operating officer, Tom Palmer, said Monday’s deal could serve as a template for other gold miners that can combine operations that are close by.
A joint venture as massive as the Barrick-Newmont operation is untested territory in the gold industry, where joint ventures tend to cover one mine. The deal will fuse 10 large mine sites, power and processing plants, as well as rail and other infrastructure, under the banner of two companies with a history of acrimony.
The companies already operate two mines together. During an often bitter takeover battle, Catherine Raw, Barrick’s Chief Operating Officer of North America, said those joint ventures, in Nevada and Australia, had suffered operating disputes and added bureaucracy and confusion.
Newmont’s Mr. Palmer said in an interview that the joint mines operate very well, and that authority and responsibilities in the Nevada group are well delineated in a way that will avoid clashes.
Barrick will act as the main operator of the assets and own 61.5% of the venture, while Newmont will own 38.5%.
Some analysts questioned whether the miners will be able to achieve the sort of cost synergies that both have talked of, though most analyst comments were positive.
Newmont’s rivalry with Barrick in Nevada began in the 1980s when the Toronto miner acquired rights to a property called Goldstrike, adjacent to one of Newmont’s largest Nevada properties. The two sides have mused about joining forces in some capacity ever since.
The deal came together after Newmont rejected Barrick’s merger proposal, offered a joint venture instead, and then Barrick’s shareholders began to favor the joint venture, people familiar with the matter said.
After a dinner in New York between Mr. Bristow and Newmont CEO Gary Goldberg March 5, senior officials from both sides met in downtown Toronto to hash out a deal, said Mr. Palmer.
Newmont is trying to complete its own takeover deal, a $10 billion proposed acquisition of Canadian miner Goldcorp Inc. Goldcorp shares were up 0.77% in early trading Monday.
Over the weekend, a group of investors criticized the size of the payments for Goldcorp’s current CEO and chairman related to the takeover, which could be between $8.2 million and $9 million, according to the group, which calls itself Shareholders’ Gold Council.
A spokeswoman for Goldcorp referred to a circular sent to investors at the time of the deal that said Chairman Ian Telfer’s payment was “on the basis of Mr. Telfer’s role as founder and strategic leader of Goldcorp.” She declined to comment further.
Allison Prang contributed to this article.