Billed as a way of creating value for investors the proposal to create a gold-mining giant by merging
The plan to form a single business containing the best assets of both companies while offloading secondary assets into a separate company came close to being agreed last week, only to stumble at the last hurdle, reportedly over asset values.
Previous attempts to merge Newmont and Barrick, which operate adjoining mines in a number of locations around the world, and even share common ownership of some mines, had failed when discussions turned to management positions and board composition.
Off Today, On Tomorrow?
This time around, ego does not appear to have caused the breakdown, encouraging outside observers to note that the two companies could return to the negotiating table after next week's annual meeting of Newmont.
Chief selling point of a merger is an estimate that up to $1 billion in cost savings might be available from integrating the businesses with Barrick's founder and soon-to-retire joint chairman, Peter Munk, succinctly summing up the situation by saying that "why have two accountants and two geologists when one could do".
Munk is correct, especially in regard to the Nevada mines of Newmont and Barrick, though the cost saving estimate is probably close to $500 million than $1 billion.
Whatever the savings available from cost cutting there is a deeper meaning in the merger proposal and that is that the boards of both companies are effectively admitting that they are running short of internal growth options and a cost-saving merger is the best way to create value.
No-one Cuts His Way To Greatness
The problem with that approach is that while it will deliver a short-term boost there is no escaping the old management saying about how a company can "never cut its way to greatness".
What the merger proposal is telling all but the most die-hard believe in gold is that the boards of Newmont and Barrick are not optimistic about outlook of gold with cost cutting the best way to combat a future fall in the gold price and a big merger the best way to achieve a quick fix.
On the stock market there has been little excitement generated by the merger talk with both companies struggling to maintain investors interest as the gold price struggles to rise far above $1300 an ounce, even with ongoing instability in Ukraine and threats of harsher sanctions against Russia for its takeover of Crimea.
Gold Heading For $1050 An Ounce Says Goldman Sachs
The latest gold price of $1284 an ounce means that gold has fallen by $100 an ounce over the past four weeks, adding to concern that it could be on its way to $1050 an ounce, the latest price tip from the investment bank, Goldman Sachs.
If that forecast from Goldman Sachs is accurate then a new urgency will enter the merger talks between Newmont and Barrick, and a lot of lesser gold-mining companies will be under significant investor pressure to seek similar cost-saving benefits.
Even without a further fall in the gold price the fact that Newmont and Barrick almost made it to the alter last week will have gold-company directors looking around for a merger partner as a first step in long-term survival.
