Barrick Mining (B.US) shares plunge as $1.95 billions settlement is considered "too low"

Zhitong Finance APP reported that Barrick Gold (B.US) closed down 6.4% on Monday, as investors were disappointed with the settlement reached with Newmont Corporation (NEM.US). The agreement is aimed at resolving the dispute between the two companies over the Nevada gold mine joint venture, thus paving the way for Barrick Gold to list its North American mining assets in the U.S. Newmont, on the other hand, closed up 3.8%.

According to the agreement announced on Monday, Newmont will pay Barrick Gold $1.95 billion. At the same time, both companies will contribute assets that were previously not included in the joint venture, including Barrick's Fourmile project and Newmont's Fiberline and Mike large-scale gold mine development projects.

Analysts Grant Sporre and Emmanuel Manjerie stated: "Given the quality of the assets, even though this deal removes a key obstacle for a North American IPO and reshapes the relationship with Newmont, the deal amount still looks a bit low."

Although the settlement removes barriers for Barrick Gold to conduct a gold asset IPO in North America, Citi analyst Alexander Hacking stated that the transaction amount "may fall short of some investors' expectations," since "investors generally value the Fourmile asset at around $10 billion to $20 billion," and the payment Newmont made for its 38.5% stake "may range between $4 billion and $8 billion."

TD Cowen analyst Steven Green said that Newmont got an incredible deal for its stake in the Nevada joint venture, as the $1.95 billion payment to Barrick is "far below" his assigned intrinsic value of $6.6 billion for a 38.5% stake in Fourmile. This results in Newmont acquiring the asset at "a very attractive price," and is expected to boost its valuation by $4.7 billion.

Green noted that by injecting the Fourmile project into the Nevada joint venture, Barrick is also poised to benefit. This should save on expensive feasibility studies, make use of existing local infrastructure, and potentially save the joint venture over $1 billion.