Earlier this year, gold mining giant Newmont Goldcorp (NEM -0.68%) recently formed after Newmont bought Goldcorp in a merger valued at $10 billion. However, many investors disliked this deal, and another gold mining giant, Barrick (GOLD -0.81%), attempted to buy Newmont and cancel Newmont's acquisition of Goldcorp, claiming a merger between Barrick and Newmont made more sense than a merger between Newmont and Goldcorp. Barrick's attempt to buy Newmont did not go through, but Barrick and Newmont Goldcorp did announce a deal to form a joint venture in Nevada, called Nevada Gold Mines, allowing the two companies to share their facilities and infrastructure in Nevada in order to cut costs.
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Nevada Gold Mines
Barrick owns 61.5% of the joint venture and Newmont owns 38.5%. The venture consists of eight mines in Nevada, four contributed by Barrick and four contributed by Newmont, along with the associated infrastructure and processing facilities. Thanks to the sharing of facilities and equipment, the deal is expected to generate around $5 billion in cost savings that will be shared by both companies.
The joint venture will form a massive mining complex generating an estimated 4 million ounces of gold. It will be the single largest gold-producing operation in the world. The joint venture is expected to receive regulatory approval in the next few months.
Barrick had originally wanted to buy Newmont because of the synergies that could be unlocked in Nevada, but Newmont did not want to be bought out. This joint venture allows Barrick and Newmont to capture those cost savings in Nevada while allowing each company to operate other mines independently. This is important, since both companies operate mines around the world. It allows Barrick's balance sheet to remain unexposed to problems that may arise in other Newmont Goldcorp mines, and it allows Newmont Goldcorp's balance sheet to remain unaffected by troubles that may arise at Barrick.
Conclusion
Barrick just completed a merger with Randgold that has made it the world's largest producer of gold as well as the world's lowest-cost producer. This partnership allows it to continue reducing its costs. Newmont and Goldcorp just merged as well, and the cost savings should help mitigate some of the setbacks Newmont Goldcorp shares have faced based on concerns its investors had over its merger. The joint venture allows cost-saving collaborations without exposing the entire balance sheet of each company to that of the other company.
The announcement of the joint venture is a good sign for both companies, but investors should watch it carefully over the coming years to make sure that the anticipated cost savings materialize.
