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Negotiations stall on $4 billion divestment

Investors in Texas have been waiting for the impending merger between Newmont Mining Corp and Barrick Gold Corp. People worldwide are primarily interested to see which assets will be divested in the merger. Rumors that the Asia Pacific mines may be divested might interest those who prefer to own portfolios of assets that share the same geographic area or profile. Negotiations stalled during April 2014 as the two mining corporations disagreed on which assets to divest in the merger.

The combined gold production from Barrick and Newmont was approximately 12.3 million ounces during 2013. The new parent company is expected to reduce production to approximately 7 million ounces annually. The Asia Pacific mines would rank as the fifth-largest producer worldwide if divested. Based on similar transactions, analysts project its worth to be approximately $4 billion. Some of the largest and oldest mines in Australia are included in the nine assets that produce 2.9 million ounces during 2013, with more than 33.5 million ounces in reserves.

The nine assets include mines in Indonesia, Papua New Guinea, New Zealand and Australia. The two companies are currently the largest producers in Australia. The divestment would produce as much gold as Australia's largest three mines combined. However, some investors are tepid on the divestment and feel there may be more value elsewhere in the market. According to the Barrick's founder, the two mining corporations have considered a tie-up five times already.

Barrick has lost value on divestments before, including when it divested mines in Tanzania during 2010. Legal counsel may be able to help these two corporations negotiate the divestment in order to reduce risks and appease potential investors. The division and reallocation of assets is often complex when two international firms converge. Lawyers often work closely with financial advisers in order to discover the most optimal outcomes for mergers and divestments.

Source: Bloomberg, "Castoffs in Barrick Newmont Merger May Become $4 Billion Rival", David Stringer, April 24, 2014

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