Anthony Milewski, Chairman and CEO, Cobalt 27 Capital Corp. [TSXv: KBLT, OTCQX: CBLLF, FRA: 270], met with the London Metal Exchange’s Product Development department to discuss their electric vehicle battery materials initiatives. The London Metal Exchange (LME) is the world centre for industrial metals trading. With the launch of its new cobalt contract, we reached out the LME with some questions that we felt investors and Cobalt 27 shareholders would find interesting.
What is the London Metal Exchange and what does it offer as a platform?
The London Metal Exchange (LME) is the world centre for industrial metals trading. The prices discovered across the LME’s three trading platforms – the Ring, the inter-office ‘telephone’ market and LMEselect, our electronic trading platform – are used as the global reference price and, both the metal and investment communities use the LME to transfer or take on risk, 24 hours a day.
The LME has had a cobalt contract since 2010. Why is the Exchange launching a new cobalt contract now?
The LME launched its physically-settled LME Cobalt contract in 2010, which has been a steady performer amongst a core group of supporters for a physically settled contract. That said, the LME has also seen growing appetite for a cash-settled contract over recent years with the rise in demand for Electric Vehicles (EVs) and battery metals. Last year, we consulted the market in order to identify the best risk management solutions. Following extensive engagement with the market, on 11 March 2019, we launched a cash-settled LME Cobalt (Fastmarkets MB) contract, to complement our existing physically-settled offering. This new cash-settled contract is settled against the Fastmarkets MB Standard Grade index, allowing market participants who have exposure to the aforementioned price in their physical contracts, to hedge across the cobalt value chain with no basis risk.
What are the differences between the new cash-settled LME Cobalt (Fastmarkets MB) contract and the existing physically-settled LME Cobalt contract?
There are several differences between the two contracts, but the most relevant are the settlement structure, settlement price and prompt date structure.
Designed to mirror physical trading, daily prompts enable users of the physically-settled LME Cobalt contract to accurately hedge their physical transactions down to the day.
The LME Cobalt (Fastmarkets MB) contract settles on the last business day of each month in accordance with the LME trading calendar, out to 15 months, to the price of the Fastmarkets MB Index. In contrast, the physically-settled LME Cobalt contract offers daily prompt dates out to three months, weekly prompt dates between three and six months, and monthly prompt dates from the sixth month onward out to 15 months.
Cash settlement is a method used in certain futures and options contracts where, upon expiration or exercise, the seller of the financial instrument does not deliver the actual physical underlying asset but instead transfers the associated cash position. For sellers who do not wish to take actual possession of the underlying cash commodity, cash settlement is a more convenient method of transacting futures and options contracts. Cash settlement is also preferred by financial investors who bring additional liquidity reducing the bid-offer spread, and thus lowering the cost of trading.
And what about the physical delivered contract? What will happen to that now?
The LME recognises the ongoing market support for its physically-settled cobalt contract which has seen a steady uptake in recent months, with an increase in both trading volumes and stocks, and as such it will continue to offer a physically-settled option alongside the new cash-settled LME Cobalt (Fastmarkets MB) contract.
Physical settlement enables short position holders to deliver warrants – a warehouse warrant for the storage of metal, issued by a LME-listed warehouse and in a form approved by the Exchange – against their positions, whilst long position holders will receive warrants, and ultimately, take physical delivery of the metal or close out their position.
Physical settlement is preferred by a number of market participants such as cobalt producers who prefer the option of physical delivery, and the steady growth of the battery metals market in recent years has opened up the cobalt market to a number of new market participants wanting to gain exposure to the cobalt price and have the tools available to manage their price risk. In recent months we have heard of a number of cobalt producers who are interested in listing their brands on the LME and as part of our ongoing commitment to lowering barriers to market entry and serving the physical market, the LME has recently waived all brand listing fees for cobalt producers wanting to enter the market and list their brands on the LME. This waiver will last for 6 months, until October 2019, and any producers interested in listing on the LME should reach out to the team who will be happy to discuss this in more detail.
Who is the new cash-settled contract for?
Over the past few years, we have seen extreme volatility in the cobalt market which has a knock-on effect on the entire value chain, causing operational concerns – increasing financing costs, increasing counterparty risk and, ultimately, increasing the price of goods for consumers.
Furthermore, the significant growth in EVs in recent years has bought new players to the metals market, with considerable capital to invest in this space. Up until now, these new market participants have struggled to manage their exposure to the cobalt price, especially along the forward curve, as they have not had the tools available to them. The new cash-settled LME Cobalt (Fastmarkets MB) contract provides exposure to the Fastmarkets MB Cobalt Standard Grade price, helping market participants to manage risk along the entire cobalt value chain. A few examples of market participants who can benefit from these hedging tools include:
- Miners, traders and hydroxide producers, as well as traditional consumers like the super alloy industry, whose procurement contracts are linked to the Fastmarkets MB Cobalt Standard Grade index
- Cobalt sulphate producers and consumers whose procurement contracts are linked to the Fastmarkets MB Standard Grade price, including the EVs and Lithium-ION batteries industry
As liquidity grows, we expect a number of financial participants including funds and money managers to take an interest in the contract.
The LME Cobalt (Fastmarkets MB) contract will be available to trade 24 hours a day across the LME’s telephone market and from 01:00-19:00 London time on LMEselect, the LME’s electronic market.
What liquidity can we expect?
Building liquidity is always the biggest challenge for new exchange-traded products generally, and especially for small markets like cobalt, but we expect liquidity to grow progressively as our members deploy the infrastructure upgrades that allow them to access this market.
As observed in similar markets, we expect to see the majority of initial liquidity on the telephone market. However, over time we hope to see an increase in the amount of physical players benefiting from the contract and contributing towards an increase in on-screen liquidity and deep order book – providing the transparency and exposure that market participants require.
We have also introduced a new membership category of Registered Intermediating Brokers (RIBs). These are brokers who facilitate trades between two parties – either LME members or clients – helping to grow liquidity in smaller niche markets such as the cobalt market. We have seen in the past how RIBs have greatly supported the initial liquidity in other new markets such as LME Steel Scrap and LME Steel Rebar, playing an integral role in helping these markets to grow.
For more information about the LME’s cobalt offering, please contact one of the team at email@example.com
I welcome shareholders to get in touch with any comments.
Chairman and CEO
Cobalt 27 Capital Corp.
About Cobalt 27 Capital Corp.
Cobalt 27 Capital Corp. is a leading battery metals streaming company offering exposure to metals integral to key technologies of the electric vehicle and energy storage markets. The Company owns physical cobalt and a 32.6% Cobalt Stream on Vale’s world-class Voisey’s Bay mine, beginning in 2021. Cobalt 27 is undertaking a friendly acquisition of Highlands Pacific which is expected to add increased attributable nickel and cobalt production from the long-life, world-class Ramu Mine. The Company also manages a portfolio of 11 royalties and intends to continue to invest in a cobalt and nickel focused portfolio of streams, royalties and direct interests in mineral properties containing battery metals.
For further information please visit the Company website at www.cobalt27.com
Metalla Royalty & Streaming Ltd. [MTA-CSE; MTAFF-OTCQB; X9CP-FSE] said Monday April 1 that it has struck a deal to acquire a portfolio of 18 royalties from Alamos Gold Inc. [AGI-TSX, NYSE] for $11.5 million, payable in common shares of Metalla.
The acquisition of 16 royalties and two options to acquire additional royalties expands Metalla’s portfolio to 43 royalties and streams.
Metalla also said Monday it has arranged a $12 million convertible loan facility with Beedie Capital to finance acquisitions of new royalties and streams.
The loan will be financed by way of an initial $7 million advance within 90 days of closing. The remaining $5 million will be available for subsequent advances in minimum tranches of $1.25 million.
“This transaction marks a major step in the growth of Metalla,” said the company’s President and CEO Brett Heath.
On Monday, Metalla shares eased 2.24% or $0.03 to $1.31. The 52-week range is 63 cents and $1.43. Alamos Gold eased 4.13% or 28 cents to $6.50. The shares trade in a 52-week range of $3.88 and $7.97.
The assets being acquired include a 2% NSR royalty on the El Realto property, which is owned operated by Agnico-Eagle Mines Ltd. [AEM-TSX, NYSE]. El Realto is adjacent to Agnico’s operating La India Mine. The portfolio being acquired also includes:
- A 1.5% NSR royalty on the Wasamac Mine, which is located west of Rouyn-Noranda, Que., and is being developed by Monarch Gold Corp. [MQR-TSXV; MRQRF-OTC; MR7-FSE].
- An option to purchase a 1% NSR royalty on the La Fortuna Mine, which is located in Durango, Mexico, and is being developed by Minera Alamos Inc. [MAI-TSXV].
- A 1% NSR royalty on the producing Beaufor Mine, which is operated by Monarch Gold and located 20 km northeast of Val d’Or, Que.
- A 1% NSR royalty on the San Luis property in Ancash Department, central Peru. It is owned by SSR Mining Inc.[SSRM-TSX, NASDAQ]
Under the agreement with Beedie, the loan facility carries an interest rate of 8% on advanced funds and 2.5% on standby funds available with the principal payment due 48 months after the date that the financing is complete. The loan can be repaid with no penalty after 18 months and carries no warrant coverage.
The principal amount of the loan will be convertible into common shares of Metalla at a conversion price of $1.39, representing a 25% premium to the 30-day volume weighted average price as of March 15, 2019.
The loan facility will be convertible at any time, at the option of Beedie, and will be secured by certain assets of the company.
In November, 2018, Metalla completed the acquisition from Gogold Resources Inc. [GGD-TSX] of a 2% royalty on the Santa Gertrudis Mine in Sonora, Mexico for US$12 million.
In June 2018, Metalla was given the green light to acquire ValGold Resources Ltd. in a share exchange deal worth $7.2 million that left ValGold shareholders and option-holders with 11.2% of the issues and outstanding common shares of Metalla.
ValGold Resources was a long-established Canadian royalty and mineral exploration company. It held a net smelter royalty on the Garrison Gold Project in the Golden Highway Mining Camp near Timmins, Ontario. It also owned the prospective Tower Mountain Gold Project near Thunder Bay, Ontario. The company’s other assets included exploration properties in Venezuela near the Kilometre 88 District and Brisas Cristinas Project.
Osisko Mining Inc. [OSK-TSX] owns 100% and is the operator of the Garrison Gold Project, which consists of a portfolio of properties spanning a 50 km distance along the Destor-Porcupine Fault Zone, encompassing 16 non-contiguous properties, including the Garrcon and Jonpol properties, 903 Zone, and Buffonta and Golden Pike advanced exploration properties.
ValGold’s primary asset was a 2% net smelter royalty on a significant portion of the project, including all the claims which were the subject of a NI 43-101 compliant resource estimate in 2014.
According to the estimate by ACA Howe International Inc., the Garrcon and Jonpol properties contain a measured and indicated resource of 30.07 million tonnes, grading 1.24 g/t gold or 1.2 million ounces. On top of that is an inferred resource of 7.9 million tonnes, grading 3.19 g/t gold or 808,000 ounce.
Aguia Resources Ltd. [AGRL-TSXV; AGR-ASX] shares advanced Monday April 1 after the company said it has raised $874,708 from a private placement financing, and expects to bring in an additional $200,000 from loans provided by certain officers and directors.
The non-brokered private placement consists of 7.3 million ordinary shares priced at 12 cents per share.
The company said proceeds of the placement are earmarked for projects in Brazil, including the Rio Grande Copper prospects and the Tres Estradas phosphate deposit. Proceeds will also be used to strengthen the company’s balance sheet and to fund previously announced payments for the acquisition of copper and phosphate properties.
On Monday, following a resumption in trading, the shares rose 18.75% or $0.015 to 9.5 cents on volume of 1.9 million. The shares trade in a 52-week range of $0.075 and 34 cents.
Aguia’s primary focus is on exploration and development of mineral projects in Brazil. The key projects are located in Rio Grande do Sul, an agricultural area, which is highly dependent on phosphate imports.
The company recently said it has completed all necessary requirements to obtain an environmental permit for the Tres Estrades Project. It said the next step involves the application for an installation permit that will set the stage for construction to start.
Tres Estrades is estimated to contain 83 million tonnes of measured and indicated material, grading 4.1% P2O5 (phosphoric acid), using a cut-off of 3.0% of P2O5. On top of that is 21.8 million tonnes of inferred material, with an average grade of 3.67% P2O5.
At Tres Estrades, Aguia forsees the development of an open-pit truck and shovel operation with an estimated lifespan of 16 years. Production of aglime from reclaimed tailings is expected to add another 20 years to the life of the operation, bringing the total lifespan to 36 years.
With an average capacity of 300,000 tonnes per year of phosrock, the average annual feed to the processing plant is expected to be 1.3 million tonnes of oxide ore in Phase 1, and 3.3 million in Phase 2 of the fresh carbonate ore, the company has said.
The expected result is a life-of-mine production of 4.7 million tonnes of phosphate concentrate and another 32.9 million tonnes of aglime, averaging about 300,000 tons of phosrock annually over 16 years and one million tonnes of by-product aglime annually over 33 years.
Tres Estradas is located in close proximity to key infrastructure, including roads, a rail line through the property and power. Major fertilizer blenders are located just 200 km away at Porto Aegre.
Meanwhile, the company said certain directors and officers of Aguia have agreed to provide non-interest bearing, unsecured loans to the company totalling $200,000.
Subject to the receipt of shareholder approval at the company’s next shareholder meeting, the loans will be convertible into ordinary shares. The conversion price will be the greater of $0.12 or 5-day value weighted average price of the Aguia shares at the date shareholder approval is obtained.
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By Ellsworth Dickson
During the recent PDAC Convention in Toronto, Carolina Sanchez, Secretary of Mining Policy,
Ministry of Production and Labor, Argentina, spoke to Resource World about her country’s efforts to grow their mining industry.
RESOURCE WORLD: Vanadium has been attracting attention lately. Is Argentina is prospective for vanadium deposits?
CAROLINA SANCHEZ: Yes. There are orogenic deposits of vanadium at the northwest and in the central Andean region of Argentina.
RW: Sometimes vanadium deposits also contain uranium. Is that a problem or if it is a problem, can that problem be solved?
CS: There are deposits with and without uranium in Argentina. A company called Blue Sky
Uranium Corp. is currently advancing its Amarillo Grande vanadium-uranium property in Rio Negro province. This is a uranium deposit with vanadium credits – in this case of sedimentary origin. This project has a positive PEA with very good potential. Yes, the two metals can be separated. Blue Sky has other uranium projects in Argentina as well.
RW: Could you talk a little bit about lithium? Is Argentina a good place to explore for lithium?
CS: Yes. In the last three years, exploration budgets for lithium have increased by about 900%.
Most of the investments are for brine resources [salars] but there is also hard rock spodumene exploration as well.
RW: I know there are a few Canadian companies in Argentina. Are you trying to attract other countries to invest in mining projects in Argentina as well?
CS: Yes, we are seeing companies from different countries now arriving in Argentina. These include groups from France, Germany, Korea, China, Australia and Canada.
RW: For all those countries to be interested in Argentina, your government must be making efforts to attract them. Do you have some incentives for explorers to come from all over the world to your country?
CS: Yes, we have a Promotion of Mining Investment Law that establishes benefits at different stages. We also have a reimbursement of the VAT [Value Added Taxes] that is very important for a company at the exploration stage. Then we have tax benefits on tariffs for the import of capital goods and some raw materials for the mining sector and a double discount of expenditures in the exploration stage for income taxes. We know exploration companies consider this important.
RW: Does Argentina have services for mineral explorers like diamond drilling companies?
CS: We have many small and medium suppliers of goods and services for mining sector, who can form joint ventures with other mature suppliers. There is machinery already in Argentina that could easily provide these services to mining companies.
Also, we have a great deal of experience in the oil and gas industry. The supply chain of the oil industry, which is very large in Argentina, could easily transform itself into being a supplier to the mining industry.
RW: In countries like Canada and the United States, their governments have a great deal of geological information available. Does your government have websites with lots of geological information that can help explorers?
CS: Yes. Much Argentina geological information has been digitalized and has been put online to be available for free. Anyone can access the information. Information on geological projects, mining and, in addition, all the filings that need to be done, all the procedures, permitting – they are all being digitalized and put online. For the time being, it is in Spanish.
RW: Eventually, will be in English?
CS: Yes. The geological maps are interactive so you can easily understand what you’re looking at that needs less translation. The rest – mining project information, stage of permits, etc – is in the process of being translated. (http://cima.minem.gob.ar/)
We are here at the PDAC Convention to show the potential we have in Argentina – that it is a good country trying to promote good investments. We want to help investors to develop their projects. As a country, and with our provinces, we are improving the competitiveness for mining development, improving our infrastructure and working conditions, and lowering energy costs.
By Ellsworth Dickson
In an interview with Resource World magazine, H.E. Mithat Cansız, Deputy Minister of Energy and Natural Resources of Republic of Turkey, provided insight as to how his government is taking steps to encourage mineral exploration and mining.
RESOURCE WORLD: What metals and minerals worth exploring for in Turkey?
MITHAT CANSIZ: Turkey has a very important geological position being located on the Alpine-Himalayan Orogenic Belt. The crustal layer, where our country stands on, has been subjected to orogeny, subsidence, uplift and tectonism in vertical and horizontal directions in various geological periods. As a result of these movements, hundreds of kilometres of faults and thousands of small-scale fault zones related to these faults have been formed. Because of this intense tectonic activity, Turkey has a complex geological structure, thus a diversified mineral potential.
A total of 77 of the 90 minerals that are used in industry throughout the world can be found in our country. Whilst exploration and research activities are being carried out continuously in Turkey, a significant portion of the country’s 783,000 km2 of surface area is still waiting for explorers and investors.
Turkey, which has 73% of the world’s boron resources, also has rich chromium deposits. Primary metallic minerals in our country include gold, copper, silver, molybdenum, lead, zinc, nickel, cobalt and more. Underlining the fact that our country also has a high potential of rare earth elements and natural stones, we can list other minerals such as marble, travertine, feldspar and various industrial salts. Also our lignite potential is substantial.
RW: Is the mining sector in Turkey growing?
MC: Like other sectors, the mining industry keeps developing in Turkey. With an increase of 50% compared to previous years, the share of the mining sector in our GNP is about 1.2%. Our main goal is to increase this rate to 4% within five years.
I would like to answer this question from the development of our country’s gold mining in particular. Whilst there was no gold mining facility in our country in the beginning of 21st century, we have established 15 gold operating facilities in 18 years – actually not a long time for the mining sector. Our gold production in 2018 was 27.1 tons and our country is currently one of the biggest gold producers in Europe. Our target for 2019 is to exceed 30 tons.
Along with the quantitative growth, I must also mention that our country’s mining sector has also met the requirements in terms of technical infrastructure. Many legislative and technical innovations have been implemented in order to ensure the continuity of the development trend in mining.
RW: Is the government of Turkey making efforts to attract mineral explorers?
MC: First of all, I would like to point out that investors operating in our mining industry are providing undeniable contributions to our country. In order to attract more investors to Turkey, we explain the mining potential of Turkey in every international platform. In our mining sector, there are currently 119 foreign investors and we continue our efforts to increase this number.
For this purpose, we established the National Resources and Reserves Reporting Committee (UMREK) in order to meet the financing needs of investors more easily and reliably. We have completed our membership process to CRIRSCO, the international umbrella organization in this field. Turkey is currently the 13th member of CRIRSCO, and the first in Eurasia. In addition, with the new law amendments that came into effect recently, we expanded the scope of the incentives that had been provided for investors.
We continue to work on new incentives and company models to attract domestic and foreign investors’ attention to Turkey’s mining sector. We have prepared the Mining Investment Guide for the promotion of our mining industry. In order to promote the geological structure, mining potential and mining sector in the best way, we joined PDAC 2019 in Toronto for the first time with high level managers and a strong personnel team to represent our Ministry. Our international promotions and investor invitations will continue.
RW: Can foreign mineral explorers have confidence in Turkey’s regulations on proprietary rights?
MC: The proprietary rights on licenses owned by mining investors are guaranteed by the laws and regulations in effect. It is clearly explained in the relevant laws and regulations under what conditions these rights will be terminated without making discrimination between domestic and foreign investors. I would like to underline that the ownership of the licenses cannot be terminated under any conditions except for the cases described in the laws and regulations.
As a result, proprietary rights of the licenses belonging to all domestic and foreign companies investing in Turkey are under state guarantee.
RW: Does Turkey have clear regulations regarding exploration, mine building and mining operations?
MC: The prerequisites and other necessary obligations before and during the execution of all mining activities in Turkey are mentioned in the Mining Law and other relevant legislation step by step and clearly. Again, there is a document entitled Mining Regulations in which the articles in the Mining Law are clearly explained. Thus, there is no uncertainty regarding the obligations, laws and operational side of mining activities.
RW: Does the Ministry of Energy and Natural Resources have a geology department where explorers can access information?
MC: The Ministry of Energy and Natural Resources, which is the sole governmental umbrella body, has separate General Directorates where all investors engaged in mining activities can access all necessary information from mining exploration / research to operation. General Directorate of Mineral Research and Exploration (MTA), which is the centre of all geological researches and the headquarters where the foundation that form the basic reference of mining in our country, has been prepared.
Data obtained from exploration and research activities related to the geology of our country is shared with public and private sector. MTA has the Turkey Geoscience and Core Data Bank (TUVEK) which has an extremely modern scientific design under its roof. TUVEK is a data bank that contains all geological studies, core and cuttings samples in Turkey which contains the basic data for investors.
RW: Does a foreign mineral explorer need to complete a certain amount of work with a time limit?
MC: Our Mining Law divides minerals into five main groups. Time periods (limits) and windows for exploration and operation are defined clearly according to these groups. The length of exploration licences differs from two to nine years. For example, exploration licences of natural stones are minimum two years and for metallic ores, the exploration period can be extended to nine years. At the end of exploration period, investors are obligated to deliver a resource and deposit report in order to move on with the operation phase. The law also defines the length of operation licenses from 5 to 99 years. Durations of exploration and operation licenses are reasonable, and are defined by considering the needs of investors.
RW: Is there reasonable permitting time for exploration and mining projects?
MC: Mining Law defines the mandatory permits prior to operational activities. These permits contain necessities for environmental and human health and the permits are granted by Ministries related to agriculture, environment, forestry etc. As described under above answer, there are specific and reasonable time windows at every phase of mining activities.
RW: Does Turkey have good environmental regulations?
MC: Environmental regulations are formed and conducted by The Ministry of Environment and Urbanization under the content of related legislations. These legislations are in compliance with the European Union legal acquis. An Environmental Impact Assessment (EIA) Report is required prior to mining activities. No operation permit is granted without EIA Report. Furthermore, The Ministry of Environment and Urbanization strictly inspects mining operations.
RW: With Turkey sharing a border with Syria and some terrorist incidents having taken place, are the hostilities far removed from areas that are prospective for minerals?
MC: As reported worldwide, there have been certain adverse incidents in our southern neighbour Syria and these are happening inside the borders of Syria. Some exceptional incidents inside our borders resulting from Syrian actions are eliminated with the necessary precautions taken. Turkey has very high standards in terms of justice and homeland security. Therefore, there are no problems for mining investors to be concerned about. (EDITOR’S NOTE: Some Canadian mining companies have projects in the western part of the country such as Alamos Gold that report being comfortable working there.)
RW: Does Turkey have a reasonable amount of infrastructure in place such as roads and electric power?
MC: The Republic of Turkey, which will celebrate its hundredth anniversary in 2023, has a deep-rooted history. It is ranked 17th among the greatest economies in the world with a GDNP of US$852 billion. Our country has reached the infrastructural standards (along with many others) of developed countries. Actually, we even outstripped some of the European Union members. Turkey stands as a natural bridge and a corridor for energy between Asia and Europe due to its geopolitical location. Our country follows and participates in the improvement of the developments in the technology from transportation to communications simultaneously with the world and opens these developments to public use.
Turkey, which ranked in the upper positions among many OECD countries, has 67,333 km of road networks (63,415 km covered with asphalt and surface dressing). In addition, railroad has reached 12,608 km, including 1,213 km of high-speed railway. Turkish Airlines, a world-class operation, flies to 381 different destinations worldwide and ranks at number one in terms of the number of destinations. The installed electrical power of Turkey has reached 88,000 MW. Our country, an applicant for the EU, is also a member of many international organizations like UN, NATO, OECD and Customs Union.
After a week of verbal sparring over a proposed merger, the ceos of Barrick Gold Corp. [ABX-TSX, NYSE] and Newmont Mining Corp. [NEM-NYSE]were set to meet in New York late Tuesday.
Newmont CEO Gary Goldberg told Bloomberg News that he won’t be discussing Barrick’s bid for his company, but rather Newmont’s proposal for a joint venture around the companies’ assets in Nevada.
The gold mining head honchos have scheduled a meeting after Newmont rejected an offer to be acquired by Barrick Gold Corp. [ABX-TSX, NYSE] and countered with a proposal that would see both companies embarking on a Nevada joint venture while Newmont proceeds with its acquisition of Goldcorp. [G-TSX, NYSE-GG].
Newmont’s rebuttal comes a week after Barrick launched a US$18 billion hostile bid to acquire its biggest U.S. rival in an all share transaction that would create the world’s largest gold producer.
Barrick has said the combined company would have a market cap of $42 billion. It would produce 10 million ounces of gold annual at an all-in-sustaining cost of under US$900 an ounce and hold reserves of over 140.5 million ounces.
However, Newmont is proposing a joint venture with Barrick that wold see both parties contribute all of their Nevada-related assets and liabilities to the joint venture. Barrick would hold a 55% economic interest with Newmont holding the other 45%. Each company would have an equal number of representatives on the management and technical committees.
Voting rights would be proportionate to economic ownership on several matters, including annual budgets and life of mine plans.
Under the Newmont proposal, the 45%/55% split was based on consensus net asset values of each party’s Nevada-related assets plus a 50%/50% split of Barrick’s estimated Nevada synergies.
Barrick CEO Mark Bristow has subsequently rejected Newmont’s joint venture proposal, saying successful joint ventures are based on the majority owner also being the operator. He also argued that ownership should be divided on a 63%/37% basis in favour of Barrick.
The merger proposal has emerged as Newmont works to complete a friendly merger with that Goldcorp that was announced on January 14, 2019.
If the Newmont bid for Goldcorp succeeds, the combined company, called Newmont Gold would rank as the largest producer globally by some distance with output of between 6.0 million and 7.0 million ounces of gold annually.
In an update on, Newmont said it has identified additional synergies that would stem from the merger with Goldcorp. Newmont said it now expects combined pre-tax synergies of $365 million, an amount that is $100 million higher than a previous estimate and results from work completed by the two companies supply chain teams.
On Tuesday, Newmont shares were up 0.15% or US$0.05 to US$34.50. On the Toronto Stock Exchange, Barrick advanced 0.78% or 13 cents to $16.75.