If Barrick’s hostile takeover bid of Newmont succeeds, more than 75 percent of Nevada’s $7.4 billion gold mining industry will be controlled by one company. Rural Nevada will become a one-company town with very long streets.
And here’s the thing about company towns: As the company goes, so goes the town.
After several days of rumors about it, Barrick fired up a $17.8 billion bid for Newmont Monday. Newmont management responded by screaming “EEK DO NOT WANT” or words to that effect.
“Our team has a proven track record of successfully managing and operating a global mining portfolio, delivering total shareholder returns of 65% since January of 2014 compared with … Barrick’s shocking negative 22% over that same period,” Newmont CEO Gary Goldberg told investors Monday.
“Barrick’s behavior this morning unfortunately, provides yet another clear example of why they’re unqualified to responsibly manage Newmont’s global portfolio of world-class assets,” Goldberg said.
The management hyperbole aside, Newmont has a point. Barrick has exposed itself to costly losses and project-ending or -stalling public and government opposition from Chile to Tanzania as well as other nations in South America and Africa. Barrick is the world’s largest gold corporation, and the most controversial.
Barrick is a Canadian corporation which recently merged with Randgold Resources, a London-headquartered corporation which has mined exclusively in Africa.
Barrick has worked long and lavishly in Nevada, through lobbying, campaign contributions and public relations efforts, to build up a reservoir of goodwill with Nevada politicians, and it’s mostly worked beautifully. For Barrick.
But those politicians who may not be alarmed by or concerned about Barrick’s Newmont diet should consider that Barrick, like Newmont, has always cared far more for the well-being of its shareholders than the people of Nevada.
Barrick may not be the company it used to be anyway: In the merger with Randgold, Barrick kept the name, but Randgold’s CEO became Barrick’s CEO.
Barrick could walk away from, or lose, expensive, far-flung adventures overnight, exposing the company to exorbitant shareholder pressure and introducing an unprecedented level of instability to an already notoriously volatile industry. Goldstrike, Barrick’s legacy property in Nevada and still it’s second most productive in the state, appears to have pretty high costs relative to other properties (more on that below). Who knows what draconian measures a company on the ropes from shareholders might resort to after some blunder abroad goes belly up?
And what threat is posed to the rural Nevada economy and workforce if Barrick struggles, yet there is no longer another company to pick up the slack and provide some economic balance?
Shareholders are heavily weighing the risks of Barrick taking over Newmont. Nevada should too.
That said, if Barrick takes over Newmont, some things will stay exactly the same.
From Harry Reid down to the tax assessor in some scantily populated county or other, Nevada politicians and officials for decades have given mining pretty much whatever it wants.
A Barrick takeover of Newmont won’t change that.
Mining can trace its clout back to Nevada’s constitution, which was written and approved by mining industry people from California (Californication!). To this day, the industry enjoys a farcically tiny tax rate, a farce that is compounded each year when the industry takes advantage of massive tax deductions.
Let’s look at a couple examples from the 2017-18 fiscal year state mining tax report.
Barrick’s aforementioned Goldstrike mine is the 3rd largest in Nevada, producing $893 million of gold last year. Barrick reported $726 million deductible expenses, which it is allowed to do under Nevada’s horrible no good very bad mining tax system. The company ended up paying $5 million in mining taxes to the state general fund, or about six-tenths of a percent on the $893 million.
The second largest mine in the state is Newmont’s Carlin Trend, where Newmont produced $1.1 billion worth of gold last year. Newmont took a $973 million deduction, and ended up paying less than $4 million to the general fund, or less than four-tenths of a percent on the billion-plus.
I could go on, but I and others already have, numerous times over the years. In fact, legislators in 2013 were so bummed about all these deductions, and so sure that the industry was putting one over on a state Taxation Department that lacks the resources to vigilantly audit mines, legislators established a Mining Oversight and Accountability Commission.
Among its other responsibilities, the commission was granted effective veto authority of any regulatory changes, of which there have been many over the years, to expand the industry’s tax deductions even more.
Establishment of the mining oversight commission was a something of a Nevada historical anomaly, a rare moment when lawmakers stood up to the industry despite the industry’s objections.
But the Commission hasn’t met since December, 2015.
Gov. Brian Sandoval, who had ascended to that office directly from a law and lobbying firm that represented mining, just cold stopped appointing people to the commission. The Mining Oversight and Accountability Commission has gone dark.
Gov. Steve Sisolak should turn the lights back on. The industry needs monitoring, and will need it all the more if Barrick eats Newmont.
The mining oversight commission by the way was also charged with signing off on environmental regulations implemented by the state Department of Environmental Protection, as well as changes to mine health and safety regulations, as implemented by the Department of Business and Industry.
Fun fact about the Department of Business and Industry: The person Sisolak appointed to be its director, a cabinet position, is Michael Brown, who up until a few months ago was president of … Barrick U.S.A.
To what degree, if any, is anyone with the state monitoring Barrick’s attempted gobbling of Newmont? Are there any concerns about potential consequences of Nevada’s mining industry consolidating so heavily under a single foreign company?
Are there any Nevada government departments or agencies that would have any kind of responsibilities with respect to oversight of the acquisition, or that would even provide input on it, say, to the Securities and Exchange Commission?
And what if the Newmont CEO is right, and Barrick is a corporate basketcase that has recklessly wandered into poorly managed money pits in South America and Africa. Will Barrick’s bungling abroad prompt it to play even harder on the tax and regulatory front in Nevada, or shutter properties altogether, causing a rural Nevada town (or two) to dry up and blow away?
Is Nevada in any position to stand up to what would be a hypercompany, the only mining company in the state that matters?
Gov. Steve Sisolak’s office failed to respond to requests for comment Monday. If and when Sisolak does address the Barrick takeover bid and its potential consequences for his state, it will probably be to assure everyone that his Director of Business and Industry has told him everything will be fine.