Gold miners headed for the altar?

Commodities 4 minutes to read

Michael O’Neill

FX Trader, Loonieviews.net

Summary:  Gold miners Barrick and Newmont are talking up a potential deal while gold prices await the next trade war headlines.


Barrick Gold (ABX: TSX, NYSE) is reportedly planning a $19.0 billion hostile takeover of Newmont Mining (NEM: NYSE). The Globe and Mail reported the plan is for a two-part deal involving Australia’s Newcrest Mining (NCM: ASX), which would end up with Newmont’s Australian assets. 

It is far from a done deal. Barrick and Newmont have a bit of history for talking deals but not closing them. A merger failed in 2014 and attempts at creating a joint venture with properties in Nevada suffered the same fate. This deal is even messier. 

Barrick is still digesting its January takeover of Randgold Resources while Newmont is in the throes of closing its $10bn purchase of Goldcorp (GG: TSX, NYSE) announced January 14, 2019. If Barrick manages to buy Newmont, the Goldcorp deal is cancelled, and Barrick is on the hook to pay Goldcorp a $650 million break-up fee.

If all the moving parts come together, Barrick would be the world’s largest gold producer (again), with a market cap of around $34.0 billion. Barrick Gold issued a press release this morning confirming that the company is reviewing an opportunity to merge with Newmont Mining. That was good news to traders. Newmont Mining is up 2.34% and Barrick Gold rose 3.20% in early trading today.

Gold price action could care less about the miner’s merger plans. They are leery of a deeper price correction if President Trump describes his afternoon meeting with China Vice Premier Liu He with his usual superlative hyperbole and announces that the scheduled March 1 tariff increase will be delayed. XAUUSD came within striking distance of its one-year peak of $1,364.00/oz on Tuesday but backed off to $1,3221.83 this morning. Nevertheless, the November uptrend is intact while prices are above $1,310.00.

Get ready for an action-packed week: it is month end, and therefore currency pairs are vulnerable to the usual portfolio rebalancing flows. China/US trade developments, in the absence of actionable economic data, will be the focus on Monday. Federal Reserve chair Powell testifies before Congress on Tuesday and Wednesday. Brexit will continue to dominate GBPUSD with a speech by Prime Minister May on Tuesday and a scheduled Brexit vote in parliament on Thursday.

Key data releases are sprinkled throughout the week including Canada January CPI on Wednesday, US Q4 GDP on Thursday, and Eurozone inflation on Friday.
 
XAUUSD
XAUUSD (source: Saxo Bank)

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