Newmont Bondholder Revolt May Put Barrick on Hook for Debt

(Bloomberg) -- Barrick Gold Corp. could find itself partially liable for $600 million in additional debt if some Newmont Mining Corp. bondholders have their way.

The creditors are trying to block an amendment Newmont is seeking for a large tranche of notes associated with its operations in Nevada, according to people with knowledge of the matter. The change would prevent liability for those bonds from shifting to Barrick after the companies’ recently announced joint venture in the state is completed.

A majority of holders of Newmont’s $600 million of bonds due 2035 have organized and submitted their rejection to the proposed change, the people said, asking not to be identified as the discussions are private. The JV with Barrick is not contingent upon Newmont bondholders agreeing to the amendment, Newmont said in a statement last week. But if bondholders succeed, the JV would likely be the new guarantor of the securities, according to CreditSights analysts, putting Barrick on the hook to assume some of the liability.

Nevada Assets

The 2035 bonds are guaranteed by Newmont USA Ltd., which includes the three Nevada gold mines set to become part of the JV with Barrick. Those assets accounted for about 88 percent of the guarantor’s proven and probable reserves within North America at the end of last year, and the proposed JV would constitute a sale of “all or substantially all” of the guarantor’s assets in Nevada, per the bond prospectus.

That would make the JV liable for the 2035 notes, which isn’t necessarily what Barrick signed up for when announcing the deal last month. It’s not clear whether Barrick asked for the changes.

The relationship between Newmont and Barrick, the world’s two largest gold miners, has been fraught for years. Merger talks between the two companies have failed in the past, as have attempts to increase cooperation in Nevada. The joint venture agreement was only reached after Barrick launched, and agreed to withdraw, a hostile bid for Newmont.

Consent Fee

Newmont is required to bring its assets into the joint venture free and clear of any third party debt, and Barrick is not planning to guarantee any Newmont obligations, nor is the joint venture, a spokeswoman for Barrick said. “Barrick expects that Newmont will address any joint venture related issues that it may have with its creditors in a manner that would accommodate the completion of the joint venture arrangements within the time frame contemplated by the parties.”

Newmont couldn’t be reached for comment.

Newmont has offered holders $1 per every $1,000 to accept the changes, and consents are due by 5 p.m. New York time Thursday. The company had informed holders of the offer through a statement issued on April 4 at 4:05 p.m., giving them less than a week to respond, but on Wednesday afternoon Newmont extended the deadline by just less than 24 hours.

‘Worth More’

“The guarantor language in the merger covenant is worth more than 10 basis points in our view and we believe bondholders should push for a higher consent fee,” CreditSights analysts Wen Li and Will Benedict said in an April 7 report.

The expiration date comes on the same day that Credit Roundtable, a bondholder industry advocacy group, gathers for its semiannual meeting in Washington. The meeting started at 8:30 a.m. and Newmont had come up in conversation within minutes, according to David Knutson, co-leader of the group.

“Bottom line -- this consent was launched in a way that obscured the potential impact to certain bondholders,” Knutson said.

Last month Newmont was forced to promise shareholders the largest dividend in 32 years to woo support for its $10 billion merger with Goldcorp Inc.

Major equity investors, including Paulson & Co. and VanEck, had argued that the price tag did not reflect the value of Newmont’s joint venture with Barrick, which was negotiated after the Goldcorp deal was struck. The dividend could induce Newmont shareholders to vote for the Goldcorp deal on April 11 by rewarding them in advance for $4.7 billion in synergies that Barrick expects the JV will create.

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