The smell of ammonia made my eyes water. The dust was so thick it looked like fog in my headlamp light.
It was 2006, and I was visiting the working face of the Leeville gold mine.
The smell came from the nitrogen-based explosives used to blast the rock. It made the thick air smell like an unchanged cat box.
Leeville was Newmont Mining’s first underground mine in Nevada. It’s accessible by a shaft. I was there to visit it as part of a tour of the Carlin Trend, the heart of Nevada’s gold fields.
And Newmont Mining is once again in the news and on investors’ radar. But history shows us we should stay away right now.
Barrick Gold and Newmont Mining Want Nevada
Nevada produces more gold than all but three countries in the world. Most of that gold comes from mines owned by either Newmont Mining or Barrick Gold.
And those two companies are — once again — talking about merging.
These giants could merge for one big reason:
Leeville’s gold comes from deep underground.
In 2006, I rode 1,400 feet straight down in an open elevator car.
That’s a long way. It’s a quarter mile, or 140 stories.
It’s worth it … Leeville and the other five Newmont mines on the Carlin produce a lot of gold. In 2018, those mines contributed 927,000 ounces to Newmont’s production.
At $1,200 per ounce, that’s nearly $1.2 billion in gold … in a single year.
Barrick produced over 2.1 million ounces in Nevada in 2018. That’s over $2.5 billion in gold.
I went underground in one of Barrick’s giant mines, the Betze-Post mine, on that same trip. This one we drove down into … it was still dark and stinky though.
Now Barrick wants to consolidate Nevada under its management … just like it did in 2014.
But just like five years ago, things could fall apart again.
Both Stocks Plummeted After the Deal Fell Apart
Back in 2014, there was a consensus at first, only to see it fell apart with hostile words from both sides … which appears to be happening again.
Barrick Gold’s shares were around $18 each when the companies announced the takeover. The deal fell apart, and Barrick’s shares fell to $10 by the end of the year.
That’s a 44% loss. You can see what happened in the chart below:
Barrick’s Shares Plummeted After the Deal Collapsed
Newmont’s shares followed a similar pattern. Shares traded above $25 each at the announcement. They ended the year down 28% to $18.
Learn From the Past — It Pays to Wait
We see a similar pattern emerging today. Barrick’s CEO had some hard words regarding Newmont’s planned acquisition of rival Goldcorp.
Newmont’s management shot down Barrick’s recent offer.
Both companies’ shares are down from their 2019 highs … and I think history is repeating itself.
Granted, the gold price wasn’t cooperating in 2014, but there’s no guarantee with gold right now either.
My recommendation is to stay away from these two giants right now.
After the dust clears, we may want to own one of them. But there’s too much risk right now to get in the middle of this duel.
In Real Wealth Strategist, we don’t fall for the hype. Our readers are up 45% on a gold miner we recommended four months ago. And right now, we’re researching more great miners to invest in so we can profit when the gold price rises. Our recommendation should be out to our readers next week — and it won’t be Barrick or Newmont.
Good investing,
Matt Badiali
Editor, Real Wealth Strategist