It’s happening — Barrick makes hostile $17.8 billion bid for Newmont

The move, announced before markets opened on Monday, increases the potential for a three-way fight among some of the world’s largest gold miners, and comes after Newmont’s chief executive, Gary Goldberg, qualified the approach as a "desperate" and "bizarre" move by Barrick.

If successful, the bid will create the world’s largest gold company with a value of around $42 billion at current market prices. That gold mammoth would hold assets in almost every continent, including Australia, Africa, the U.S. and Latin America.

The Toronto-based miner is offering 2.5694 shares for each Newmont share, which Barrick said it's “far superior” to Newmont’s $10-billion offer to buy Goldcorp (TSX:G) (NYSE:GG), unveiled in January and still on the works.

In a letter to shareholders, chief executive Mark Bristow said acquiring Newmont would create up to $7 billion in synergies, mainly through cost savings due to the overlap in operations in Nevada, where both companies have massive mines and exploration projects.

“Considered globally, the merger represents a radical and long-overdue restructuring of the gold industry, and a transformative shift from short-term survival tactics to the long-term creation of sustainable value,” Bristow said.

The companies already own in Nevada — the largest U.S. gold- and silver-producing state —  Turquoise Ridge mine, in a 75%-25% partnership. And Newmont alone has 19 mines adjacent to Barrick's own operations.

"There is no other transaction in our industry that can create better value for shareholders and other stakeholders than a business combination between Newmont and Barrick," John Thornton, Barrick’s executive chairman, wrote to Newmont’s board. "The market reaction to date to your Goldcorp transaction suggests that investors do not endorse your rationale."

But a deal between the two world's largest bullion miners would likely thwart Newmont’s intended acquisition of Goldcorp, leaving the Vancouver-based company stranded — or back in play — amid a wave of consolidation in the gold sector.

The potential mega-fusion would also follow years of relatively sluggish gold prices, with futures stuck in a range between $1,000 and $1,400 per ounce since 2013.

Barrick and Newmont have held merger talks every decade or so for almost thirty years, with the last one blowing at the 11th hour in 2014.

The news comes as the mining industry is still recovering investors’ trust following a stretch of ill-timed and badly-chosen expansions and acquisitions that sent billions of dollars down the drain.

Barrick itself was responsible for one of those —  the acquisition of Equinox Minerals in 2011, which executive chairman John Thornton since qualified as if not the worst, one of the five worst acquisitions in history.