The speculation was prompted by statements by Newmont President and CEO Richard O’Brien during an interview with Reuters in which O’Brien suggested that he would be “open to synergies” between Newmont and Barrick operations in Australia and Nevada.

Barrick and Newmont were previously involved together in a consortium that included Placer Dome whose function was to procure equipment on behalf of the companies and realize savings through the consortium’s enhanced purchasing power.

Spokesmen for both Newmont and Barrick both confirmed to Mineweb Sunday that their companies have not discussed a possible merger. Omar Jabara, Newmont's senior director of communications and media relations, stressed that O'Brien was strictly discussing "about possibly gleaning additional operational synergies and efficiencies in Nevada, but that nothing has happened at this juncture."

The idea of a merger between the two largest gold mining companies in the world has immediate and obvious appeal for investment bankers and institutional investors alike. Despite their assertions to the contrary, a combined mega-gold miner would enjoy certain economies derived from unified and streamlined accounting, procurement, human resources and other administrative functions.

The resulting corporation would be the largest gold mining company in the world bar none, and would be so big as to likely trigger a wave of consolidation throughout the industry as companies began to panic over being left on the sidelines in such a merger boom.

Among the difficulties in negotiating such a merger is the volatile price of gold, and the fact that both companies are widely held and their ownership is highly dispersed. Whereas a friendly merger would obviously be preferred from a management perspective, the announcement that such talks were underway might also invoke external hostile bidders into the equation, just as the friendly merger between Inco and Falconbridge captured the attention of Vale and Xstrata, which in turn triggered a fierce takeover battle.

The merged company would produce somewhere between 12.4 and 13.1 million ounces of gold in 2009, and would have 223 million ounces of gold reserves. Newmont has $3.5 billion in debt on its balance sheet as of the end of 2008 and Barrick has $2.9 billion. Barrick has a market cap of $28 billion and Newmont, $21 billion. Considering the significant disparity in reserve ounces (Newmont has 85 million ounces, Barrick 138.5 million ounces), Barrick would be the logical surviving corporation.

These are of course broad brush figures, and there are many circumstances to consider before any real analysis of potential merger synergies could take place. First and foremost is the desire of management to proceed down such a path, and there is presently very little motivation for either company to do so.

Newmont doesn’t appear overly concerned about regaining its title as world’s largest gold producer, which is a good thing, because Barrick is so far out in front now in terms of both annual production and reserves. Barrick is sufficiently comfortable in its leading position that it doesn’t need to concern itself with such an exponential growth move, when it can continue to grow accretively and with a much higher capital efficiency ratio through the acquisition of junior mining companies, a strategy that both companies employ judiciously.

Newmont would obviously resist any overtures, as its executive suite would likely be purged in such a takeover, which means a friendly merger would be unlikely.

The event that might instigate such a move would be if another foreign miner (like Vale, Xstrata, Freeport McMoran (FCX), BHP or Rio Tinto (RTP)) were to suddenly threaten Barrick’s dominance in the gold mining sector through acquisitions or mergers. But that eventuality does not appear realistic at present.