Barrick Gold dropped its hostile takeover bid for Newmont Mining after the two companies announced an initial agreement to run their Nevada operations in a joint venture.

The two companies said their combined operations will create the largest gold producer in the world after the deal is completed, and will result in an estimated US$500 million in average annual pre-tax synergies, according to a joint press release. The joint venture will also have three tier one operations – Barrick’s Cortez, Newmont’s Carlin and Turquoise Ridge, the companies’ existing joint-venture project.

“This is a Rubicon moment, and an illustration of how some of us in this industry are determined to turn our industry around,” Barrick CEO Mark Bristow said in a Monday conference call. “Our joint venture will allow us to tear down the fences and operate as one mining complex, making the best use of our combined infrastructure.”

The projects covered by the joint venture had a combined output of four million ounces in 2018, and will have 48 million ounces of reserves. After it receives regulatory approval, the deal is expected to be completed by mid-year.

Newmont CEO Gary Goldberg said his company’s board approved the joint venture deal unanimously. He pointed to a previous joint venture between the two companies as a blueprint for the new deal’s potential success.

“Our experience at the Turquoise Ridge joint venture has been an excellent demonstration of how our employees can work together to capture synergies and create long-term value,” told the conference call.

Bristow said if the companies are able to hit the US$500 million in synergies, they expect to be able to lower the cut-off grades for ore within the joint venture’s operations.

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The agreement will split the ownership 61.5 per cent for Barrick and the remaining 38.5 per cent for Newmont. Board seats will be allocated in the joint venture based on ownership, according to a press release. Two of those board members will be from Newmont, and three from Barrick.

The deal excludes several development projects as the companies determine whether they are feasible. Barrick’s Fourmile project and Newmont’s Fiberline and Mike deposits are the projects left out of the deal, the press release said. The two companies will form a joint exploration team, which will have a defined scope to the area it can explore.

“All I can say is it’s a very large area that’s going to keep us very busy,” Bristow said. “It’s definitely the most prospective [part] of the Nevada geology.” He went on to say the exploration area includes all the projects covered in the joint agreement.

The companies also signed a standstill agreement to halt Barrick's acquisition. The details of the standstill were not disclosed, but during the call Bristow addressed the decision to drop the bid.

“This was never a sideshow or a Plan B, it was always focused on delivering value for our stakeholders. As we pointed out, this first step, which is focused in Nevada, has been the focus for 20 years,” Bristow said. “I’ve never been a person that goes back. We need to move forward, we got to this point and it’s a very productive point.”

Most of the front-line workers will be from their respective companies and assigned to the joint venture, but corporate employees will be employed directly under the joint venture.

In a press release, Goldcorp said it approved of the joint venture. Barrick’s hostile bid for Newmont would have required the latter to drop its US$10-billion acquisition of Goldcorp.

In the conference call, Goldberg said the Goldcorp merger was independent of the new joint venture.