Barrick and Randgold raise hopes merger can spark sluggish gold sector

Gladys Abbott
September 25, 2018

Canada's Barrick Gold (ABX) is buying rival Randgold (GOLD) to create the world's biggest gold miner, the two companies announced Monday.

Randgold closed up 6 percent, making it the biggest gainer in London's wider mining index and valuing it at 4.93 billion pounds ($6.5 billion).

The latest deal is also reviving speculation Barrick may return to the negotiating table with Newmont Mining Corp. for a new tie-up after talks between the two collapsed in 2014 over differences on issues including the leadership of the combined company.

But Barrick shareholders are also hoping that Randgold, which has proven itself to be a skilled operator in politically hard jurisdictions in Africa, can help Barrick end an impasse that has resulted in the idling of a big chunk of its African gold production.

Barrick executive chairman John L Thornton, who will retain the role, said: "The combination of Barrick and Randgold will create a new champion for value creation in the gold mining industry".

Under the terms of the deal, Randgold shareholders will receive 6.1280 new Barrick Gold shares for each of their shares.

A strike at Randgold's Tongon mine in Ivory Coast earlier this year also hurt production and followed similar stoppages at the operation earlier this year.

"Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital".

The new company will control five of the world's top ten gold mines and have "the largest gold ‎reserves amongst senior gold peers", Barrick and Randgold said Monday.

Two-thirds of the directors of the board of the new Barrick will be nominated by Barrick and one-third by Randgold.

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Hyett said that's also welcome since Randgold had been struggling to find new projects of scale.

The merger terms value Randgold at 4.58 billion pounds ($6 billion), at 48.5 pound-a-share, according to Thomson Reuters data.

Barrick's acquisition may spur more interest in deals, "or at least cause the market to revisit the thesis". Randgold is not listed on the Johannesburg Stock Exchange.

The new group will consider selling non-core assets over time.

The new company will have the sector's highest adjusted earnings before interest, tax, depreciation and appreciation and EBITDA margin of almost 50 percent based on 2017 numbers, and the lowest total cash cost position among its peers, the companies said.

"A no-premium deal", said Mr. Thornton during a conference call with analysts on Monday.

The merger is expected to close in the first quarter of 2019 once all conditions have been met.

Nicholas Hyett, an analyst at Hargreaves Lansdown, said the deal marks a return to Africa for Barrick, which spun off its holdings there eight years ago.

Its subsidiary Acacia Mining PLC., which operates three gold mines in Tanzania and accounts for about 6 per cent of Barrick's annual production, has been under a gold-export ban in the country for more than a year.

Barrick was advised by Morgan Stanley and M. Klein and Company, while Randgold was advised by CIBC World Markets and Barclays.

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