September 24, 2018
Canada’s Barrick Gold has agreed to buy Randgold Resources Ltd in a $18.3 billion share deal to create the world’s largest gold company in an industry under investor pressure to put capital to good use.
According to Reuters, the new Barrick company – which will be listed in New York and Toronto – will own five of the world’s 10 lowest cost gold mines and will be valued at $24 billion including debt.
The deal marks the biggest transaction in years in the gold mining industry, where companies have come under fire from investors for poorly managing capital, forcing them to focus on costs while dampening enthusiasm for acquisitions.
“Randgold has the agility and swift-footedness of a younger and smaller company, much like Barrick in its early years, while Barrick has the infrastructure and global reach of a large corporate company,” Barrick Chairman John Thornton said in a conference call.
Randgold’s long-term boss Mark Bristow will become the chief executive and president of the merged company, taking chief financial officer Graham Shuttleworth with him and Barrick’s Thornton, an ex-Goldman Sachs banker, will be executive chairman.
Two-thirds of the directors of the board of the new Barrick will be nominated by Barrick and one-third by Randgold.
“What the deal delivers Randgold shareholders… is more options in terms of growth and development, whereas before they only had one growth option of scale in Massawa,” Investec analyst Hunter Hillcoat told Reuters, referring to the miner’s gold project in Senegal.
“U.K. shareholders are arguably being dealt a poor hand with the merger,” Russ Mould, investment director at AJ Bell, told Reuters. “What Bristow has got to prove now is that bigger is better and the Randgold culture is the one that will perhaps prevail.”
Bristow, a 59-year old trained geologist, has been at the helm of Randgold since its inception in 1995 and is known for his straight-talking, hands-on approach to running the company.
The current spot gold price is not helping the sector, having lost out on traditional safe-haven flows to the dollar, pushing it 10 per cent lower this year.
Both Barrick and Randgold have lost a third of their market capitalizations over the past year.
“We don’t see a reason to change Randgold’s approach… If we can’t deliver something that is bigger and better, then we wouldn’t do it,” Bristow said on a call with analysts.
The new company will have the sector’s highest adjusted EBITDA and EBITDA margin of nearly 50 per cent based on 2017 numbers, and the lowest total cash cost position among its peers, the companies said.
Under the terms of the deal, each Randgold shareholder will receive 6.1280 new Barrick shares for each share of the African rival, the companies told Reuters.
Talks on the deal, which is still subject to regulatory and shareholder approvals and scheduled to close in the first quarter of 2019, started more than three years ago with advisors taken in July, a person familiar with the talks told Reuters.
In 2017, Barrick and Randgold combined produced 6.64 million ounces while the next largest gold miner, Newmont Mining Corp, churned out 5.27 million ounces.
The two companies said they were aligned on their strategy with Chinese investors after Barrick said it would make a bigger push to attract investors in China.
Randgold, which mines also in Mali, Ivory Coast and the Republic of Congo, where it has been faced with regulatory risk, a factor that Barrick’s Africa unit Acacia Mining has to deal with in Tanzania.