Barrick bets on Africa with $6-billion Randgold merger


Canada's Barrick Gold (TSX, NYSE:ABX), the world's largest bullion producer by value, is about to become even bigger as it has agreed to buy Randgold Resources (LON:RRS) in a $18.3 billion share deal.

Investors cheered the no-premium, all-stock deal: Barrick will issue 6.128 of its shares for each Randgold share.

However, they also announced the new company's shares would be traded in NY and Toronto, meaning Randgold's London listing on the FTSE 100 would be cancelled if the deal went ahead, as planned, early next year.

Shares in Barrick closed up 5.8 per cent on the Toronto Stock Exchange, its best single day performance in more than a year and a half, while Randgold shares rose by 6.5 per cent on the Nasdaq Exchange.

The merger will also bring together two of the biggest names in the global gold sector: John Thornton, former president of Goldman Sachs who's been at the helm of Barrick since 2014, and Mark Bristow, an outspoken South African geologist who founded Randgold in 1995, growing it into a $4.8-billion company and the UK's top gold producer.

"The boards of Barrick and Randgold believe that the merger will create an industry-leading gold company with the greatest concentration of Tier One Gold Assets in the industry, the lowest total cash cost position among senior gold peers", the companies said in a joint statement.

Barrick and Randgold are hoping that joining forces and combining their enormous resources will help them weather the storm.

"In a world of declining gold reserves, the combination of these two strengths is a competitive advantage", Thornton said during the call.

However, some analysts were not impressed by the deal.

Randgold, the smaller of the two, has seen its stock decline from more than US$103 in January to hover around US$60 earlier this month - though it was now up to US$68.42.

In Ivory Coast, where its Tongon mine was slated to produce around 300,000 ounces of gold, a labour dispute earlier this year has cast doubt on its production guidance there.

Both CEOs will continue to play a role in company.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "From Randgold's perspective the deal diversifies exposure away from high-risk African markets and towards Barrick's more stable North American assets".

In 2018, gold prices started off the year above US$1,300 per ounce for the first six months, then slowly slid down to around US$1,200 per ounce.

New Barrick is valued at 5.1 times 2017 Ebitda, against an average of 8.8 times for the other four miners.

While the logic for Barrick to acquire a proven, disciplined operator is clear, the rationale for Randgold to be swallowed by Barrick, whose share price is down 75 per cent since peaking in late 2011, is less obvious.