Barrick-Randgold Merger Good Sign For Gold Market - Analysts
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(Kitco News) - The biggest merger in the gold sector in recent years, creating the world’s largest gold company could bring some optimism back to the precious metals market, according to some analysts.
In premarket news Monday, Barrick Gold Corp. (NYSE, TSX: ABX) announced that it would acquire Randgold Resources Ltd. in a merger valued at $6 billion. The move would create the world’s largest gold producer with a market cap of more than $18 billion.
Both Barrick and Randgold have seen their share prices push higher in reaction to the news. Randgold saw a gain of more than 5% on the London Stock Exchange; meanwhile, Barrick Shares in New York are up almost 6% on the day.
“The price action in the shares tells me that the street thinks this is a good idea,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
Jeff Klearman, portfolio manager at GraniteShares said that the move is complimentary for both companies. He added it could signal a potential shift in the marketplace that as suffered from historic levels of negative sentiment.
“It looks like these companies are positioning themselves to take advantage of a stronger gold market in the future,” he said. “I don’t think the market will turn around tomorrow but Barrick appears to be looking long term.”
Klearman added that this specific merger appears to accentuate each company’s strengths, like Mark Bristow, CEO of Randgold’s ability to efficiently run gold mines with Barrick’s prolific production pipeline. The merger also gives Barrick exposure to Africa with its North American production hedging any potential risks.
“For the gold market it’s a deal that is better done than not,” he said.
Cieszynski also thinks that the merger bodes well for the gold market.
“Barrick wouldn’t have made this move if they thought prices were going to be lower a year from now,” he said. “Companies are starting to see value in their own sector and that sends a strong message to investors. I think Barrick sees a strategic opportunity to grow their business and add value.”
Cieszynski said that he thinks this is the type of news that will bring investors back to the marketplace. He added that the next thing investors need to see is higher gold prices, which have been stuck around $1,200 an ounce for the last six weeks.