Barrick To Acquire Randgold To Create $18.3 Billion Company
Editor's Note: Updates earlier story to add comments from analysts, more details.
(Kitco News) - Barrick Gold Corp. (NYSE, TSX: ABX) will acquire Randgold Resources Ltd. (Nasdaq: GOLD) in an all-stock merger that will create the largest gold-mining company in the world, the companies announced on Monday.
John L. Thornton, executive chairman of Barrick, said there are no premiums in the merger. Randgold said that based on Friday’s closing prices, the new company will have market capitalization of $18.3 billion.
The merger is subject to approval by shareholders of both companies, regulatory approvals and other customary closing conditions, officials said. Closing is expected by the first quarter of 2019, Barrick said.
Under the agreement, each Randgold shareholder will receive 6.128 Barrick shares for each Randgold share. Barrick shareholders will own roughly two-thirds and Randgold shareholders one-third of the New Barrick Group.
“The combination of Barrick and Randgold will create a new champion for value creation in the gold-mining industry, bringing together the world’s largest collection of tier-one gold assets, with a proven management team that has consistently delivered among the best shareholder returns in the gold sector over the past decade,” Thornton said.
“Our overriding measure of success will be the returns we generate and not the number of ounces we produce, balancing boldness and prudence to deliver consistent and growing returns to our fellow owners, a truly simple but radical and achievable concept.”
Mark Bristow, chief executive officer of Randgold, will become president and CEO of the New Barrick Group. Thornton will maintain his current title of executive chairman.
“Our industry has been criticized for its short-term focus, undisciplined growth and poor returns on invested capital,” Bristow said. “The merged company will be very different. Its goal will be to deliver sector-leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions.”
Graham Shuttleworth, finance director and chief financial officer of Randgold, will become senior executive vice president and chief financial officer of the New Barrick Group. Two-thirds of the directors of the board of the New Barrick Group will be nominated by Barrick, and one-third by Randgold.
More than 75% of Barrick’s gold production comes from the Americas, including Argentina, Canada, Peru, the Dominican Republic and U.S., particularly Nevada. The company produced 5.32 million ounces of gold and 413 million pounds of copper in 2017. Randgold is focused in western and central Africa, including Mali, the Democratic Republic of the Congo, Senegal and Côte d’Ivoire. Production was 1.315 million ounces in 2017.
Analysts Outline Opportunities, Risks
Analysts at BMO Capital Markets identified potential opportunities and risks. They pointed out that to support the philosophy of shareholder returns, Barrick has agreed to raise its quarterly dividend to a nickel a share in the fourth quarter, compared to three cents currently.
“Barrick shareholders are going to have to weigh the fact that the merger is likely to be anywhere from 15-20% dilutive to earnings, cash flow and free cash flow,” BMO said.
However, analysts continued, Barrick may benefit from Bristow leading the next stage of its transformation. The bank said it anticipates future asset sales.
“In our view, the ability to extract more costs out of Barrick, or deal synergies, [is] less apparent,” BMO said. “We do expect some opportunities to emerge in Africa as there is sufficient overlap, but Barrick has been trimming costs through the Americas since 2013.
“There is also the question of increased exposure to Africa. For Barrick shareholders this may cause some reservations. However, Bristow has a solid track record of navigating Africa risk and could provide important negotiating skills in dealing with Acacia.”
Credit Suisse noted that the combined company will own five of the world’s top 10 tier-one gold assets and have the lowest total cash costs among senior producers. Credit Suiise also said the lack of a premium on Randgold shares is positive for Barrick but could be a hurdle for Randgold shareholder approval.
“Without a premium, we wonder if Randgold shareholders could be apprehensive to approve the deal in its current form,” Credit Suisse said. “We wouldn’t be surprised to see more back and forth and for the deal to perhaps conclude after the Q1/19 expected close. However, given the friendly transaction terms and Mark Bristow…continuing as CEO of the new company, we believe that the merger is ultimately likely to proceed.”
Edison Investment Research said the merger raises two questions – how long will Bristow stay in the position and what will happen to Acacia Mining, which represents Barrick's African assets that were spun off in 2010. Barrick remains the majority shareholder in Acacia, which has been hurt by changes to the mining industry from the government of Tanzania, including a ban on the export of raw minerals and laws to reap more revenues. Edison analyst Charles Gibson said many observers have felt a “transformative deal” would mark the “apotheosis” of Bristow’s career.
“Mr. Bristow is personally credited with creating the environment and philosophy that underpinned much of Randgold’s success, and forward-thinking investors were already beginning to ask questions about the succession at Randgold,” the analyst said. “They will certainly want comfort now that he will stay for long enough to apply the same approach to Barrick’s assets before hanging up his spurs.”