Barrick, Randgold to forge world's biggest gold miner

In one of the biggest and most surprising deals the gold industry has seen in more than a decade, Barrick Gold (TSX: ABX; NYSE: ABX) is combining with Randgold Resources (LON: RRS; NASDAQ: GOLD) in a share-for-share merger.

The business combination creates the largest gold producer in the world, with five of the world's top-10, tier-one gold assets by total cash cost: Cortez and Goldstrike in Nevada, Pueblo Viejo in the Dominican Republic, Loulo-Gounkoto in Mali and Kibali in the Democratic Republic of the Congo (DRC).

The entity, called the "New Barrick Group," will also have the highest margin for adjusted earnings before interest, tax, depreciation and amortization (EBITDA), and the lowest total cash-cost position among its senior gold peers.

Under the merger, valued at $18.3 billion, Randgold shareholders will receive 6.1280 New Barrick shares, meaning once the transaction closes in the first quarter of next year, Barrick shareholders will own 66.6% of the New Barrick Group and Randgold shareholders, 33.4%, on a fully diluted basis.

The deal values Randgold at US$6.5 billion.

Discussions between the companies started in 2015, but picked up over the last nine months.

Randgold CEO Mark Bristow, for many years an outspoken and salty critic of value destruction in the gold industry - specifically its short-term focus, undisciplined growth and poor returns on invested capital - will become the New Barrick Group's president and CEO.

"Sadly, the industry still does not seem to learn from experience and fails to plan for the future," Bristow declared in an address at Prospectors & Developers Association of Canada last year. "Instead of focusing on investing and profiting, it oscillates constantly between growth and survival. In the good times, it is often fixated on production growth, maybe through acquisition, which offers little or no returns to shareholders. In the lean times, as we've witnessed in the last three years, it has to sell often at a discount what it bought at a premium, incurring the inevitable impairments and writedowns, and sometimes even forcing to shelve development projects, because no one wants to buy them."

But Bristow vows that the New Barrick Group 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," he said. "By employing a strategy similar to the one that proved very successful at Randgold, but on a larger scale, the New Barrick Group will leverage some of the world's best mines and talent to create real value for all stakeholders."

Randgold brings a debt-free balance sheet and a track record of execution in Africa with its Loulo-Gounkoto and Morila mines in Mali, Tongon in C??te d'Ivoire and Kibali in the DRC.

Over the last 20 years, Bristow has defined true value in the industry as an orebody containing at least 3 million oz. mineable gold that will deliver a 20% internal rate of return at a US$1,000 per oz. gold price.

Mark Bristow.

Barrick's executive chairman, John Thornton, will stay in his current role in the combined company.

"It fulfills our vision," Thornton said of the merger on a conference call with analysts and investors. "Today we graduate from taking Barrick back to the future and with Randgold straight into the Twenty-first Century ... Barrick and Randgold are cut from a single cloth. Randgold said it was modelled on Barrick ... the very culture we at Barrick have spent the last four years working to recover. It is no accident that the two companies act and think the same way."

Thornton noted Barrick and Randgold are "obsessed with talent and relentless with our pursuit of operational excellence," as well as maintaining a strong balance sheet, and committed to per-share returns over the long-term, as measured by free cash flow per share.