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 anall-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 thereare no premiums in the merger. Randgold said that based on Friday’s closingprices, the new company will have market capitalization of $18.3 billion.
The merger is subject to approval by shareholders of bothcompanies, regulatory approvals and other customary closing conditions, officialssaid. Closing is expected by the first quarter of 2019, Barrick said.
Under the agreement, each Randgold shareholder will receive6.128 Barrick shares for each Randgold share. Barrick shareholders will own roughlytwo-thirds and Randgold shareholders one-third of the New Barrick Group.
“The combination of Barrick and Randgold will create a newchampion for value creation in the gold-mining industry, bringing together theworld’s largest collection of tier-one gold assets, with a proven managementteam that has consistently delivered among the best shareholder returns in thegold sector over the past decade,” Thornton said.
“Our overriding measure of success will be the returns wegenerate and not the number of ounces we produce, balancing boldness andprudence to deliver consistent and growing returns to our fellow owners, atruly simple but radical and achievable concept.”
Mark Bristow, chief executive officer of Randgold, willbecome president and CEO of the New Barrick Group. Thornton will maintain his currenttitle of executive chairman.
“Our industry hasbeen criticized for its short-term focus, undisciplined growth and poor returnson invested capital,” Bristow said. “The merged company will be very different.Its goal will be to deliver sector-leading returns, and in order to achievethis, we will need to take a very critical view of our asset base and how werun our business, and be prepared to make tough decisions.”
Graham Shuttleworth, finance director and chief financialofficer of Randgold, will become senior executive vice president and chieffinancial officer of the New Barrick Group. Two-thirds of the directors of theboard of the New Barrick Group will be nominated by Barrick, and one-third byRandgold.
More than 75% of Barrick’s gold production comes from theAmericas, including Argentina, Canada, Peru, the Dominican Republic and U.S.,particularly Nevada. The company produced 5.32 million ounces of gold and 413million pounds of copper in 2017. Randgold is focused in western and central Africa,including Mali, the Democratic Republic of the Congo, Senegal and C??te d’Ivoire. Production was 1.315 million ounces in2017.
Analysts OutlineOpportunities, Risks
Analysts at BMO Capital Markets identified potentialopportunities and risks. They pointed out that to support the philosophy ofshareholder returns, Barrick has agreed to raise its quarterly dividend to anickel a share in the fourth quarter, compared to three cents currently.
“Barrick shareholders are going to have to weigh the factthat the merger is likely to be anywhere from 15-20% dilutive to earnings, cashflow and free cash flow,” BMO said.
However, analysts continued, Barrick may benefit fromBristow leading the next stage of its transformation. The bank said itanticipates future asset sales.
“In our view, the ability to extract more costs out ofBarrick, or deal synergies, [is] less apparent,” BMO said. “We do expect someopportunities to emerge in Africa as there is sufficient overlap, but Barrickhas 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 hasa solid track record of navigating Africa risk and could provide importantnegotiating skills in dealing with Acacia.”
Credit Suisse noted that the combined company will own fiveof the world’s top 10 tier-one gold assets and have the lowest total cash costsamong senior producers. Credit Suiise also said the lack of a premium onRandgold shares is positive for Barrick but could be a hurdle for Randgoldshareholder approval.
“Without a premium, we wonder if Randgold shareholders couldbe 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 toperhaps conclude after the Q1/19 expected close. However, given the friendlytransaction terms and Mark Bristow...continuing as CEO of the new company, webelieve that the merger is ultimately likely to proceed.”
Edison Investment Research said the merger raisestwo questions - how long will Bristow stay in the position and what will happento Acacia Mining, which represents Barrick's African assets that were spun offin 2010. Barrick remains the majority shareholder in Acacia, which has been hurt by changes to the mining industry from thegovernment of Tanzania, including a ban on the export of raw minerals and lawsto reap more revenues. Edison analystCharles Gibson said many observers have felt a “transformative deal” wouldmark the “apotheosis” of Bristow’s career.
“Mr.Bristow is personally credited with creating the environment and philosophythat underpinned much of Randgold’s success, and forward-thinking investorswere already beginning to ask questions about the succession at Randgold,” theanalyst said. “They will certainly want comfort now that he will stay for longenough to apply the same approach to Barrick’s assets before hanging up hisspurs.”
By Allen SykoraFor Kitco News
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