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Barrick buying Randgold in all-stock deal to create global mining giant

Last Updated Sep 24, 2018 at 5:20 pm EDT

Toronto-based Barrick Gold Corp. has agreed to buy Randgold Resources for $7.9 billion in stock to create the world's largest gold miner. Barrick Gold executive chairman of the board John L. Thornton speaks during the company's annual general meeting in Toronto on Tuesday, April 25, 2017. THE CANADIAN PRESS/Nathan Denette

TORONTO – Barrick Gold Corp. has agreed to take over Randgold Resources in an all-share deal worth about $7.9 billion that will solidify its position as the world’s biggest gold producer after years of cutbacks.

Randgold investors will receive 6.128 Barrick shares for each of their shares to own about a third of a new Barrick group with some $12.5 billion in revenue and an expected $23.7 billion market capitalization.

The deal brings together two companies focused on efficient operations and returns to shareholders as measured by growth in free cash flow, said Barrick executive chairman John Thornton, on a conference call Monday.

“We are both committed to financial prudence, particularly in maintaining a strong balance sheet. Perhaps most important, we are of one mind about the true source of shareholder value in the gold industry: per share returns over the long term.”

The merger, expected to close in the first quarter next year, brings together Toronto-based Barrick’s global portfolio heavily focused on the Americas and Randgold’s African focused operations.

Barrick spun out its African assets into its 64-per-cent owned Acacia Mining eight years ago. The company is embroiled in a taxation dispute with Tanzania that has led to significant production cuts.

Randgold’s assets, which produced 1.32 million ounces of gold last year, will see Barrick retain its status as the world’s largest gold producer. Newmont Mining Corp. was expected to eclipse Barrick this year with an upwards guidance of 5.4 million ounces to Barrick’s five million ounces, after Barrick narrowly kept its status as the biggest producer last year.

Thornton will keep his spot as executive chairman, while Randgold chief executive Mark Bristow will become president and chief executive officer.

The combined company will follow Thornton and Bristow’s shared focus on high-quality assets and focus on cash flow. Management has committed to identify assets that don’t meet their investment criteria for potential sale within a year of the merger.

“Our industry has been criticized for its short-term focus, undisciplined growth and poor returns on invested capital. The merged company will be very different,” said Bristow in a statement.

“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.”

Desjardins Securities analyst Josh Wolfson said Randgold’s emphasis on efficiency could be beneficial, but there is delivery risk and the companies have not quantified the financial upside.

“Central to the transaction is a strategic common ground of capital discipline and a returns-focus, although only Randgold has delivered on this strategy.”

BMO analyst Andrew Kaip said in a note that Bristow taking on the role of CEO should be beneficial to Barrick shareholders, though it will be difficult to find clear cost-savings.

“The ability to extract more costs out of Barrick, or deal synergies, are less apparent. 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.”

Thornton has worked to streamline Barrick since taking the top job in 2013 including the sale of assets as he pares billions of dollars in debt.

The chairman, who previously served as a top executive at Goldman Sachs, has also looked to increase partnerships with Chinese companies.

On Monday, the company announced a deepening of its ties with Shandong Gold Group Co. Ltd. that will see each company buy up to US$300 million of each other’s shares. The two companies are jointly developing the Veladero project in Argentina and evaluating options for the nearby Lama project.

Following the close of the Randgold deal, Barrick will keep its corporate office in Toronto but said it would move its province of incorporation to British Columbia because of its more modern corporate statutes that provides increased flexibility, especially in capital management and board composition.

The deal is subject to approval by the shareholders of both companies, regulatory approvals and other customary closing conditions. Barrick has agreed to a US$300 million break fee.

Barrick shares closed up 78 cents or 5.8 per cent to $14.30 on the Toronto Stock Exchange.

Companies in this story: (TSX:ABX)