BARRICK’S $6-BILLION BET ON AFRICA
All-share deal for Randgold would create world’s largest gold miner
In a move that would allow Barrick Gold Corp. to regain its crown as the world’s largest gold producer and tie its future more closely to Africa, the Toronto-based miner on Monday announced a US$6-billion plan to purchase Randgold Resources Ltd.
If the all-share, no-premium deal closes as expected in 2019, Barrick shareholders would control two-thirds of the company while Randgold would control the rest.
In a conference call Monday, John Thornton, executive chairman of Barrick Gold Corp., said Randgold has a track record of success in the “most challenging environments in the world,” namely Africa, where Barrick subsidiary Acacia Mining has been struggling through a years-long tax dispute with the Tanzanian government. Thornton noted Barrick has spent several years developing partnerships with Chinese mining companies, which he believes creates additional insurance against political risk.
“In a world of declining gold reserves, the combination of these two strengths is a competitive advantage,” Thornton said. Under the deal, he would remain executive chairman, while Randgold’s chief executive and president Mark Bristow would step into the same role for Barrick. It has been operating without a chief executive since 2014, and without a president since earlier this summer.
Barrick said it would reincorporate in British Columbia although Florida-based Thornton did not say why. Its headquarters will remain in Toronto, but Bristow made no mention of plans to relocate there.
Both men said they share core values, including delivering value to shareholders, rather than focusing on ounces of gold produced. Barrick produced 5.3 million ounces in 2017 while Randgold produced 1.3 million ounces. Bristow is known for his emphasis on a decentralized management team — something Thornton has embraced. Barrick is in the midst of reducing its administrative positions around the world from about 780 to roughly 300. Bristow, who has led a company that delivered a 96 per cent return during the last decade, is known for his colourful language in interviews. On Monday, the mining blog Inca Kola News, which initially broke the story of the merger, reposted photos of Bristow in hunting gear with a rifle, posing next to dead big game animals, including an elephant.
“This is a re-energizing event for me,” he said during a conference call Monday. “I’ve said many times I need one more really big gold mine to put at the end of my career … and this is like a really big gold mine.”
Within the industry, Bristow has been outspoken in his criticism of other gold companies for executing mergers that destroyed shareholder value — a theme Thornton also propounded this summer in a speech posted on the company’s website.
They also both noted Monday that under the deal, Randgold shareholders will not receive a premium for their shares, which breaks industry norms. “You have a larger company buying a smaller company, and normally you’d have a change in control premium,” said one former mining executive. “You might expect the reaction will be that Randgold shareholders will not like it, but Randgold (stock) is up today.”
Both Thornton and Bristow were in Denver on Monday, where a large gold conference was taking place.
According to one analyst, most of Randgold’s major shareholders were represented there, giving the pair opportunities to explain the deal in person.
Shares of Barrick and Randgold both had increased more than six per cent by mid-day.
Still, the all-share agreement combines two companies with share prices that had struggled throughout 2018. Randgold, the smaller of the two, has seen its stock decline from more than US$103 in January to around US$60 earlier this month — though it was currently up to US$68.42.
Barrick Gold stock, meanwhile, has been drifting downward from $19.49 earlier this year to below $13 earlier this month, though it had risen to $14.44 on Monday. The company’s production is scheduled to decline from 5.3 million ounces of gold in 2017 to around 4.5 million ounces this year, which means it was set to relinquish its role as the world’s largest gold producer to U.S.-based rival Newmont Mining.
Both Barrick and Randgold declined requests for comment.
In a world of declining gold reserves, the combination of these two strengths is a competitive advantage.