Barrick to buy Randgold to bolster assets

Barrick will also exploit synergies in Africa, while tapping Randgold’s expertise on the continent

By BLOOMBERG

LONDON • Barrick Gold Corp agreed to buy Africa focused rival Randgold Resources Ltd, addressing concerns about the Toronto-based miner’s production outlook and sharpening its focus on higher quality assets.

The creation of a gold mining company with a combined market value of about US$18 billion (RM74.34 billion) helps Barrick to boost output at a time when its stock has been punished for the producer’s stagnant pipeline.

The company’s shares have about halved from a February 2017 peak, with the miner outpacing the decline in bullion.

Barrick will also exploit synergies in Africa, while tapping Randgold’s operating expertise on the continent.

“Randgold has a proven ability to operate successfully in some of the most challenging environments in the world,” Barrick executive chairman John Thornton (picture) said on a conference call. “The combined company will have five of the world’s top 10 tier-1 gold assets.”

Under the all-share deal, Barrick shareholders will own about two-thirds of the new entity and Randgold investors the remainder, the two companies said in a statement yesterday.

Thornton last month outlined Barrick’s plan to add more top-quality mines and to gradually shed anything of a lower calibre or that’s not deemed to be “strategic”. The combined company would have the lowest cash cost position among its peers, Barrick said.

Barrick’s gold production fell to 5.3 million oz (156,739 litres) in 2017, from more than eight million oz a decade earlier, according to data compiled by Bloomberg. The company shed non-core assets outright, or sold stakes to partners, to repair its balance sheet, after its debt peaked at US$15.8 billion in 2013.

Randgold Dividend
Thornton will retain his position in the enlarged company, while Bristow becomes president and CEO. Randgold CFO Graham Shuttleworth will become CFO of the new company.

Executives from both Barrick and Randgold, which produces about 1.3 million oz of gold a year, are in Colorado Springs for the industry’s annual Denver Gold Forum. Barrick shares were up about 4% in premarket trading.

Randgold shareholders will receive a dividend of US$2 a share for the 2018 financial year. The company’s shares gained 5.9% to 5,212 pence (RM283.97) as of 11:12am in London trading yesterday.

“We see this as a positive for Randgold shares today as it changes the narrative around the group,” James Bell, an analyst at RBC Capital Markets, said in a note, citing African risks and slowing production momentum.

“We see the news as overall positive for the group due to the higher-quality nature of the assets in Barrick.”

Randgold has slipped about 30% this year as it faced labour challenges in the Ivory Coast, a tax dispute in Mali and the prospect of a tougher mining code in the Democratic Republic of Congo. Barrick’s majority-owned Acacia Mining plc has been stuck in limbo after Tanzania imposed a ban on exports of mineral concentrates in 2017 and slapped a US$190 billion tax bill on the London-listed company.

“There are synergies, very clear synergies in Africa, particularly because we can operate the entire portfolio that will be double in size with exactly the same structures,” Bristow said on a conference call. “And as we progress collectively to find a solution that really delivers better value and more transparency in Tanzania, we will unlock many synergies.”

Strategic Approaches
In many ways, the strategies of the two companies are similar. Both firms are highly focused on production costs, aiming to build portfolios that generate free cashflow even if gold prices drop to as low as US$1,000 an oz.

They also have high internal “hurdle” rates for investment; in Barrick’s case they must generate an internal rate of return of 15% and in Randgold’s 20%. The metal settled at US$1,200.04 on the spot market last Friday.

The takeover won’t be well received by Barrick shareholders as it would add further exposure to geopolitical risks in Africa, Stephen Walker, a Royal Bank of Canada analyst, said in a note published before details of the deal were announced. That could open the way for Newmont Mining Corp, the biggest gold miner by market value, to make an offer for Barrick, Walker said.