The merger between Barrick Gold (domiciled in Canada and dual-listed on the New York and Toronto stock exchanges) and Randgold Resources (domiciled in Jersey and dual-listed on the London and Nasdaq stock exchanges), announced last month and still awaiting shareholder and regulatory approvals, will create a “superpower” in the gold industry. This is the view of Fitch Solutions Macro Research, which is part of the Fitch group.

Provisionally designated ‘New Barrick’, the new company will own half of the world’s ten top Tier 1 gold assets. (A Tier 1 gold mine is defined as one having a minimum annual production of 500 000 t and total cash costs in the lower 50% of the industry cost curve over a life of at least ten years.) Three of these belong to Barrick and two are owned by Randgold. They are the Cortez and Goldstrike mines (operated as a single complex), in the US state of Nevada, and the Pueblo Viejo mine, in the Dominican Republic, which are owned by Barrick, and the Loulo-Gounkoto complex, in Mali, and the Kibali mine, in the Democratic Republic of Congo (DRC), owned by Randgold.

“The acquisition of Randgold will be a major boon for both companies in the coming years,” affirms the Fitch report. “While Barrick has the scale, Randgold has a record of succeeding in more difficult jurisdictions. To reduce debt (a $15.8-billion peak in 2013), Barrick shed a significant share of its assets and stakes. As a result, Barrick’s gold production fell to 5.3-million ounces (Moz) in 2017, from more than 8.0 Moz a decade earlier, and reserves have fallen by 54% over the last five years to 6.5 Moz. Additionally, despite holding a number of the world’s largest undeveloped gold deposits, including Pascua-Lama, Alturas and Norte Abierto-Cerro Casale, in Chile, and Donlin, in Alaska, the company has struggled to bring these development projects to fruition. On the other hand, Randgold management has a strong reputation for developing and operating profitable gold mines in difficult environments, although the company only produced 1.3 Moz in 2017 and has struggled to find new projects of scale.”

oth companies have similar strategies. They focus strongly on keeping production costs down and both seek to assemble portfolios that would still provide free cash flows even if the gold price drops as low as $1 000/oz. These similarities indicate that there will be important operational synergies in the coming years. “The combined company would have the lowest cash cost position among its peers.”

The new company will have 53% of its gold production in North America, 25% in Africa, 13% in South America and 9% in Australia and the Pacific region. Of the other top five gold miners (Newmont, Goldcorp, Kinross, Newcrest and Agnico Eagle), only Newmont has as geographically diverse a portfolio as New Barrick will have. (For comparison, 42% of Newmont’s production is in North America, 16% in Africa, 12% in South America, and 30% in Australia and the Pacific.)

“Further exposure to Africa will add risk to Barrick’s profile; however, the addition of Mark Bristow, the CEO of Randgold, who has a record of diligence and success in the region, as president and CEO of the combined company is a positive,” highlights the report. Barrick had largely withdrawn from Africa in 2010 to reduce its risk exposure, retaining only a 64% stake in Tanzania-focused Acacia Mining. But that subsidiary has been moribund since the Tanzanian government banned mineral concentrate exports last year and hit it with a $190-billion tax demand. Bristow’s appointment as head of New Barrick may open the way to a resolution of these issues over the coming months.

“Nevertheless, Randgold itself is not free from challenges in 2018,” the Fitch team pointed out. “The company faced labour issues in the Ivory Coast, a tax dispute in Mali and the prospect of a tougher mining code in the DRC. From Randgold’s perspective, the merger diversifies exposure away from high-risk African markets and towards Barrick’s more stable North American assets.”