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Barrick Gold to buy Randgold Resources in $18.3bn deal

Mark Bristow will be CEO of the merged company.

Mark Bristow will be CEO of the merged company.

24th September 2018

By: Reuters

  

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LONDON - Canada's Barrick Gold has agreed to buy Randgold Resources in a $18.3-billion share deal to create the world's largest gold company in an industry under investor pressure to put capital to good use.

The new Barrick company, which will be listed in New York and Toronto, will own five of the world's 10 lowest cost gold mines and will be valued at $24-billion including debt.

The deal marks the biggest transaction in years in the gold mining industry, where companies have come under fire from investors for poorly managing capital, forcing them to focus on costs while dampening enthusiasm for acquisitions.

"Randgold has the agility and swift-footedness of a younger and smaller company, much like Barrick in its early years, while Barrick has the infrastructure and global reach of a large corporate company," Barrick chairman John Thornton said in a conference call.

Randgold's long-term boss Mark Bristow will become the chief executive and president of the merged company, taking chief financial officer Graham Shuttleworth with him and Barrick's Thornton, an ex-Goldman Sachs banker, will be executive chairman.

Two-thirds of the directors of the board of the new Barrick will be nominated by Barrick and one-third by Randgold.

Randgold shares were up 5.7% at 14:00 GMT, making it the biggest gainer in London's wider mining index while shares of Barrick, the world's second largest gold producer, were up over 6%.

"What the deal delivers Randgold shareholders...is more options in terms of growth and development, whereas before they only had one growth option of scale in Massawa," said Investec analyst Hunter Hillcoat, referring to the miner's gold project in Senegal.

'POOR HAND'
The merger values Randgold at 4.58-billion pounds ($6-billion), at 48.5 pound-a-share and is equal to Randgold's market capitalisation as of Friday's close.

This lack of a premium for Randgold shareholders prompted scepticism from some analysts who were also concerned that Randgold's agility could be bogged down by the mammoth Barrick.

"UK shareholders are arguably being dealt a poor hand with the merger," said Russ Mould, investment director at AJ Bell.

"What Bristow has got to prove now is that bigger is better and the Randgold culture is the one that will perhaps prevail."

Bristow, a 59-year old trained geologist, has been at the helm of Randgold since its inception in 1995 and is known for his straight-talking, hands-on approach to running the company.

The current spot gold price is not helping the sector, having lost out on traditional safe-haven flows to the dollar, pushing it 10 percent lower this year.

Both Barrick and Randgold have lost a third of their market capitalisations over the past year.

"We don't see a reason to change Randgold's approach... If we can't deliver something that is bigger and better, then we wouldn’t do it," Bristow said on a call with analysts.

The new company will have the the sector's highest adjusted EBITDA and EBITDA margin of nearly 50% based on 2017 numbers, and the lowest total cash cost position among its peers, the companies said.

Under the terms of the deal, each Randgold shareholder will receive 6.1280 new Barrick shares for each share of the African rival, the companies said.

Talks on the deal, which is still subject to regulatory and shareholder approvals and scheduled to close in the first quarter of 2019, started more than three years ago with advisors taken in July, a person familiar with the talks told Reuters.

In 2017, Barrick and Randgold combined produced 6.64 million ounces while the next largest gold miner, Newmont Mining, churned out 5.27-million ounces.

The two companies said they were aligned on their strategy with Chinese investors after Barrick said it would make a bigger push to attract investors in China.

Randgold, which mines also in Mali, Ivory Coast and the Republic of Congo, where it has been faced with regulatory risk, a factor that Barrick's Africa unit Acacia Mining has to deal with in Tanzania.

Edited by Reuters

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