Barrick and Randgold: a mega merger in gold

Molten gold
“Brandgold”: the world’s largest gold company

Canada’s Barrick Gold and London-based Randgold Resources are tying the knot. Why now, and will the deal prove a success? Marina Gerner reports.

Barrick Gold’s bet on growth “looks like a reverse takeover”, says Clara Ferreira Marques on Breakingviews. The world’s biggest gold producer has announced a $18bn, all-share tie-up with Africa-focused Randgold Resources. But it’s the smaller, London-listed Randgold that appears to be “in the driving seat of this reboot”. The company is contributing its “straight-talking boss and entrepreneurial spirit [to] a restructuring push that had reached its limit”, Ferreira Marques notes. The combination brings together “a former high-flying banker from Goldman Sachs [Barrick’s John Thornton] and a pugnacious South African miner and geologist”, say Henry Sanderson and Neil Hume in the Financial Times.

How they govern together will determine the success of the deal, which will create the world’s biggest gold company with annual production of 6.5 million ounces of gold, eclipsing US-listed Newmont Mining, its nearest competitor. The new company, dubbed “Brandgold” by analysts, will also have five of the ten biggest and most efficient gold mines in the world.

Randgold Resources’ stellar decade

For Randgold Resources, a tie-up with Barrick Gold “answers questions about its long-term growth prospects”, say Sanderson and Hume. It has never reported a quarterly loss, “an impressive feat for a company that mines a volatile commodity”. It is among the FTSE 100’s top performers and has gained 120% in the past decade But it has not found a big mine in a long time, while tough mining laws in the Democratic Republic of Congo are an additional headache.

Barrick Gold has gone through some pain since the gold price tumbled from a 2011 peak. Thornton, who has been chairman for four years, has cut costs, slashed debt, and sold assets. He now wants to hire Mark Bristow, one of the industry’s most highly regarded executives, to help Barrick Gold exploit its size. Bristow will manage the expanded firm’s day-to-day business, while Thornton will provide leadership at board level and focus on strategic issues.

The two miners have agreed a nil-premium takeover, says Paul Davies in the Wall Street Journal. “But the puzzle here is why Randgold’s investors should give up control – they only get 33% of the combined group – and contribute $800m in cash from the company’s balance sheet without a takeover premium.” Allowing Randgold’s management “to apply its development expertise and hard-nosed efficiency” to Barrick sounds appealing, but why shouldn’t Randgold’s shareholders get paid for that? Randgold’s board is recommending the deal to investors. But Barrick “may yet have to find something extra to make its offer shine”. Meanwhile, we can expect more consolidation in the sector. As James Rasteh of Coast Capital Management told the FT, the main players “are starting to run out of reserves”.