Published: Tue, September 25, 2018
Money | By Armando Alvarado

Barrick to buy Randgold for $18.3B forming giant global gold miner

Barrick to buy Randgold for $18.3B forming giant global gold miner

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

Randgold shares were up 4.3 percent at 0901 GMT, making it the biggest gainer in London's wider mining index. The combined companies would also have the lowest cash cost position among its peers. They also have high internal "hurdle" rates for investment; in Barrick's case they must generate an internal rate of return of 15 per cent and in Randgold's 20 per cent.

John L. Thornton, executive chairman of Barrick, will become executive chairman of the new Barrick Group; Mark Bristow, CEO of Randgold, will become CEO of the new Barrick Group.

The combined entity will have a market value of more than $18 billion.Barrick shareholders will end up owning about 67% of the new company.

Shares in Barrick closed up 5.8 per cent on the Toronto Stock Exchange, its best single day performance in more than a year and a half, while Randgold shares rose by 6.5 per cent on the Nasdaq Exchange. Yet, by buying Randgold, Barrick will once again become the world's biggest gold company in every metric that counts- production, market capitalization and reserves, vaulting past USA rival Newmont Mining Corp, which in recent years had surpassed the company on every level bar production.

Thornton noted Barrick has spent several years developing partnerships with Chinese mining companies, which he believes creates additional insurance against political risk.

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

"The regulatory shakeup in the Democratic Republic of Congo has dented the share price and Randgold has also struggled to find new projects of scale, potentially holding up dividend growth in the years ahead".

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Executives from both Barrick and Randgold, which produces about 1.3 million ounces of gold a year, are in Colorado Springs for the industry's annual Denver Gold Forum.

In a statement, the companies said the deal would create a gold miner with the greatest concentration of so-called tier assets in the industry.

"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.

"We don't see a reason to change Randgold's approach".

Barrick, which has been clinging to its designation as the world's biggest gold company by production, hadn't made a larger takeover deal in seven years, and has spent most of the last decade paying down debt and selling assets after a near disastrous acquisition, and wasting billions attempting to build a massive new South American mine that never opened.

The deal is targeted to close by 2019's first quarter.

"Our opinion is that the proposed merger, instead of being based on merit, strength and strategic integration, is more akin to the proverbial "two drunks supporting each other at closing time", Kieron Hodgson, equity analyst at Panmure Research said in a note.

M. Klein & Co and Morgan Stanley advised Barrick on the deal, while CIBC and Barclays were the financial advisers to Randgold.

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