Barrick Gold strikes $18.3 B Randgold merger deal

Barrick Gold Corp. [ABX-TSX, NYSE] is consolidating its position as the world’s leading gold producer by agreeing to merge with Randgold Resources Ltd. [GOLD-NASDAQ, LSE] in a deal worth $18.3 billion.

Under the share exchange agreement, Randgold shareholders will receive 6.128 New Barrick shares. As a result, Barrick shareholders will own about 66% of the combined company, while shareholders of Randgold will hold the other third.

Barrick Gold shares rose 6.21% or $0.84 on the news to $14.36 on volume of 4.7 million. The 52-week range is $21.03 and $12.54.

The rationale for the transaction is to create an “industry-leading” gold company holding half of the world’s top 10 tier one gold assets (defined as having a mine life of over 10 years, at least 500,000 ounces of annual production and in the bottom half of global total cash costs).

Financially the deal improves Barrick’s balance sheet and free cash flow per share, while reducing Randgold’s political risk profile.

Randgold CEO Mark Bristow will be President and CEO of the combined company, while Barrick Executive Chairman John Thornton will continue in the same role.

Founded by the late Peter Munk, Barrick Gold has grown from its roots in the Ontario and the Nevada gold fields in the early 1980s to become the world’s leading gold producer. That was before the company took on huge amounts of debt, while sinking US$8 billion into the Pascua Lama project in Argentina/Chile, and $7.3 billion (Canadian) into Equinox Minerals.

Prior to Monday’s announcement, Barrrick shares had lost about 40% of their value in the past year, and the company was about to lose its status as the global leader to Newmont Mining Corp. [NEM-NYSE], the U.S. giant that Barrick has considered merging with in the past.

Randgold, by contrast, has been a standout performer in the global gold mining sector. The African gold producer holds operations in West and Central Africa, producing about 1.1 million ounces of gold annually. Its flagship assets are an 80% stake in the LouloGounkoto complex in Mali and a 45% stake in the Kibali Mine in the Democratic Republic of Congo.

Under the agreement, shareholder approval is required from both Barrick and Randgold shareholders. For Randgold, the key threshold is a majority of shareholders in number, representing three quarters or more of voting rights. In Barrick’s case, a simple majority is all that is required.

Barrick and Randgold will both hold special meetings on November 5, 2018. The deal is also subject to the approval of South African regulatory authorities.

Meanwhile, the combined company is expected to migrate its province of incorporation from Ontario to British Columbia. However, the head office will remain in Toronto.

The Randgold merger plan was one of two agreements announced Monday by Barrick Gold. In a separate deal, the Canadian company said China’s Shandong Gold Group Co. Ltd. will purchase up to $300 million worth of Barrick shares, while Barrick will invest an equivalent amount in the shares of Shandong Gold Mining Co. Ltd., a publicly-listed company controlled by Shandong Gold. These mutual investments must be made within 12 months of the date of signing (unless otherwise agreed).