Is There Gold in the Merger of Barrick, Randgold?

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Barrick Gold Corp. (NYSE: ABX), the world’s largest gold mining firm measured by production, and Randgold Resources Ltd. (NASDAQ: GOLD) announced Monday morning that the two firms will merge in an all-stock deal valued at $6 billion. Barrick has agreed to pay 6.128 shares in a new entity called New Barrick Group for each share of Randgold stock.

The price is based on the weighted average price of Randgold shares in the 20 trading days through last Friday. Barrick is paying no premium.

Once the merger is approved by the shareholders of both companies and by regulators, Barrick shareholders will own 67% of the combined company and Randgold shareholders will own 33%. The deal is expected to close by the first quarter of 2019.

Randgold shareholders will receive a $2 per share dividend payment for the 2018 fiscal year prior to the deal’s closing and Barrick shareholders will receive an annualized dividend of up to $0.14 per share. In the announcement, Barrick noted that the New Barrick Group “intends to grow its dividend from the Barrick level for the financial year ended 31 December 2018 over time…”

John Thornton, currently executive chair of Barrick, will become executive chair of the combined firm, and Mark Bristow, currently CEO of Randgold, will take over as president and CEO of the so-called New Barrick Group. Shares of the merged firm will trade in New York and Toronto.

Thornton commented:

Our overriding measure of success will be the returns we generate and not the number of ounces we produce, balancing boldness and prudence to deliver consistent and growing returns to our fellow owners, a truly simple but radical and achievable concept. There are no premiums in the merger because we strongly believe in the opportunity to add significant value for our shareholders from the disciplined management of our combined asset base and a focus on truly profitable growth.

Bristow echoed those remarks:

Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital. The merged company will be very different. Its goal will be to deliver sector leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions.

More than 75% of Barrick’s current production comes from its North American assets while all of Randgold’s assets are located in Africa.

In fiscal year 2017, Barrick produced 5.323 million ounces of gold and generated revenues of $8.37 billion and net earnings of $1.52 billion. For the same year, Randgold produced 1.32 million ounces of gold and posted revenues of $1.28 billion and net profits of $335 million.

In Monday’s premarket trading session, Randgold stock traded up about 6.1% to $67.80, in a 52-week range of $59.90 to $104.05. Barrick traded up about 3.4%, at $10.83 in a 52-week range of $9.53 to $16.84.