Published: Tue, September 25, 2018
Markets | By Noel Gibbs

Barrick Gold buys Randgold to create world’s biggest gold miner

Barrick Gold buys Randgold to create world’s biggest gold miner

Randgold shares gained 3.8 per cent to 5,108 pence as of 8:10 a.m.in London trading.

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

Bristow will be the chief executive and president of the new entity while Barrick's John Thornton will become the executive chairman.

Under the terms of the deal, nicknamed by Randgold as "Project "Bulbul" in reference to a small African bird, each Randgold shareholder will receive 6.1280 new Barrick shares for each share of the African rival, the companies said".

"Our industry has been criticized for its short-term focus, undisciplined growth and poor returns on invested capital", Bristow said in the statement. In the Democratic Republic of Congo, where its Kibali mine produces roughly 600,000 ounces of gold, revisions to the mining code could increase its annual payments to the government, and Bristow has threatened arbitration.

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The new Barrick company, which will be listed in NY and Toronto, will own five of the world's 10 lowest cost gold mines and have market value of $19.4 billion based on Monday trading.

Bristow himself has publicly railed against the "value destruction" in the gold mining sector. One asked him whether there is risk for Randgold, known for its nimble, decentralized business model, in combining with the much bigger Barrick.

"By employing a strategy similar to the one that proved very successful at Randgold, but on a larger scale, the New Barrick Group will leverage some of the world's best mines and talent to create real value for all stakeholders".

The new company will have the sector's highest adjusted earnings before interest, tax, depreciation and appreciation and EBITDA margin of almost 50 percent based on 2017 numbers, and the lowest total cash cost position among its peers, the companies said.

"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. Randgold is not listed on the Johannesburg Stock Exchange.

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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 merger is expected to close in the first quarter of 2019 once all conditions have been met.

Shareholders of the two companies announcing a merger Monday signaled they think this time may be different.

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

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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