(NYSE:ABX) has confirmed it will buy Randgold Resources Ltd (LON:RRS) in an all-share deal to create the world's largest gold miner valued at US$18.3bn. Randgold's London listing will be cancelled. Their companies' combined production was absent from the presentations, although Barrick produced 5.3 million ounces in 2017 while Randgold produced 1.3 million ounces. This lack of a premium for Randgold shareholders prompted scepticism from some analysts who were also concerned that Randgold's agility could be bogged down by the mammoth Barrick.
Barrick executive chairman John Thornton will hold the same role at New Barrick while Randgold chief executive Mark Bristow, who co-founded the company in 1995, will become CEO of the combined company.
Under the terms of the deal, each Randgold shareholder will receive 6.1280 new Barrick shares for each share of the African rival, the companies said.
While Randgold has large mines in Mali and the Democratic Republic of Congo, it doesn't have a significant presence in Tanzania. That would make it the world's biggest gold miner by market capitalization, overtaking Newmont Mining Corp, according to Reuters calculations.
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"The combination of Barrick and Randgold will create a new champion for value creation in the gold mining industry", said Thornton in the statement. One asked him whether there is risk for Randgold, known for its nimble, decentralized business model, in combining with the much bigger Barrick.
"They also have high internal "hurdle" rates for investment; in Barrick's case they must generate an internal rate of return of 15% and in Randgold's 20%".
"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.
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. Randgold is not listed on the Johannesburg Stock Exchange.
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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. The company shed non-core assets outright, or sold stakes to partners, to fix its balance sheet, after its debt peaked at $15.8 billion in 2013.
Talks on the deal, which is still subject to regulatory and shareholder approvals and scheduled to close in the first quarter of 2019, started more than three years ago with advisors taken in July, a person familiar with the talks told Reuters.
"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", said Kieron Hodgson from Panmure Research.
Barrick was advised by Morgan Stanley and M. Klein and Company, while Randgold was advised by CIBC World Markets and Barclays.
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