(Bloomberg) -- Barrick Gold Corp. agreed to buy Africa-focused rival Randgold Resources (LON:RRS) Ltd., addressing concerns about the Toronto-based miner’s production outlook and sharpening its focus on higher quality assets.
The creation of a gold mining company with a combined market value of about $18 billion helps Barrick to boost output at a time when its stock has been punished for the producer’s stagnant pipeline. The company’s shares have about halved from a February 2017 peak, with the miner outpacing the decline in bullion. Barrick will also exploit synergies in Africa, while tapping Randgold’s operating expertise on the continent.
“Randgold has a proven ability to operate successfully in some of the most challenging environments in the world,” Barrick Executive Chairman John Thornton said on a conference call. “The combined company will have five of the world’s top 10 tier-one gold assets.”
Under the all-share deal Barrick shareholders will own about two-thirds of the new entity and Randgold investors the remainder, the two companies said in a statement on Monday.
Randgold Dividend
Barrick shares were up about 4 percent in premarket trading. Randgold shareholders will receive a dividend of $2 a share for the 2018 financial year. The company’s shares gained 5.9 percent to 5,212 pence as of 11:12 a.m. in London trading.
“We see this as a positive for Randgold shares today as it changes the narrative around the group,” James Bell, an analyst at RBC Capital Markets, said in a note, citing African risks and slowing production momentum. “We see the news as overall positive for the group due to the higher-quality nature of the assets in Barrick.”
Randgold has slipped about 30 percent this year as it faced labor challenges in the Ivory Coast, a tax dispute in Mali and the prospect of a tougher mining code in the Democratic Republic of Congo. Barrick’s majority-owned Acacia Mining Plc has been stuck in limbo after Tanzania imposed a ban on exports of mineral concentrates in 2017 and slapped a $190 billion tax bill on the London-listed company.
“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. “And as we progress collectively to find a solution that really delivers better value and more transparency in Tanzania, we will unlock many synergies.”
Strategic Approaches
The takeover won’t be well received by Barrick shareholders as it would add further exposure to geopolitical risks in Africa, Stephen Walker, a Royal Bank of Canada analyst, said in a note published before details of the deal were announced. That could open the way for Newmont Mining Corp (NYSE:NEM)., the biggest gold miner by market value, to make an offer for Barrick, Walker said. Newmont didn’t immediately respond to an emailed request for comment outside usual office hours.
The Terms:
- Each Randgold shareholder will receive: 6.1280 new Barrick shares for each Randgold share
- Exchange ratio has been agreed based on the volume-weighted average prices of Barrick Shares traded on NYSE, and Randgold ADSs traded on NASDAQ over the 20 trading days ended on Sept. 21
- Barrick shareholders will receive a total 2018 annualized dividend of up to $0.14 per Barrick share.