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Canada’s Barrick Gold is swallowing African operator Randgold Resources in a takeover worth roughly US$6-billion that will ensure
In a release, Mr. Thornton said that the merger comes with no premiums 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.”
Mark Bristow, the well-regarded CEO of Randgold is to become the CEO of the enlarged company, which will retain the Barrick name. Mr. Thornton, a former president of Goldman Sachs, will remain as executive chairman. Graham Shuttleworth, Randgold’s current chief financial officer, takes the CFO role at the combined company with Barrick’s current CFO Catherine Raw becoming chief operating officer North America.
“The combination of Barrick and Randgold will create a new champion for value creation in the gold mining industry, bringing together the world’s largest collection of tier one assets,
Under the merger terms, each Randgold shareholder will receive 6.128 new Barrick shares for each Randgold share. The merger would see Barrick shareholders own 66.6 per cent of the enlarged company; Randgold shareholders would own the rest. The deal is expected to close in early 2019.
Mr. Thornton has praised Randgold and Mr. Bristow. Randgold’s returns on capital are routinely the highest, or close to them, in the gold sector. “Our industry has been criticized for its short-term focus, undisciplined growth and poor returns on invested capital,” Mr. Bristow said, in a statement. “The merged company will be very different. Its goal will be to deliver sector leading returns.”
Unlike Barrick Gold, which has taken billions in write-downs over the years , Randgold has never “written down a penny,” Mr. Thornton said in a conference call with analysts on Monday.
Another big advantage of the acquisition for Barrick shareholders according to Mr. Thornton is it is buying a competitor with a proven ability to operate in one of the most challenging jurisdictions in the world. i.e. Africa. Barrick’s subsidiary Acacia Mining PLC, which operates in Africa is currently subject to a gold export ban in Tanzania. Last year, the Tanzanian government accused Acacia of US$200-billion in tax fraud.
The combined company will have five tier-one mines, three from Barrick and two from Randgold. Barrick defines a tier 1 mine as one that produces 500,000 ounces of gold a year, has a life of more than 10 years and is low cost. Randgold owns mines in Mali, Ivory Coast, Senegal and the Democratic Republic of Congo.
The deal means Barrick likely won’t lose its spot as the world’s biggest gold producer after all. Last year, after Barrick’s production fell to to 5.3 million ounces of gold and the company predicted up to 5 million ounces for this year, it looked like Newmont Mining Corp., which forecast it will produce as much as 5.4 million ounces for 2018 would soon surpass Barrick. By swallowing Randgold, Barrick gains about 1.3 million extra ounces a year in production, which would put it comfortably ahead of its U.S. competitor.
In an interview with The Globe and Mail in London earlier this month, Mr. Thornton said he had thrown out the traditional “chasing ounces” growth model in the industry and would focus on free cash flow – the money left over after capital expenditures and operating costs are paid.
As CEO, Mr. Bristow will be responsible for the day to day operations of running Barrick. Executive chair Mr. Thornton will work with the board of directors and also continue to work on relationship building with countries like China and deal with geopolitical matters. Both Mr. Bristow and Mr. Thornton will jointly make decisions on large strategic and macro matters.
One analyst asked Mr. Bristow whether there is risk for Randgold, which is known for its nimble, decentralized business model, in combining with the much bigger Barrick.
“Our intention is to implement the Randgold way,” said Mr. Bristow, which he explained is a flat management structure, with an emphasis on efficiency and the ability to make quick decisions.
“John [Thornton] has done a lot of work in cleaning up the baggage,” he added.
“There is no culture clash amongst the senior executives between Randgold and Barrick.”
Under the terms of the deal, Randgold will cease to trade on the London Stock Exchange. The new combined company will trade on the New York and Toronto stock exchanges.
The deal is subject to majority shareholder approval from Barrick’s shareholders and 75 per cent approval from Randgold’s shareholders.
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