Barrick Gold Corp. (ABX) is about to create the world's largest mining giant with a $18.3 billion deal announced Monday to buy Randgold Resources Ltd. (GOLD) . The deal will give Barrick five of the world's top 10 tier-one gold-mining assets,as well as the lowest unit-production costs among peers like Newmont Mining (NEM) and Centamin Plc (CELTF) .
Shares of Randgold were surging 7.5% to $68.71 shortly after 3 p.m. ET on the news, while ABX was rising 6.5% at $11.16.
Randgold CEO Mark Bristow, who will run the combined company, told shareholders that the new entity will focus on breaking industry standards and taking a critical view of its assets and strategy. "Our industry has been criticized for its short-term focus, undisciplined growth and poor returns on invested capital," he said. "The merged company will be very different. Its goal will be to deliver sector-leading returns."
Part of the critical view will include looking to sell parts of the Randgold's African base assets following the merger. "We will certainly look to trade some of the smaller assets within the portfolio of Randgold Resources," Bristow said.
But he's more positive on Acacia Mining, a Tanzanian gold-mining endeavor currently locked in dispute with the Tanzanian government over taxes. Randgold has expressed confidence in its ability to resolve these disputes, and Bristow said Monday that "we see a huge opportunity to work with Acacia and see how we can bring that to account, which has become a bit of an orphan in the portfolio.
"Asset quality overrides jurisdiction and we don't see any reason to change that approach to building out a global business," Bristow explained. "If you look at all the big companies in our peer group, they've all had to migrate to some of the more challenging geopolitical regions of the world and we would point out that that in our opinion we have the best skills to be able to manage those."
The announcement is already garnering attention from Tanzanian politicians, adding to the pronounced geopolitical risk with the mining giant as it deals with being "an unwelcome partner" in some profitable jurisdictions.
what Barrick and Randgold deal means: Barrick wants to be in Africa but with different entity, not Acacia? Will Randgold be the subsidiary of Barrick in Africa while Acacia's majority stakes will be sold to Chinese investors in Tanzania? @Semkae @HakiRasilimali @HakiMadini2012— Zitto Kabwe Ruyagwa (@zittokabwe) September 24, 2018
No Premium for Randgold Shareholders
While the market's reaction to the deal was positive so far on Monday, Bristow noted that "this is a no-premium deal" for Randgold shareholders -- a radical concept that the executive sees as a positive.
"I've looked back over the last 10 years and there's [been] no such thing," Bristow said. "You can't find it in the gold industry. You know very well that the gold industry is specialized in paying big premiums and destroying shareholder value."
But he said that shareholders should focus not on the lack of a premium, but instead on how the combined company will hold the world's largest collection of tier-one mines and boast strong margins.
"It's very hard to see how this isn't the most compelling investment in this sector by a long way anytime soon," Bristow said, advising shareholders to "buy lots of shares."