There is a big merger in the gold sector this morning. Barrick
Gold (ABX 11.09, +0.63, +5.98%) will merge with Randgold Resources (GOLD). ABX has a market cap of
$12.1 bln while GOLD has a market cap of $6.0 bln, so it's a large transaction.
The merger will create an industry-leading gold company with the greatest
concentration of Tier One Gold Assets in the industry. The transaction is
expected to close by 1Q19.
Following the merger, ABX shareholders will own approximately two-thirds of the combined company while GOLD shareholders will own one third. Each Randgold shareholder will receive 6.128 ABX shares for each GOLD share. There are no premiums in the merger because ABX says they strongly believe in the opportunity to add significant value for shareholders from the disciplined management of the combined asset base.
In addition to the deal creating a company with the greatest concentration of Tier One Gold Assets in the industry, the companies say that the combined company will have the lowest total cash cost position among Senior Gold Peers and it will have a diversified asset portfolio positioned for growth in many of the world's most prolific gold districts. The New Barrick Group will have an aggregate market cap of $18.3 bln. It would also have generated aggregate revenue of approximately $9.7 bln and adjusted EBITDA of $4.7 bln.
The New Barrick Group will have ownership of five of the world's top ten Tier One Gold Assets, with two potential Tier One Gold Assets under development or expansion. Tier One Gold Assets include Cortez, Goldstrike, Kibali (45%), Loulo-Gounkoto (80%), and Pueblo Viejo (60%). The new Barrick Group will have the highest adjusted EBITDA and highest adjusted EBITDA margin and the lowest total cash cost position among Senior Gold Peers on a combined basis.
The combined company also has established partnerships with leading Chinese mining companies. It will have superior scale and the largest gold reserves among Senior Gold Peers. It will also have a strong balance sheet with expected investment grade ratings. It will also have ownership of a strategic Copper Business that produced 413 mln pounds of copper in 2017.
Going forward, the combined company plans to grow and invest in a portfolio of Tier One Gold Assets and Strategic Assets with an emphasis on organic growth. It also plans to sell Non-Core Assets over time in a disciplined manner as well as invest in exploration across extensive land positions in many of the world's most prolific gold districts. It also plans to maximize the long-term value of a strategic Copper Business.
In sum, both companies have seen their stock prices fall. Over the past year, ABX has fallen from around $16 to close Friday at $10.47. GOLD has seen its stock price fall from around $100 a year ago to close Friday at $63.91. Clearly, lagging gold prices are a big reason for this. The strategy here seems to be to focus on cutting costs and this deal does that with greater economies of scale. That there was no premium was a bit of a surprise. Normally when a big merger like this happens, others in the sector trade higher on the news, but the lack of a premium may dampen that excitement.
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