So the Randgold (RRS) and Barrick Gold (ABX in the US) merger does come to pass. I previously mentioned the rumour and now the details have been realised. A nil-premia merger that creates an $18 billion gold sector behemoth which - to use the strapline the two entities are using on their presentation documents - is a 'new champion for long-term value creation in the gold industry'. Well the potential to achieve such lofty aims is apparent. Simply put, Randgold is the brains (higher returns, capability to develop mines others have struggled with) and Barrick Gold is the brawn (size, infrastructure)...
Putting together half of the top ten global gold mines into one entity - at the lowest average cost profile across peers and with the highest gold reserves - could really work, especially as Randgold's CEO and CFO will be adopting similar positions in the new combined group. On the conference call, the Randgold CEO Mark Bristow noted that his own company was forged in the spirit of the 'old Barrick' and certainly recent years have seen the current Barrick executive team cut debt and focus their efforts more in the spirit of their heyday. What they have been missing is Randgold's focus on developing only top tier assets. Certainly the sprinkling of the Randgold management and financial focus on assets beyond Africa in the Americas and Australia offers value-add potential (and sensible geographic diversification from a Randgold shareholder's perspective). But amongst the great metrics and warm words there are two issues for any Randgold investor that need to be addressed.
First, this is a nil-premia merger. Some - including myself - would have argued that the Randgold value-add was worth a greater part of the merger split than just the current market cap level of around one-third. Striking this deal may reflect a Randgold observation that life is getting harder as an Africa-only entity and that there was greater value add scope by merging and effectively day-to-day running the biggest global gold business. The second aspect is that when this deal completes - in Q1 2019 - Randgold's London listing will be cancelled (the 'New Barrick' shares will continue to trade in the US and Canada). It is true that most global dealing occurs in the America's but it is a shame for London-only investors.
And my thoughts? Well, first, in the event of a successful completion I will continue holding my shares as I see the scope and value creation potential, especially with Mark Bristow in charge. I am a bit disappointed that the end game for the name Randgold is not a mega bid...but it is what it is. I am sure some big shareholders will agitate a bit for better terms...but I am going to tick the accept box and await redenominated shares in 'New Barrick'. Bye-bye Randgold...over the years you have been a real star and a huge loss to the London listed mining sphere.
Filed under: Randgold merger, Draganfly, Low & Bonar, Next, Imperial tobacco, Rurelec
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