On September 24, Barrick Gold (ABX) agreed to acquire Randgold Resources (GOLD) in a share-for-share deal. The merger would create an industry-leading gold company (GDX) with the greatest concentration of tier-one gold assets (GLD). See Barrick-Randgold Merger Would Create World’s Largest Gold Miner for more details.
Yesterday, ABX and GOLD stocks closed 5.4% and 6.6% higher after the announcement of the deal, which implies that investors are happy about the deal.
Multiple upgrades for Barrick
Today, Citi (C) analyst Alexander Hacking upgraded Barrick Gold (ABX) from “neutral” to “buy” and raised the target price from $11 to $14. According to The Fly, the analyst believes that the acquisition is a win on two levels. One is that Barrick Gold gets a new CEO who is one of the most successful CEOs in the sector. This move adds “significant credibility” to its turnaround. Hacking also downgraded Goldcorp (GG) to “neutral” from “buy” in the same note due to the stock’s 15% outperformance versus Barrick in the past year.
TD Securities also upgraded Barrick Gold from “hold” to “buy” after the announcement of the acquisition. After these upgrades, ABX opened 4.2% higher today while GOLD stock was trading 5.2% higher. In Citi Upgrades Barrick Gold-Why the Stock Needs More to Lift Off, we discussed why ABX would need a bigger catalyst to re-rate. This acquisition could be one of those catalysts.
Downgrade for Randgold
In contrast to ABX’s upgrades, J.P. Morgan (JPM) analyst Luke Nelson downgraded Randgold Resources from “overweight” to “neutral” and also lowered its target price from $91 to $68. According to The Fly, “The analyst sees limited chance of a competing bid to emerge following the company’s takeover by Barrick Gold (ABX).”