The Strategic Rationale for the Barrick-Randgold Merger

Strategic rationale for the merger

Both Barrick Gold (ABX) and Randgold Resources (GOLD) believe the combined company will have the greatest concentration of tier one gold assets and the lowest total cash cost position among its senior gold miner peers (GDX). After the merger, the new Barrick Gold (ABX) will have:

  • five of the world’s top ten tier one gold assets by total cash cost.
  • the largest gold (GLD) reserves among senior gold peers.
  • the highest adjusted EBITDA, the highest EBITDA margin, and the lowest cash cost position among senior gold peers.
  • established positions with leading Chinese mining companies.
  • a strong balance sheet
  • significant re-rating potential

The Strategic Rationale for the Barrick-Randgold Merger

Diversification for Randgold

Randgold Resources has most of its presence in Africa, and it was looking to expand its geographical footprint. Previously, it was not able to find any stand-alone opportunity that met its investment criteria. Its board believes that both companies’ strategic visions and complementary strengths should create significant shareholder value for Randgold shareholders over the long term.

Both stocks trading higher

As reported by BBC, Nicholas Hyett, an analyst at Hargreaves Lansdown, said, “From Randgold’s perspective the deal diversifies exposure away from high-risk African markets and towards Barrick’s more stable North American assets. Given recent headwinds that’s welcome.”

After the announcement of the merger on September 24, Barrick Gold and Randgold Resources stocks were trading 5.8% and 6.6% higher, respectively, as of 10:00 AM EST. That suggests that investors are happy with the deal.