BARRICK Gold executive chairman, John Thornton, today unveiled terms aimed at catalysing his long-brewing overhaul of the Canadian miner, proposing an $18.3bn share-for-share merger with Randgold Resources – a development that amounts to a breathtaking recruitment of its founder, Mark Bristow, and his CFO, Graham Shuttleworth.
If the merger is accepted by shareholders of both companies, the combined company would invest in the organic growth of the “five tier one” gold mines it claims it will house, whilst selling others – a strategy that may be consequential for Barrick’s listed subsidiary, the 64% owned UK-listed Acacia Mining. Acacia said in a brief statement today that it was seeking clarity from Barrick regarding the merger proposal.
The new company – to be named Barrick Group – will have Bristow as its CEO which effectively brings the curtain down on more than two decades of Randgold in the role of industry maverick. As CEO of Randgold Resources, Bristow was fiercely critical of companies such as Barrick Gold which he often described as lumbering, ineffective, and inefficient.
Thornton – described in a recent Globe & Mail article as an out-of-the-box thinker, and heavily critical of Barrick’s recent corporate past – will retain his position in the new company. Shuttleworth will become CFO. It remains to be seen how the Thornton-Bristow axis will evolve given the strength of each personality.
Speaking in an investor presentation today, Bristow said there was “no culture clash”, adding that “… if anything, the one thing that John and I are completely aligned on is how to run the company”. Bristow later added that he would “bring systems” and the know-how of having affected the things Thornton wanted to implement at Barrick which included decentralising management, reducing working capital to a minimum, and producing “real profits” in the first quarter after project commissioning.
Thornton’s success in debt reduction at Barrick by “a couple of billion (dollars)” and “removing the baggage” had also assisted in making the merger palatable, said Bristow. “This is no rescue job,” he said of his plans to implement the ‘Randgold way’. Thornton book-ended the presentation with comments that the merger was a “back to the future” moment for Barrick in which it would re-capture the entrepreneurial spirit of its founder – the late Peter Munk – whom Bristow modelled in the formation of Randgold.
Bristow said earlier in a prepared statement that Barrick Group would be run on similar lines to Randgold Resources, only larger. “Its goal will be to deliver sector leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions,” he said.
Shares in Randgold gained nearly 6% by mid-morning trade on the London Stock Exchange valuing the company at £4.8bn, equivalent to 5138 pence per share.
Detailing the principles of its business plan, the two companies said they would “grow and invest” in a portfolio of tier one gold assets and strategic assets, sell non-core assets, and invest in exploration across “extensive land positions in many of the world’s most prolific gold districts”. Randgold has an established base in francophone Africa whilst Barrick owns mines in Latin America as well as North America.
Barrick Group would also “maximise the long-term value of a strategic copper business”, a statement that raises the prospect it could transact with Chinese counter-parties – a development to which Thornton has recently alluded. He has similarly referenced a deal with the Chinese on Acacia Mining.
DEAL MECHANICS
The mechanics of the proposal is that each Randgold Resources shareholder will receive about 6.1 New Barrick Shares for each Randgold Share, an exchange ratio based on the volume-weighted average prices of both companies over 20 days ending September 21. Following completion of the merger, Barrick shareholders will own approximately 66.6% pot the combined unit while Randgold shareholders will own approximately 33.4%.
“There are no premiums in the merger because we strongly believe in the opportunity to add significant value for our shareholders from the disciplined management of our combined asset base and a focus on truly profitable growth,” said Thornton in a statement.
The two companies said the proposed merger would not effect planned payouts for the current financial year. Therefore, randgold shareholders will be entitled to receive a $2/share dividend for the 2018 financial year whilst Barrick shareholders will receive a total 2018 annualised dividend of up to 14 US cents per share.
As for the board composition of the combined unit, two-thirds of the directors will be initially appointed by Barrick whilst the balance will be appointed by Randgold. In addition to Thornton, Bristow and Shuttleworth, Kevin Thomson, who is currently head of Barrick’s strategy will take on a similar position in the combined company.
Randgold will be delisted from the LSE.
“Our overriding measure of success will be the returns we generate and not the number of ounces we produce,” said Thornton who added the merger represented a “… a truly simple but radical and achievable concept”.
Based on the 2017 financial results for both companies, the proposed Barrick Group would have generated aggregate revenue of approximately $9.7bn and aggregate adjusted pre-tax earnings of $4.7bn.
