MINING industry participants in South Africa have responded with mystification and intrigue in respect of the proposed combination of Barrick Gold with Randgold Resources, the merger of which was unveiled on September 25.
“Quite how [Barrick Gold executive chairman] John Thornton and Mark Bristow [CEO of Randgold Resources] are going to sit in the same room together, I am still trying to figure out,” said Jim Rutherford, a non-executive director of Anglo American and former vice president at Capital Group, an investment management company.
Rutherford was commenting during a panel discussion held at the Joburg Indaba mining conference in Johannesburg that also included AngloGold Ashanti investor relations vice-president, Stewart Bailey; Tanya Chikanza, Lonmin’s executive vice president of investor relations Lonmin; and Johan Theron, had of corporate relations at Impala Platinum.
Also on the panel was Sandy McGregor, a portfolio manager at Allan Gray – who commented he was: “… not surprised” that Randgold had done such a deal, but the fact that it was with Barrick “… intrigued me”.
Interviewed on the sidelines of the conference, McGregor said that the merger could be viewed as Bristow saying: “Get me out of here” given the increasing level of problems for mining companies in countries like the Democratic Republic of Congo which were “… calling the investability of Africa into question”.
Responding to a question about the Randgold and Barrick merger posed by Rutherford, Bailey said the merger appeared to be the result of “very specific circumstances”.
It addressed two key issues at Randgold frequently raised by sell-side analysts: the questions over leadership succession at Randgold, and future growth. “At Barrick you had a company with great assets and that had restructured its balance sheet, but similar questions were also being asked about: what next for Barrick?
“It seems John Thornton was looking for the same kind of secret sauce that Mark Bristow had managed to sprinkle over his assets in a relatively unloved jurisdiction to get a massive multiple,” said Bailey.
Commenting on the merger, Bristow has said that he and Thornton had held a number of workshops and were in agreement about how to take both companies forward. Bristow said he was excited about the prospect of the merger.
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%.
