The merger between Barrick Gold (domiciled in Canada and dual-listed on the New York and Toronto stock exchanges) and Randgold Resources (domiciled in Jersey and dual-listed on the London and Nasdaq stock exchanges), announced last month and still awaiting shareholder and regulatory approvals, will create a “superpower” in the gold industry. This is the view of Fitch Solutions Macro Research, which is part of the Fitch Group.
Provisionally designated “New Barrick”, the new company will own half of the world’s ten top Tier 1 gold assets. (A Tier 1 gold mine is defined as one having a minimum annual production of 500 000 t and total cash costs in the lower 50% of the industry cost curve, over a life of at least ten years.)
Three of these belong to Barrick and two are owned by Randgold. They are the Cortez and Goldstrike mines (operated as a single complex) in the US state of Nevada and the Pueblo Viejo mine in the Dominican Republic, which are owned by Barrick, and the Loulo-Gounkoto complex in Mali and the Kibali mine in the Democratic Republic of the Congo, owned by Randgold.
Both companies have similar strategies. In particular, both focus tightly on keeping production costs down and both seek to assemble portfolios that would still provide free cash flows even if the gold price drops as low as $1 000/oz. These similarities indicate that there will be important operational synergies in the coming years. “The combined company would have the lowest cash cost position among its peers,” states the report.
The new company will have 53% of its gold production in North America, 25% in Africa, 13% in South America and 9% in Australia and the Pacific region. Of the other top five gold miners (Newmont, Goldcorp, Kinross, Newcrest and Agnico Eagle), only Newmont has as geographically as diverse a portfolio as New Barrick will have. (For comparison, 42% of Newmont’s production is in North America, 16% in Africa, 12% in South America and 30% in Australia and the Pacific.)
“Further exposure to Africa will add risk to Barrick’s profile, however, the addition of Mark Bristow, the chief executive of Randgold, who has a track record of diligence and success in the region, as president and CEO of the combined company, is a positive,” highlights the report. “From Randgold’s perspective, the merger diversifies exposure away from high-risk African markets and towards Barrick’s more stable North American assets.”