A new king is set to emerge in the global gold industry.
The largest mining company for gold is set to be created after the announced purchase of Randgold by rival miner Canada’s Barrick Gold, the two companies have announced on Monday.
The new company that would be formed following the takeover would have a combined market value of more than $18 billion. 67 per cent of the new company would be owned by the shareholders of Barrick after the takeover.
The new entity after the merger would see the job of executive chairman would go to John Thornton, Barrick’s current executive chairman while president and CEO would be Randgold chief Mark Bristow.
Barrick and Randgold said Monday that five of the top ten gold mines of the world would be owned and operated by the new company formed by the merger and it will also have “the largest gold reserves amongst senior gold peers.”
The gold industry has seen a lack of interest among investors because of overspending and poor returns for years.
The past year has been a very troubling one for the gold mining sector which has seen a lack of cash from mainstream investors for growth and increasing shareholder returns. Compared to the annual production of 8m ounces about a decade ago, Barrick now produces only 5.3m.
On the other hand, a strong US dollar has pushed down the price of gold by about 9 per cent so far this year at about $1,200 a troy ounce. The year has also not been good for the two merging companies. There has been a 30 per cent drop in the shares of Barrick so far this year. On the other hand, a similar drop in share prices was also seen in Randgold shares as the company faced a number of challenges such as the impending possibility of stricter new mining code in the Democratic Republic of Congo and a strike in one of the biggest mines of the company.
It is expected that the new merged entity would be able to churn out about.5m ounces of gold annually which would be more than the US-listed Newmont Mining which is the closest rival. The new entity would be listed in Toronto and New York which means one opf the biggest gold stocks would be lost by London.
“Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital,” said Bristow. “The merged company will be very different. 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.”
According to analysts, the degree of compatibility of working between Thornton and Bristow would be crucial for success of the merger.
“We will always have reservations when ‘alpha’ personalities take joint leadership of a company,” said Investec Securities analyst Hunter Hillcoat.
(Adapted from Money.CNN.com & FT.com)