How will the potential Barrick-Randgold merger shape the gold sector?

The dust has settled on Barrick Gold Corp. and Randgold Resources Ltd.'s megadeal, a US$18 billion plan to merge in an all-share transaction, caught the gold sector by storm. According to data from S&P Global Market Intelligence, Barrick's proposed US$6.06 billion, all-share acquisition of Randgold is the largest whole company takeover in the metals and mining industry since July 2014, when Albemarle Corp. announced its US$6.19 billion acquisition of Rockwood Holdings Inc.

To understand how this megadeal can potentially shape the gold sector, we applied our Mine Economics Models to identify cost-efficient mines and forecast gold production. Our three insightful reports:

Identify the potential production pipeline of the new combined entity
Forecast which assets may be retained or divested in its new operation
How the new group will stack against its senior peers.

To understand the impact of the Barrick-Randgold merger, download these complimentary reports.

What would the production pipeline of the potential Barrick-Randgold merger look like?

"The potential New Barrick Gold Group would become the largest global gold producer by volume and market capitalization, at least in the short term."

Image for illustration purpose only. Source: S&P Global Market Intelligence.

Report highlights:

The addition of Randgold's 1.2 million ounces of projected attributable production in 2018 to Barrick Gold's 4.8 Moz for the year, pushes the combined entity's production above the 5.2 Moz projected for its closest peer, Newmont Mining Corp.
Both companies bring to the merger what they consider "Tier one" mines, defined as having at least 500,000 oz/y of production, with total cash costs in the bottom half of the industry cost curve, over at least a 10-year mine life.
Both companies currently have remaining reserves life of 11 years, based on their 2017 rate of production.

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What assets are likely to be divested by the proposed New Barrick Gold Group?

"US$2.6 billion of gold assets fall outside the tier-one, potential tier-one and strategic categories and are likely to be divested."

Image for illustration purpose only. Source: S&P Global Market Intelligence.

Report highlights:

The merging companies’ tier-one or "ice-cream portion" assets contain the majority of the New Barrick’s value at US$9.3 billion.

A focus on large, long-life and low-cost assets would leave a net present value of US$2.6 billion in the remaining gold assets, which are likely to be divested.
The new company would retain its copper business, which has an NPV of US$2.3 billion.

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How will the New Barrick Group stack up
against its peers?

"The New Barrick Group to have higher margins than its senior peers."

Image for illustration purpose only. Source: S&P Global Market Intelligence.

Report highlights:

The New Barrick Group is likely to divest non-core assets and retain only their tier one and strategic assets.
The primary focus of the company will be on profitability and cashflow rather than increasing gold production.
The New Barrick Group will seek to be lower cost and more profitable than its peers.

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How will the potential Barrick-Randgold merger shape the gold sector?

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