Call it the shot heard ’round the gold industry.
As more than 1,100 gold mining executives, metals analysts and investors made their annual retreat to the mountains of Colorado, all anyone seemed to want to talk about was the deal that was announced just hours earlier. Mark Bristow, the outspoken chief executive officer of Randgold Resources Ltd. who helped arrange the merger with Barrick Gold Corp., didn’t seem surprised.
“I have been agitating for this industry to rearrange itself,” Bristow said in an interview at the Denver Gold Forum in Colorado Springs. “Everyone just wants to keep their own little space, and that’s the challenge.”
The days of keeping one’s own space may now be numbered as the Barrick-Randgold merger became the hottest topic of conversation at the conference, one of the biggest annual gatherings in the gold world. Bullion prices have been stuck in the doldrums all year and investors have punished mining equities with an exodus. The sector had lost its shine, but the new deal is being welcomed for its jolt of excitement and, at least some hoped, as a harbinger of the things to come.
“The industry needs more consolidation,” David Harquail, CEO of Franco-Nevada Corp., said in an interview during the conference. “We’ve got way too many companies. We’ve been shrinking in terms of value, so we should be shrinking in terms of number of companies proportionate to the value.”
Out of Favor
The proposed merger for Toronto-based Barrick and Randgold, the gold industry’s biggest deal in three years, comes as shares of bullion producers had this month fallen to the cheapest relative to the metal since 2016. The sector is so out of favor that Vanguard Group has said it will change the name of its precious-metals fund and reduce the portion of its holdings within the sector. Barrick and Randgold rallied after the deal was announced.
“Frankly, the biggest problem we have now is that large institutional shareholders don’t want to invest in an industry that has, for many years, lost money,” said Hugo Dryland, an executive vice chairman and the global head of mining and metals at Rothschild Inc. “There’s been too little M&A, too little movement on the inefficiencies in the industry.”
Fill a Vacuum
With Bristow set to become CEO at a combined Barrick-Randgold, he’ll fill a “vacuum of putting someone with a great tech background at the top of the business,” Dryland said, speaking from beneath a shady umbrella on a sun-drenched patio.
John Thornton, who as Barrick’s executive chairman put together the company’s offer to buy the Africa-focused rival, said the transaction was years in the making. He spoke alongside Bristow at the “Everest” cottage at Colorado Springs’ Broadmoor resort, where the industry conference is being held. The cottage had been transformed into something of a makeshift war room. It was the first interview for both men since the deal was announced.
Peter Munk, Barrick’s company’s recently deceased founder, had been part of the discussions that eventually led to the deal, Thornton said.
“Peter and I discussed this deal one hundred times during the whole evolution,’’ Thornton, 64, said. “We had a meeting of the minds.”
Deals of ‘Consequence’
The deal is also reviving speculation Barrick may return to the negotiating table with Newmont Mining Corp. for some sort of tie-up, or unification around the companies’ Nevada assets, after talks between the two collapsed in 2014 over differences on issues including the leadership of the combined company.
Thornton and Bristow declined to comment on Newmont specifically, but stressed that their tie-up doesn’t preclude other partnerships deals “of consequence,” or even mergers with mining companies as long as they make sense. A spokesman for Newmont, Omar Jabara, declined to comment.
Thornton noted that during his tenure at Barrick, he’s spoken to every major gold-mining company in the world about deals that might make sense, including mergers and other transactions “of consequence.” His only “red line” was that he wouldn’t pay a premium.
“The gold mining industry is littered with the reverse, which is big premiums that destroy shareholder value,” Thornton said.
Barrick rose for a second day on Tuesday, trading up 4 percent at $11.48 as of 10:58 a.m. in New York. Randgold climbed 4.5 percent to 5,454 pence in London.
If approved, the merger would also put a focus on how Bristow deals with copper. A spinoff of those assets isn’t in the cards, he said, and for now the company won’t be creating a discrete copper business, something Thornton recently raised as a possibility.
“It’s not going to create a copper business, it’s going to have those copper assets embedded in the regional management teams,” Bristow said. “We’ve got enough copper expertise and we will manage them.”
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