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Report on Business Barrick doubles down on risky African mining sector in $6-billion acquisition of Randgold

Barrick Gold Corp. has agreed to acquire rival gold miner Randgold Resources Ltd. for roughly US$6-billion in an all-stock deal that some investors said runs counter to the Canadian gold producer’s conservative strategy and adds political risk by sharply increasing its exposure to Africa.

The combination of Barrick, one of the worst performing senior gold companies of the past decade, with Randgold, one of the best operators, was announced early on Monday, after The Globe and Mail reported on the weekend that a deal was imminent. Barrick, founded in 1983 by the late Peter Munk, was once worth in excess of $54-billion but its value plummeted after the price of gold bullion went into a tailspin in late 2011 and in the aftermath of a number of corporate blunders.

As executives at both companies extolled the virtues of the deal to investors on Monday, investors and analysts also raised concerns about Toronto-based Barrick doubling down in the very region in which it has struggled the most in recent years.

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Robert Gill, Toronto-based portfolio manager with Lincluden Investment Management Ltd., called the move back into Africa hypocritical given that Barrick has been steadfast about moving away from risky regions and focusing on its core assets in the Americas, in particular Nevada.

“It does call into question the credibility of the management team, to say one thing and do the opposite,” he said.

Mr. Gill sold off his holdings in Barrick Gold last year and said he had been looking at possibly getting back into the stock in recent weeks but the deal with Randgold has given him pause.

“Now I have to think of Barrick as a much more risky play,” he said.

RBC Dominion Securities analyst Stephen Walker was not a fan of the deal either. In a note to clients on Monday, he wrote that it increased the risk profile for Barrick “given the direct exposure to further African operating and geopolitical risks.”

But Barrick shareholders are also hoping that Randgold, which has proven itself to be a skilled operator in politically difficult jurisdictions in Africa, can help Barrick end an impasse that has resulted in the idling of a big chunk of its African gold production. Its subsidiary Acacia Mining PLC., which operates three gold mines in Tanzania and accounts for about 6 per cent of Barrick’s annual production, has been under a gold-export ban in the country for more than a year. The Tanzanian government also accused Acacia of US$200-billion in tax fraud. Barrick has been negotiating on behalf of Acacia, in which it holds a 64-per-cent stake, to try to end the spat but little progress has been made.

While not providing specifics on how he or anyone else at Randgold could help end the deadlock, company founder Mark Bristow, who was named chief executive officer of Barrick on Monday, acknowledged during an analyst call that Acacia is a “complex situation but from our side and from Randgold’s side, we believe that we can play a real part in realizing value for everyone involved.”

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While Randgold has large mines in Mali and the Democratic Republic of Congo, it doesn’t have a significant presence in Tanzania.

For the most part, Randgold has operated without major incident in African jurisdictions but this year has been trickier than most in its recent history. The company’s share price had fallen by about a third this year, after the Congo brought in a new punitive tax code that drove up the cost of mining.

Barrick, which has been clinging to its designation as the world’s biggest gold company by production, hadn’t made a larger takeover deal in seven years, and has spent most of the last decade paying down debt and selling assets after a near disastrous acquisition, and wasting billions attempting to build a massive new South American mine that never opened.

The size of the acquisition, Barrick’s biggest since buying copper producer Equinox Minerals Ltd. for US$7.3-billion in 2011, also caught some by surprise. John Thornton, Barrick’s executive chairman, for years has been preaching that bigger is not better in the gold industry, and that the only thing that matters is profitable mining. Yet, by buying Randgold, Barrick will once again become the world’s biggest gold company in every metric that counts− production, market capitalization and reserves, vaulting past U.S. rival Newmont Mining Corp, which in recent years had surpassed the company on every level bar production.

Unusually for a large takeover deal, Barrick is not paying a premium for Randgold, instead paying the market price. Each Randgold shareholder will receive 6.128 Barrick shares for their shares.

“A no-premium deal,” said Mr. Thornton during a conference call with analysts on Monday.

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“We think this is the appropriate model for this industry.”

Mr. Thornton acknowledged that the gold industry has largely made a mess of mergers and acquisitions, paying too much, delivering too little and becoming responsible for tens of billions in writedowns in the past decade. Barrick itself has been one of the worst offenders. Less than two years after it acquired Equinox, it wrote down the value of the asset by US$3.8-billion. Randgold, which was founded in 1995, hasn’t written down a penny.

While the logic for Barrick to acquire a proven, disciplined operator is clear, the rationale for Randgold to be swallowed by Barrick, whose share price is down 75 per cent since peaking in late 2011, is less obvious.

Mr. Bristow found himself on the defensive, fielding questions from skeptical analysts on Monday. One asked him whether there is risk for Randgold, known for its nimble, decentralized business model, in combining with the much bigger Barrick.

“Our intention is to implement the Randgold way,” said Mr. Bristow, which he explained is a flat management structure, with an emphasis on efficiency and the ability to make quick decisions.

Shares in Barrick closed up 5.8 per cent on the Toronto Stock Exchange, its best single day performance in more than a year and a half, while Randgold shares rose by 6.5 per cent on the Nasdaq Exchange.

Barrick’s Africa footprint grows

with Randgold deal

Map key

Randgold

operations

africa detail

Producing mine

Project

Loulo-Gounkoto

Mine Complex

Acacia

(63.9% Barrick)

Mali

Copper

producing

Senegal

Morila

dem. rep. of congo

Tongon

Kibali

côte d’ivoire

North Mara

Massawa

Feasibility

Project

Bulyanhulu

Buzwagi

Lumwana

Tanzania

Note: Randgold has

equity interests of

between 40 and 89.7

per cent in its African

mines and projects.

zambia

MADAGASCAR

2017 gold production, african mines

Measured in ounces, as of Dec. 31, 2017

730,372

596,225

268,680

70,019

Loulo-Gounkoto

Mine Complex

Kibali

Gold Mine

Tongon

Gold Mine

Morila

Gold Mine

THE GLOBE AND MAIL, SOURCE: barrick

gold; randgold resources; Acacia mining plc

Barrick’s Africa footprint grows

with Randgold deal

Donlin Gold

(50%)

Hemlo

Golden

Sunl.

Pueblo

Viejo (50%)

Jabal Sayid (50%)

Turquoise

Ridge

Porgera

(47.5%)

Lagunas

Norte

Goldstrike

Cortez

Goldrush/

Fourmile

Kalgoorlie (50%)

Zaldivar (50%)

N. Abierto (50%)

Map key

Pascua-Lama

Randgold

operations

Veladero (50%)

Producing mine

Loulo-Gounkoto

Mine Complex

Project

Acacia

(63.9% Barrick)

LIBYA

Mali

Copper

producing

Senegal

africa

Morila

dem. rep. of congo

Tongon

Kibali

côte d’ivoire

North Mara

Massawa

Feasibility

Project

Bulyanhulu

Buzwagi

Lumwana

Tanzania

Note: Randgold has

equity interests of

between 40 and 89.7

per cent in its African

mines and projects.

zambia

MADAGASCAR

S. AFRICA

2017 gold production per african mine

Measured in ounces, as of Dec. 31, 2017

730,372

596,225

268,680

70,019

Loulo-Gounkoto

Mine Complex

Kibali

Gold Mine

Tongon

Gold Mine

Morila

Gold Mine

john sopinski/THE GLOBE AND MAIL, SOURCE: barrick

gold; randgold resources; Acacia mining plc

Barrick’s Africa footprint grows with Randgold deal

Donlin Gold

(50%)

Hemlo

Golden

Sunlight

Pueblo

Viejo (50%)

Jabal Sayid (50%)

Porgera

(47.5%)

Turquoise

Ridge

Lagunas

Norte

Goldstrike

Cortez

Goldrush/

Fourmile

Kalgoorlie (50%)

Zaldivar (50%)

N. Abierto (50%)

MAP KEY

Pascua-Lama

Randgold

operations

Veladero (50%)

Producing mine

Project

Loulo-Gounkoto

Mine Complex

ALGERIA

Acacia

(63.9% Barrick)

LIBYA

EGYPT

Mali

Copper producing

africa

Senegal

Morila

dem. rep. of congo

Tongon

Kibali

Kenya

côte d’ivoire

North Mara

Massawa

Feasibility

Project

Bulyanhulu

Buzwagi

Lumwana

Tanzania

Note: Randgold has

equity interests of

between 40 and 89.7 per

cent in its African mines

and projects.

zambia

MADAGASCAR

S. AFRICA

2017 gold production per african mine

Measured in ounces, as of Dec. 31, 2017

730,372

596,225

268,680

70,019

Loulo-Gounkoto

Mine Complex

Kibali

Gold Mine

Tongon

Gold Mine

Morila

Gold Mine

john sopinski/THE GLOBE AND MAIL, SOURCE: barrick gold;

randgold resources; Acacia mining plc

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