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Even the most optimistic investors looking at Barrick Gold Corp.’s tie-up with Randgold Resources Ltd. must ask themselves an uncomfortable question: Can a big merger actually resurrect the gold industry?

Executives from both sides, understandably, spent Monday talking up the benefits for their respective firms. Barrick gets a respected management team that avoided the billion-dollar mistakes and write-downs that have plagued the gold industry. Randgold, whose mines are in Africa, gets its hands on a large and diversified asset mix – including some prime properties in safer jurisdictions such as Nevada.

Their hope is that investors will appreciate the combined company’s scale. “When you look at the [merger’s] metrics compared with the peer group, there’s a significant re-rating opportunity,” said Graham Shuttleworth, Randgold’s chief financial officer.

“Re-rating” means getting a higher multiple from investors. Historically, a quality gold miner might trade at a multiple of, say, two times its net asset value (NAV). But with Barrick still cleaning up the mess left by its multibillion-dollar train wreck of an acquisition – the 2011 deal for Equinox Minerals -- the Canadian giant currently trades at 0.8 times NAV. Randgold’s multiple is also depressed.

By adding some managerial heft and by spreading its debt over a bigger asset base, Barrick’s board is betting that shareholders will show the company some extra love. But will they? Scores of investors have already turned their backs on the sector – and most probably aren’t coming back soon.

After the commodity supercycle started to crash in 2011, mining investors got badly burned. From its peak to its trough, the NYSE Arca Gold Miners Index dropped 81 per cent. “Along the way, the spirits and sensibilities of an entire generation of gold equity investors were sorely tested, while generalist investors simply abandoned gold miners as a relevant asset class," Trey Reik, a portfolio manager at commodity specialist Sprott Asset Management, explained in a note to investors last year.

Complicating things, through the worst of the downturn, the top executives of some gold companies continued to earn lavish amounts of executive compensation. This included Barrick executive chairman John Thornton, who lost two shareholder “say-on-pay” votes in three years. Fed up, many investors decided to ditch miners' shares and buy exchange-traded funds with fractional ownership of the physical commodity instead – when they wanted to invest in gold at all.

Although gold bugs remain, there aren’t enough of them any more to supply the industry with capital to grow. And with the U.S. dollar strengthening on the back of higher interest rates, making gold look less attractive, there is little reason for the generalist investors to buy the sector again. During gold’s bull run to US$1,900 an ounce, which ended in 2011, some equity fund managers bought gold company stocks simply to avoid being left behind in performance from their peers who owned them. Today, the opposite is true: They’re better off staying away.

Even some funds geared toward gold are trying to broaden their exposures. This summer, for instance, the Vanguard Precious Metals and Mining Fund, which had US$1.8-billion in assets as of the end of August, was renamed the Global Capital Cycles Fund and was also given a new, broader mandate. Because gold is a cyclical industry, it’s impossible to count the sector out, of course. But for investors, one deal does not erase years of bad memories.

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