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Workers stand next to an open pit at Barrick Gold Corp's Veladero gold mine in Argentina's San Juan province, on April 26, 2017.

MARCOS BRINDICCI/Reuters

Now that Barrick Gold Corp. has completed its merger with Randgold Resources Ltd., investors will need to see evidence that the combined company can navigate a thorny issue: Does Barrick’s shift toward African-based mines raise the geopolitical risks for a company that used to be defined by its stable locales?

The deal between Barrick and Randgold, announced last September and finalized on Jan. 1, comes amid a much-needed jolt for the gold sector.

Gold producers had fallen out of favour in recent years, as the price of gold declined 32 per cent since 2011 amid paltry new discoveries and rising production costs. And with interest rates on the rise in the United States over the past two years, gold’s attractiveness as a haven next to yield-bearing fixed income investments, including ultrasafe U.S. Treasury bonds, had been sidelined.

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Now, things seem to be moving in the right direction. As of Tuesday, Barrick shares were up 27 per cent from lows in September, prior to the deal. And the NYSE Arca Gold Bugs Index, which tracks the broader gold-mining sector, has risen more than 19 per cent over the same period.

Even gold has regained some of its lustre, rising to six-month highs before a slight decline to US$1,286.10 an ounce on Tuesday, down US$3.80. According to Reuters, gold-backed exchange traded funds registered a net inflow of US$3.4-billion in 2018, up 3 per cent.

The deal between Barrick and Randgold, a US$6-billion blockbuster, aims to improve the situation for investors even further. It solidifies Barrick’s status as the world’s biggest gold producer based on production, market capitalization and reserves, enhancing its cachet among gold investors or anyone fleeing stock-market volatility.

Perhaps more importantly, Barrick now owns five of the 10 biggest Tier One gold mines: Goldstrike, Cortez, Pueblo Viejo, Loulo-Gounkoto and Kibali. If investors want large mines that can produce at least 500,000 ounces of gold annually for 10 years or more, and at a relatively low cost (the definition of a Tier One asset), then Barrick looks like a one-stop shop.

But the deal transforms the old Barrick, known for a portfolio of mines largely located in the United States, into a radically new company because of Randgold’s more far-flung operations in Mali, Ivory Coast and the Democratic Republic of the Congo. If that sounds like an awkward marriage, it is.

Yes, Randgold, under the leadership of Mark Bristow (who now takes over as chief executive of Barrick), has done very well on its own. While many of its peers, including Barrick, have announced enormous impairment charges as they have written down the value of their mines since 2009, Randgold has announced none.

It has also delivered peer-beating returns: The share price rose nearly five-fold between 2008 and 2016, and reported production tripled, to slightly more than 1.3 million ounces of gold in 2017.

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The outlook for Randgold’s African mines, though, is far less certain as a number of African regimes review their respective mining policies – and Barrick investors will now inherit these risks after enduring Barrick’s own run-in with shifting mining policies in Tanzania.

There, the government is accusing Acacia Mining PLC, which is majority-owned by Barrick, of a US$190-billion tax fraud. While the amount is ridiculous, given that Acacia reported revenue of US$752-million in 2017, the impact is serious.

Acacia has had its exports frozen and some observers expect that other African regimes could follow Tanzania’s lead even if an agreement to end the dispute is reached. Labour conflict in Ivory Coast and political uncertainty following December elections in Congo, which weighed on Randgold prior to the merger, only add to the level of intrigue.

“We have always been advocates of mining in Africa but feel that the continent is going through a period of elevated risk,” James Bell, an analyst at RBC Dominion Securities, said in a September note to clients.

South African-born Mr. Bristow is widely seen as an experienced leader who can navigate this uncertainty, and a report in mid-December in the Financial Times suggested that Barrick could be close to resolving the conflict with Tanzania with a US$300-million payment. Changing the narrative of mining in Africa, from risk to reward, will no doubt ease concerns now weighing on the merger between Barrick and Randgold, and should go a long way toward keeping long-term Barrick investors on board with the new company.

But risk-averse investors should wait to see if Barrick’s big bet on Africa is the right one.

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