Barrick Gold Corp (NYSE: ABX) is having a strong start to the week in the market this morning after the company announced a couple of bits of news. Early in the pre-market, the company announced merger news, followed by another release just hours later surrounding a mutual investment agreement. Today, we’ll talk about:
- The merger;
- the mutual investment agreement;
- what we’re seeing from ABX as a result; and
- what we’ll be watching for with regard to the stock ahead.
ABX Announces Acquisition News
As mentioned above, Barrick Gold is seeing gains early on this morning after the company announced acquisition news. In a release, the company said that it reached agreement on the terms of a recommended share-for-share merger of ABX and Randgold Resources Limited.
In the release, the comapny said that the merger will create an industry-leading gold company with the greatest concentration of Tier One Gold Assets in the industry. However, the merger isn’t final yet. It is still subject to approval by shareholders and regulatory agencies as well as customary closing conditions.
If all goes well and the deal does close, ABX shareholders will own approximately 66.6% of the combined company and Randgold Shareholders will own approximately 33.4% of the combined company. In a statement, John L. Thornton, Executive Chairman at ABX, had the following to offer:
The combination of Barrick and Randgold will create a new champion for value creation in the gold mining industry, bringing together the world’s largest collection of Tier One Gold Assets, with a proven management team that has consistently delivered among the best shareholder returns in the gold sector over the past decade. Our overriding measure of success will be the returns we generate and not the number of ounces we produce, balancing boldness and prudence to deliver consistent and growing returns to our fellow owners, a truly simple but radical and achievable concept. There are no premiums in the merger because we strongly believe in the opportunity to add significant value for our shareholders from the disciplined management of our combined asset base and a focus on truly profitable growth.
The above statement was followed up by Mark Bristow, CEO at Randgold. Here’s what he had to offer:
Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital. The merged company will be very different. Its goal will be to deliver sector leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions. By employing a strategy similar to the one that proved very successful at Randgold, but on a larger scale, the New Barrick Group will leverage some of the world’s best mines and talent to create real value for all stakeholders.
In Other News
Just a few hours after announcing the merger with Randgold, Barrick Gold issued yeat another press release. In this release, it announced that it entered into a mutal investment agreement with Shandong Gold Group.
According to the terms of the agreement, Shandong Gold will purchase up to $300 million of ABX shares. Barrick will invest an equivalent amount of shares into Shandong Gold Mining. All shares will be purchased on the open market. Ultimately, this agreement further strengthens the partnership between ABX and China’s leading gold company.
In a statement, Mr. Thornton had the following to offer:
This mutual investment is another reflection of the deepening partnership between our two companies… Barrick and Shandong both believe that by working in partnership, we can leverage our collective strengths to unlock long-term value for our respective shareholders, just as we are at Veladero today, with the potential to expand to Lama and other El Indio Belt projects in the future.
The above statement was followed up by Yumin Chen, Chairman of Shandong Gold Group with:
Building on the enhanced strategic cooperation agreement entered on July 9, 2018, Shandong Gold Group is pleased to announce further steps to deepen the strategic partnership with Barrick Gold Corporation, through this mutual investment and cross shareholding initiative, to capitalize on respective strengths and realize long-term synergies and to unlock long-term value for the respective shareholders. Building on the excellent partnership at Veladero today, we believe additional long-term strategic value can be created by working closely together on other projects including Lama and El Indio Belt projects in the future.
What We’re Seeing From The Stock
One of the first lessons that we learn when we start to work in the market is that it’s important to watch the news closely. After all, the news leads to moves. In the case of Barrick Gold, the news proved to be positive. Not only is the company merging with one of its largest competitors, it is further strengthening a long-standing relationship with a leading Gold producer in China. So, it comes as no surprise to see that excited investors are sending the stock on a run for the top. As is normally the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (10:21), ABX is trading at $11.10 per share after a gain of $0.63 per share or 6.02% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on ABX. In particular, we’re interested in following the merger as it makes its way through shareholder and regulatory approval as well as customary closing conditions. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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