Gold mining sector 'ripe for consolidation' as Barrick bids for rival Newmont

February 26, 2019

New York (Feb 26)  It is one of the curiosities of the resources world that, for most of the last five years, investing in gold has proved a better bet than investing in the companies that mine it.

The sector has been criticised by investors for paying its executives too much, for not being efficient enough and for piling up too much debt after empire-building takeovers and flinging vast sums of cash at mines in which the investments did not pay off.

That began to change when, in September last year, the world's biggest player, Canada-based Barrick Gold, announced it was buying UK-listed Randgold Resources.

The deal was seen as a match made in heaven: Barrick was by far the bigger company and with more attractive assets, but it was also loaded with debt, while Randgold had a far superior track record in terms of its financial performance and a better management team.

Investors in both companies, who had seen shares in each fall during the previous 12 months, were delighted to see Mark Bristow, Randgold's highly-regarded founder, confirmed as chief executive of the combined business - although for UK investors, there was a tinge of disappointment, as Randgold's UK stock market listing was not retained.

The deal drew a reaction from Barrick's competitors.

Randgold Resources CEO Mark Bristow

Barrick Gold CEO Mark Bristow, took the helm after the 2018 merger with Randgold Resources

US-based Newmont Mining, the second-largest player in the sector, announced in January that it would pay $10bn for Goldcorp, based in Canada, the world number four.

The deal would create a $28bn (£21.5bn) company that would leapfrog the newly-enlarged Barrick to become the world's biggest gold miner.

Today, Barrick responded, tabling a hostile $17.85bn (£13.7bn) bid for Newmont that would create not just a giant in the gold mining sector but a business with a value of getting on for $42bn.

That would not be quite in the league of the world's biggest diversified miners, such as UK-listed BHP ($130bn), Rio Tinto ($99bn) and Glencore ($56bn), or Brazilian giant Vale ($64bn) but would put it comfortably ahead of some of the sector's smaller players, such as UK-listed Anglo American ($38bn) and US player Freeport McMoRan ($19bn).

Barrick and Newmont last held detailed discussions about a merger back in 2014 but these collapsed in April that year in a disagreement over who would run the business.

The gold mining sector is seen as ripe for consolidation.

Unlike in other commodities such as iron ore and copper, which have consolidated into just a handful of big global players, the gold sector is much less concentrated.

Whereas three big players - BHP, Rio Tinto and Vale - account for 60% of global iron ore production, Newmont and Goldcorp would, if they merged, together account for less than 10% of global gold production.


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