Editorial: Barrick-Randgold merger full of promise and possible pitfalls

The merger between Barrick Gold and Randgold Resources announced Sept. 25 is the most fascinating development in the gold-mining sector since 2006, when Barrick Gold took over rival Placer Dome to become the world’s largest gold miner during the height of the industry’s glory days.

Though the Barrick-Randgold merger to form the provisionally named “New Barrick Group” had apparently been in the works for months, who honestly saw this one coming?

While the geopolitical risks of New Barrick’s much heavier weighting towards Africa are front and centre as a concern for investors, the prospect of Randgold head Mark Bristow and his team remaking Barrick into a leaner, more profitable miner is tantalizing.

The only certainty is that Barrick will never be the same, and the chapter is being closed on the era of inimitable Barrick founder Peter Munk, who died earlier this year after a long illness.

One aspect of the merger that Munk would have found appealing is the path to Barrick’s uncontested return in 2019 as the world’s largest gold miner by production, profit, market capitalization and reserves — where Barrick had slipped into second place to Newmont Mining in some metrics in recent months and quarters, if not yet on an annual basis.

Barrick Gold executive chairman John Thornton (left) and Tanzanian President John Magufuli meet in Dar es Salaam, Tanzania, on June 14, 2017. Credit: Office of the president of Tanzania.

Also worth mentioning is Barrick management’s lack of credibility over several decades regarding its intentions and actions in Africa. During the mid-1990s, Munk repeatedly said Barrick would never work on the higher-risk continent — right up until the day in 1999 when the company announced it was buying Sutton Resources and its Bulyanhulu deposit, only to double down a few years later with the acquisitions of Placer Dome and Equinox Minerals, and their assets in South Africa, Tanzania and Zambia.

As the Tanzanian mines aged, and political problems piled up in the country, Barrick spun out African Barrick Gold, later renamed Acacia Mining, and shopped the asset around for years with no takers, leaving Barrick with a 64% stake and the impression — intact until yesterday — that it was ready kick the dust off its shoes and leave Africa’s perennially difficult gold scene to others.

Looking ahead, the intangibles of what Bristow and his team bring to Barrick will be one of the more fascinating developments to watch. Long the sharp-tongued outsider and a bit of a cult hero to value investors in the gold space, Bristow now has the chance to put action behind his many years of complaints about major gold miners becoming bloated and prone to chronic bad decision-making that destroys investor value.

At 59, Bristow is younger than he looks after a hard-driving life, and he has signed on to lead New Barrick as president and CEO for at least the next five years.

Another aspect of the deal that gives observers whiplash is that after having listened to Barrick execs go on for decades about the special Barrick culture of excellence, the company’s leadership is now willing to toss it all overboard, and seems eager to transplant a new corporate culture from Randgold’s small team.

It gets a little more complicated than that, though, as Bristow himself has said he had been inspired by Barrick’s once famously nimble operational and management structure when he first set up Randgold two decades ago.

The appearance of Bristow to lead Barrick as CEO also brings sudden clarity to outsiders as to why Barrick executive chairman John Thornton left the CEO position at the company unoccupied for four years, and why Barrick president Kelvin Dushnisky departed the company with little warning mid-year, presumably as he saw there would be no place for him at the table in New Barrick.

With fewer Canadian executives, employees and assets in the Barrick stable, Barrick’s claim to be a Canadian mining champion fades a little more each year, though as we saw this week, corporations can change their direction overnight, with long-lasting implications.