Barrick Gold has announced plans to acquire UK-listed Acacia Mining. Barrick already owns a big slice of Acacia, and this would see the group take full control by issuing Acacia shareholders with 0.153 new Barrick shares for every ordinary share in Acacia.
Barrick shares were little moved on the news.
Barrick's position as the world's second largest gold miner is the result of 2018's merger with Randgold. The move also saw former Randgold supremo Mark Bristow installed as CEO.
Since then Bristow's displayed an appetite for more M&A too, but an audacious bid to acquire Newmont, which has gone on to buy Goldcorp, was abandoned. Barrick has instead settled for a joint venture to combine its Nevada assets with Newmont.
We think that's probably for the best. With asset disposals of $1.5bn planned, and the merger with Randgold still bedding in, Barrick has got plenty on its plate.
Barrick Gold's latest deal is likely motivated by the problems Acacia has had with the Tanzanian government.
It stands accused of under-reporting its exports, and has been under an export ban since 2017, with operations running at reduced capacity. Barrick brokered a $300m settlement in March, and it clearly thinks a takeover would further help the situation.
While the deal values Acacia at $787m, Barrick already owns the majority of the shares and adding the rest doesn't move the dial too much for a group valued at over $21bn.
Still, we think there is a lot to like about the group as it stands.
First off, there's the balance sheet. Randgold had run with a net cash position, so bringing it on board in an all-share deal has improved leverage.
Then there's the appeal of having several tier one assets, which stretch across the Americas and Africa, under one roof. Not only does that bring geographic diversity (the value of which Acacia found out the hard way), it means Barrick's cash cost per ounce of $631 is among the lowest in the industry. And since the price miners get for the product is set by the wider market, keeping extraction costs down is key.
Of course, the gold price will fluctuate in the way all commodities do. So investors will need to keep a close eye on the price of the shiny stuff.
For now the dividend looks at least sustainable, although of course there are no guarantees, and the prospective yield is a lowly 1.2%. The shares trade on 1.8 times book value, just shy of the longer-term average.
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