Barrick Gold Corp (TSX:ABX) Stock Finds New Momentum

Here’s why Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) is trading higher today

| More on:
Gold bullion on a chart

Image source: Getty Images.

The world’s leading low cost gold mining giant Barrick Gold Corp’s (TSX:ABX)(NYSE:ABX) stock is trading firmer today as investors sift through the company’s latest news announcements on Monday. The company is carrying out two very important transactions that will change its shareholder profiles.

First up was Barrick’s announced merger with leading Africa-focused gold miner Randgold Resources Limited to form a new Barrick Group. Randgold has quality gold-producing assets in Mali, Côte d’Ivoire, Senegal and the Democratic Republic of Congo (DRC), and its management has executed very well over the past few years.

The merger

Barrick Gold and Randgold have negotiated an all-stock merger in which Randgold shareholders will receive 6.128 new Barrick shares for each Randgold stock unit.

Current Barrick Gold shareholders will own two-thirds of the new entity on a fully diluted basis, while Rangold investors will own the remainder.

The merger is expected to create a gold company with the greatest concentration of high quality gold producing assets in the industry globally, and management expects the new Barrick Group to have the highest adjusted operating margin (EBITDA margin) in the industry as well as the lowest total cash cost position among “senior gold peers,” which include Goldcorp Inc., Agnico-Eagle Mines Limited, Newcrest Mining Limited, and Newmont Mining Corporation.

Investors may wonder if this merger, which increases Barrick’s exposure to the African mine field, is a wise move after the recent troubles in Tanzania involving its subsidiary, Acacia Mining.

However, it is important to note that not all African jurisdictions are the same; circumstances can be very different, while management approaches to conflict resolution can significantly shape outcomes.

Randgold understands the African environment very well, has been successful in this sphere to such an extent that “the new Barrick Group intends to employ a strategy similar to the one that proved very successful at Randgold, but on a larger scale,” said Mark Bristow, Chief Executive Officer of Randgold (who will become the new Barrick Group president and chief executive officer) in a comment on the proposed transaction that could close during the first quarter of 2019.

As initial share price movement suggests, investors are favourable to the deal. Barrick’s stock was up 7% by mid-day on Monday, while Randgold equity valuation had increased by nearly 8% at the time of writing.

The deal could significantly mask Barrick’s prior guidance for declining future production while bringing in a strong partner who can improve corporate productivity, cash flow and asset quality profile.

The other transaction

The gold mining giant has gone a step further in strengthening its ties with Chinese mining giant Shandong Gold after announcing a US$300 million cross investment deal in which each party invests the said amount in the other’s equity in a bid to strengthen relationships.

After the two gold miners’ 50-50 joint venture at the Veladero mine in Argentina, the companies are taking the second step in which Shandong Gold is currently evaluating Barrick’s Lama project, “including an analysis of potential synergies between Lama and the nearby Veladero operation” says the new release.

Aside from the technical aspects of such partnerships, the Chinese mining resources giants have a good track record in managing government relations in sensitive emerging markets jurisdictions, and one would start to think that likely such business arrangements that Barrick needs to weather storms the size of the Tanzania showdown, which remains unsettled to date.

Investor takeaway

The announced merger between Barrick and Randgold has received market approval.

After a recent Bloomberg report that Barrick is seeking Chinese partners for the troublesome Tanzania mining operations at Acacia, the latest Shandong Gold deal could be indicative of some future transactions in Africa.

There could be some more interesting times ahead for Barrick investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Paradza has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »