What's going on?
On Monday, Canadian gold miner Barrick Gold agreed to buy Africa-focused rival Randgold Resources in a shimmering deal worth $18.3 billion.
What does this mean?
The deal is a share-for-share merger, meaning that Randgold’s stockholders will be receiving Barrick shares – just over six of them for each of their Randgold shares – and not cash. After the deal’s completion, Barrick shareholders will own 66% of the new, combined company and Randgold shareholders will own the rest. The new company will be the world’s biggest gold miner, producing more than six million ounces of gold per year.
Why should I care?
The bigger picture: Gold’s out of favor, for now.
Barrick and Randgold are hoping that combining their powers will help them weather the storm that’s clouding the gold mining industry. The price of gold has fallen 9% this year so far and production of the precious metal is falling, too (Barrick alone was mining nearly eight million ounces per year a decade ago). Gold’s price typically rises when the value of the US dollar falls (some people turn to gold as a store of value when the value of paper currency is slipping – plus the price of gold is denoted in dollars, so gold might look a bargain to international buyers when the dollar’s down). With the dollar on a tear this year, gold isn’t looking so shiny. However, inflation (i.e. the price of goods and services) is also on the up. With the dollar being effectively worth less every day as a result, people often turn to gold for the same reason – to store value – which gives it hope yet.
For markets: Turning over a new (gold) leaf?
Investors have criticized gold miners in recent times for managing their money poorly. Barrick’s and Randgold’s stocks have both lost a third of their value over the past year. But investors seemed to approve of the deal: Barrick’s stock rose 6% and Randgold’s 5%.