With Randgold deal, Barrick looks to trim the rest of its fat

Open this photo in gallery:

It’s a US$6-billion gold mining deal with seemingly no synergies.

Usually when a large takeover is unveiled, the acquirer will try to sell the deal to its shareholder base by talking up “synergies” – management speak for cost-cutting.

But such talk was absent from both the regulatory documents released with the announcement and presentations of both Barrick Gold Corp. and Randgold Resources Ltd. during two separate, hour-long conference calls on Monday.

So where’s the fat with the Barrick takeover of Randgold, a combination one analyst dubbed “Brandgold?”

Part of the answer is there’s not that much fat to trim.

Barrick has spent the past few years slimming down, or as executive chairman John Thornton has said multiple times, trying to go "back to the future” – becoming more like the Barrick of old, when it was a much smaller, nimbler and more efficient operation. It has sold many non-core assets, cut jobs and trimmed its management structure significantly since 2013.

But the world’s biggest gold producer is not entirely all the way there yet – and certainly isn’t in the league of Randgold, recognized as a model of efficiency.

First, expect some job losses. Barrick said in a release that after the deal closes it “will continue to implement a decentralised management and partnership structure which may result in some workforce reduction.” Those job losses are expected to be “identified” within 12 months of the deal’s closing.

On Monday, Mark Bristow, Barrick’s incoming chief executive officer and the founder of Randgold, said he was determined to bring “the Randgold way” to Barrick – a scenario analysts are excited about.

“This deal hinges on Mark Bristow and [his] team’s ability to get more out of the existing Barrick portfolio,” wrote Alexander Hacking with Citigroup in a note.

During the conference calls, Mr. Bristow spelled out a few areas where he saw potential cost savings at Barrick. One of the most obvious is in Nevada, where the company has a number of huge mines. Partnerships are possible with other big Nevada operators, he said, and while he did not name it specifically, an obvious partner in the region would be U.S. competitor Newmont Mining Corp.; the two gold majors could, for example, share processing facilities.

“Willingness to explore partnerships in Nevada to unlock potential synergies could be the key to deliver more value out of Barrick’s Nevada assets,“ said Greg Barnes, an analyst with TD Securities Inc. who upgraded his rating on the shares to buy from hold on Tuesday.

Barrick and Newmont almost merged a few years ago, but talks were called off at the eleventh hour and relations between the two have since been cool. But with Mr. Bristow at the helm, that may change.

“Nevada synergies would be the big win, in our view, and may be possible with new faces at the negotiating table with Newmont,” Mr. Hacking said.

There are also hopes that Barrick will save money with Randgold’s extensive underground mine expertise, which may come in handy with the Goldrush mine, expected to start production in 2021. Randgold, meanwhile, may hope to benefit from Barrick’s decades of open-pit mining expertise.

Barrick also said it intends to divest non-core assets over time. Earlier this year, Mr. Thornton said any asset that is not strategic or Tier 1 was likely to be sold. A Tier 1 asset is a mine that produces 500,000 ounces of gold a year, has a life of more than 10 years and is low-cost. Among the mines it plans to sell are Kalgoorlie in Australia, which it co-owns with Newmont, and Porgera in Papua New Guinea, in which it has a 47.5-per-cent stake.