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From Palm Beach to Congo: How Barrick landed Randgold

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Thursday, October 4, 2018 – Page B1

The biggest gold-mining takeover in seven years got its start with an arranged meeting.

A mutual friend introduced John Thornton, Barrick Gold Corp.'s executive chairman, to Randgold Resources Ltd.'s founder and chief executive officer Mark Bristow, and in late 2015 they sat down together. Mr. Thornton hosted Mr.

Bristow at his villa in Palm Beach, Fla., a limestone mansion on the oceanfront.

Barrick, the world's biggest gold producer, was in rough shape at the time. The Canadian company was mired in debt after a disastrous foray into copper in Africa and a painful decision to abandon construction of a South American mountaintop mine after spending US$8.5-billion.

Barrick had lost the confidence of investors. Barrick's stock hit a 26-year low, trading for less than $9 a share. Mr. Thornton was working to stabilize the company by selling assets and paring debt.

At that first meeting, Mr. Thornton and Mr. Bristow chatted broadly about the mining industry and found they had a lot in common. They agreed on the advantages of a small headquarters, the importance of a partnership culture, a focus on quality assets and an emphasis on the long term. Mr. Bristow told Mr. Thornton he had in fact modelled Randgold on Barrick's early years under founder Peter Munk, when it was significantly leaner without layers of middle management.

Unlike Barrick, which had written down billions of dollars over the past few years, Jersey-headquartered Randgold kept its operations largely trouble-free over its 20 years of existence. It had deftly navigated the often-dicey political scene in Africa, where all its mines are located, diligently paying its taxes and staying on good terms with governments.

Mr. Thornton and Mr. Bristow talked at a conceptual level about the idea of a combination. But with Barrick's debt-laden balance sheet and the memory of its troubled takeover - the $7.3-billion purchase of copper producer Equinox Minerals Ltd. in 2011 still fresh in the minds of shareholders, the time wasn't right. Randgold's stock also was trading at higher valuations compared with the beaten-down Barrick. Mr. Thornton knew he had to get his house in order. The account of the meeting and other details for this story are based on interviews with multiple sources familiar with the deal.

The two executives would meet again over the next few years in Florida.

Mr. Thornton was making progress bringing down debt, which had peaked at US$15.8-billion in 2013, and the company was generating cash by selling non-core assets.

But in the spring of 2017, things started going south again for Barrick. The government of Tanzania suddenly ordered Barrick subsidiary Acacia Mining PLC to halt exports of gold concentrates and later accused it of US$190-billion of tax fraud. Around the same time, the price of gold bullion went into a tailspin, and by early 2018 Barrick's shares had sunk to $14. Some analysts had started to wonder whether Barrick itself could be a takeover target.

Meanwhile, in 2018, Randgold for the first time in its history was facing its own mini crisis. A new mining code hastily introduced in the Democratic Republic of Congo meant profit margins at its large Kibali mine were about to come under serious pressure. Mr.

Bristow railed publicly against the DRC's government but nothing changed. At the same time, the company was facing a strike at another mine in Africa. Randgold's stock tumbled sharply throughout this year.

Suddenly the rationale for Barrick and Randgold to get together made sense from both sides.

'BRITISH RAIL' In February of this year, serious merger talks between Mr. Thornton and Mr. Bristow began. They started to meet regularly, in the United States and Britain. Randgold would eventually work with two financial advisers, Britishbased Barclays and the London arm of Canadian Imperial Bank of Commerce. Reluctant to work with Toronto bankers, Barrick worked with former Citigroup executive Michael Klein and his eponymous investment banking firm, which had worked on Barrick's failed bid for Newmont.

The deal was code-named British Rail - British for Barrick and Rail for Randgold.

In April, the two executives met in Jackson Hole, Wyo., where Mr. Bristow has a house. (The South African executive has other homes in London, South Africa and Mauritius.) Confidentiality agreements were signed and the two started to share in-depth financial data.

However the deal would be structured, it was clear Mr. Bristow would be CEO and have more autonomy than then-Barrick president Kelvin Dushnisky. Mr.

Bristow had long believed in empowering mine managers, a concept Mr. Thornton adopted after he assumed the full chairmanship position. In the new Barrick, Mr. Thornton would stick to highlevel strategic matters, such as building relationships with the Chinese.

Still, there was another big concern. Buying Randgold would increase the Canadian company's geopolitical risk considerably by bulking up in politically unpredictable Africa.

In June, to help assuage concerns, Mr. Thornton took some board directors to the DRC to visit Randgold's Kibali mine. Mr.

Thornton and Mr. Bristow stayed in the DRC for a week, visiting the community. Mr. Thornton met Randgold's chairman Christopher Coleman and the company's longest-serving director, Andy Quinn.

But the other huge sticking point was money. How much would Barrick have to pony up for Randgold?

Mr. Thornton came up with a novel idea - a no premium deal.

The former banker called the nil premium concept a "red line." While the logic for the no premium deal was obvious from Barrick's point of view, it made a lot less sense for Randgold shareholders. In a no premium deal, the buyer will purchase the company at the market price instead of offering a higher price, also known as a premium.

Ultimately, Mr. Bristow was won over, sources say, by the challenge of moving from running a mid-sized gold company in Africa to taking charge of the biggest gold company on the planet.

With his company's share price down by one-third, it was an easier decision to be acquired.

At the end of July, Mr. Bristow and Randgold chief financial officer Graham Shuttleworth flew to Toronto to meet with Barrick's management team at the company's downtown headquarters to discuss their vision for the combined companies.

A few weeks later, Barrick president and the public face of company, Mr. Dushnisky, suddenly resigned to take the CEO job at South African gold major AngloGold Ashanti.

In early August, Barrick provided reporters, analysts and investors with internal communications from a company town hall meeting - a surprising disclosure for the company. Barrick said for the first time it was looking to expand outside of the Americas. "It's not an option simply to say, 'We're only going to be in Nevada,' " said Mr. Thornton.

He also made it clear that Barrick was interested in "Tier 1 assets," which it defined as a mine that produces 500,000 ounces of gold a year, has a life of more than 10 years and is low cost. Essentially this was the first signal to analysts and investors that a big mergers and acquisitions transaction might be in the works.

By mid-September, all of Barrick's board directors had either met Mr. Bristow in person during the DRC trip or had spoken to him. Barrick held an in-person board meeting on Sept. 21 for Barrick board members to receive a detailed presentation from Mr.

Bristow and his vision for their company.


The meeting in Toronto was a freewheeling session that lasted about five hours, where board members probed whether this was the right thing for Barrick to do.

Leading up to the announcement of the deal, not every board member was in favour. One director not supportive of the deal, according to sources, was Nancy Lockhart, who was appointed to Barrick's board in 2014 as part of an executive shakeup that saw long-standing directors replaced with independent board members.

Under founder Peter Munk, Barrick's board had been criticized for being too beholden to him and not speaking up when they should have, such as its move to vastly overpay for copper company Equinox. Ms. Lockhart resigned just days before the deal was announced. She declined multiple requests for comment.

On Sept. 23, the board was teleconferenced in to consider the acquisition. All directors voted in favour.

Barrick decided to move up the announcement of the deal by a few hours, after mining blog IKN broke the news that a deal was imminent. At 2 a.m. ET, the news went out.

Investors on both sides embraced the deal. Barrick's stock is up about 10 per cent since the deal was announced, and Randgold is up about 13 per cent.

"At the margin, it adds risk but I think the trade-offs are well worth it," said Keith Trauner, managing partner with GoodHaven Capital Management, which owns 1.5 million Barrick shares.

"Getting access to Bristow, expanding the reserve base of company, incrementally adding to near-term production ... relentlessly focused on trying to generate cash. All of those things are really good things," he said.

Alan Spence, an analyst with Jefferies, also saw the rationale for the deal for both parties.

"While Randgold has over the long run shown the ability to manage [geopolitical] risk, a reorientation away from Africa should mitigate these concerns," he wrote in a note to clients after the deal was announced.

"Further, the addition of potential Tier 1 assets from Barrick's pipeline should help maintain high quality and profitable ounces."

He also wrote that Barrick would benefit from the addition of Mr. Bristow as CEO, both filling a corporate void, and hiring a strong leader with a clear vision who would drive down costs across the company.

Shareholders of Barrick and Randgold will vote on the deal in early November.


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