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Barrick Gold to Acquire Randgold: ETFs Set to Shine

Sweta Killa
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Merger and acquisition activities across the globe has been hitting record highs this year. The frenzy has spread to the gold mining space as the world's largest gold producer Barrick Gold ABX has agreed to buy Africa-focused rival, Randgold Resources Ltd GOLD in an all-stock deal (read: M&A Hits Record in 1H: Ride High With These ETFs). 

Per the terms of the deal, each Randgold shareholder will receive 6.1280 new Barrick shares for each share of the African rival. Barrick will own around two-thirds of the combined group and Randgold will hold the remainder. The merger, which is is expected to close by the first quarter of 2019, is subject to approval by shareholders of both the companies, regulatory approvals and other customary closing conditions. The deal represents the biggest transaction in years in the gold mining industry, where companies are struggling with poorly managed capital.

The combined entity will create an industry-leading gold company worth $18 billion with the greatest concentration of Tier One gold assets. It will be led by a proven management team that has consistently delivered the best shareholder returns in the gold sector over the past decade. It will hold five of the world's 10 largest bullion deposits and have the ability to produce around 5.5 million ounces of gold each year.

The acquisition will bolster Barrick Gold’s position in Africa, where it has 64% stake in Acacia. However, it is blocked by an export linked to a $200 billion tax dispute in Tanzania.

Market Impact

Following the announcement of the deal, shares of Randgold climbed nearly 7% in pre-market trade while shares of Barrick Gold were up 3.3% at the time of writing (see: all the Materials ETFs here).

The news has put the spotlight on a couple of gold mining ETFs that could be the best ways for investors to tap the opportunity arising from the ABX-GOLD deal. Investors should keep a close eye on the movement of these ETFs over the coming weeks:

VanEck Vectors Gold Mining ETF GDX

This is the most popular and actively traded gold miner ETF with AUM of $8.3 billion and average daily volume of around 38.2 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 49 stocks in its basket. Barrick Gold and Randgold occupy the second and eight positions with 7% and 4.5% share, respectively. Canadian firms account for half of the portfolio while the United States (16.1%) and Australia (15.9%) round off the top three. The fund charges 53 bps in annual fees (read: Gold Mining ETFs Rise on Demand in India: Will This Last?).

Sprott Gold Miners ETF SGDM

This fund follows the Sprott Zacks Gold Miners Index, holding 27 stocks in its basket. Barrick Gold and Randgold take the fifth and sixth spot, respectively, in the portfolio at more than 4% share each. Here also, Canadian firms take the bigger chunk at 80% while the United States accounts for 20% share. SGDM charges 57 bps in annual fees.

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SPROTT-GOLD MNR (SGDM): ETF Research Reports
 
VANECK-GOLD MNR (GDX): ETF Research Reports
 
Barrick Gold Corporation (ABX) : Free Stock Analysis Report
 
Randgold Resources Limited (GOLD) : Free Stock Analysis Report
 
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