Canada’s Barrick Gold is buying Randgold Resources, creating the world’s biggest gold miner with a value of about $18bn (£14bn).
The firms own some of the world’s most valuable gold fields, producing more than 6.6 million ounces of gold a year.
Barrick shareholders will end up own two-thirds of the combined firm and Randgold will own the remaining third.
Shares of both firms have fallen almost 30% this year, amid falling gold prices and questions over their strategy.
“Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital. The merged company will be very different,” said Mark Bristow, Chief Executive of Randgold.
“Its goal will be to deliver sector leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions,” he added.
The price of gold has fallen more than 8% this year, putting all gold producers under pressure.
Barrick and Randgold will be hoping that their combination will allow them to cut costs and drive up profit margins.
The deal will also give Barrick a much bigger presence in Africa, where Randgold has mines in Mali, Senegal, Côte d’Ivoire and the Democratic Republic of Congo.
However, some analysts were not impressed by the deal.
“Our opinion is that the proposed merger, instead of being based on merit, strength and strategic integration, is more akin to the proverbial ‘two drunks supporting each other at closing time’,” said Kieron Hodgson from Panmure Research.
In a research note, Mr Hodgson pointed out that Barrick’s own production had fallen in recent years and that combined the firms would be “over leveraged” – a technical term for having heavy debts.