Barrick Gold (ABX-T 35.54 1.28 3.74%), the world’s largest gold miner, is in talks to sell a majority stake in its African unit to a Chinese buyer, the first move by new boss Jamie Sokalsky to clear out poorly-performing businesses and revive its flagging shares.
News of the talks with China National Gold Group, which bills itself as the country’s largest gold miner, saw African Barrick Gold shares closed down, as investors bet the buyer would pay a premium to help satisfy China’s insatiable appetite for the metal.
If it goes ahead, the sale would be one of China’s largest mining deals in Africa and its most significant incursion into large-scale gold mining on the continent to date.
Barrick is grappling with falling profit, soaring costs and the fallout from what some investors see as mistakes, including the takeover of copper miner Equinox Minerals.
Barrick ousted its previous chief executive in June, saying it was frustrated the stock had languished while bullion prices had surged. Its shares are down 30 percent over the past year, trading at levels last seen in late 2008.
Chief executive Sokalsky, chief financial officer until June, is under pressure to show he is investing Barrick’s cash wisely. He has been reviewing the group’s operations, including a 74 percent stake in the African Barrick which has disappointed investors since it was listed separately in London in 2010.
Though it is one of Africa’s largest miners, Tanzania-focused African Barrick has suffered setbacks ranging from villagers armed with machetes invading its North Mara mine to power woes and fuel thefts. At Wednesday’s close, its shares were almost a third below their listing price.
Barrick said there was no certainty the talks would result in a bid for all or part of its 74 percent stake, worth almost 1.3 billion pounds ($2 billion US) at current prices.
“These are very preliminary discussions. China Gold has not begun a detailed due diligence process yet, so any offer could take different forms,” one source familiar with the deal.
There was also no detail, after less than a month of talks, on the timing of a possible deal, as a British rule setting a 28-day deadline for a bid to materialise does not apply.
“African Barrick has always looked like it offered good value albeit at a high risk, and if the potential acquirer can get the asset and is comfortable with the risk, you will be able to get a reasonable set of assets for a good price,” Investec analyst Hunter Hillcoat said.
CHINA INC MOVES IN
China, the world’s largest gold producer, does not export the metal and has still been unable to satisfy soaring demand for gold bars and jewellery from domestic investors, seeking stores of value for their wealth.
The World Gold Council said on Thursday it expected Chinese demand to reach 850 tonnes this year, overtaking India as the world’s top buyer. Metals consultancy GFMS estimated Chinese mine output last year at less than half that.
China has a small presence in Africa’s gold mining industry.
For the rest of this article, please go to the BNN website: http://www.bnn.ca/News/2012/8/16/Barrick-Gold-says-in-talks-on-African-Barrick-stake.aspx
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