Barrick eyes Africa sale as problems mount – by Pav Jordan, Jacqueline Nelson, Andy Hoffman (Globe and Mail – August 17, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

TORONTO, VANCOUVER — Jamie Sokalsky has made his first big move as Barrick Gold Corp.’s chief executive officer, putting the company’s high-cost Africa unit on the block as part of a larger shift in strategy.

The world’s largest gold miner is in preliminary talks to sell African Barrick Gold PLC to state-owned China National Gold Group Corp. A successful deal, which analysts expect would bring in about $2.5-billion, would give some financial relief to Barrick Gold as it struggles with billions in cost overruns at a key growth project in the southern Andes, and continues to absorb the $7.3-billion cash purchase of Equinox Minerals last year.

The negotiations, which the company said are “at an early stage,” are a signal of intent by Mr. Sokalsky, who was appointed in early June to replace Aaron Regent, who was sacked by the board. The new CEO has pledged to focus on generating higher returns from its projects, rather than simply increasing production. They also highlight China’s growing desire to be an owner of large-scale resource projects around the world, an ambition that led another state-owned corporation, CNOOC Ltd., to make a $15.1-billion bid for Calgary oil and gas producer Nexen Inc.

The mines of African Barrick – all in Tanzania – include some of the largest producers on the continent, but they are also some of the most expensive to run for a company that is otherwise among the world’s lowest-cost gold producers. The cost of producing an ounce of gold at the four mines was on average $938 an ounce in the first half of the year, compared to between $550 and $575 for Barrick as a whole.

Higher expenses in Tanzania stem from a host of factors related to its complicated terrain, political risk and even the need to train workers from scratch. The costs were a major reason why Barrick spun off the unit in an initial public offering in 2010, while keeping a 74 per cent stake.

“Those assets are all high-operating-cost assets, so I think a sale would make Barrick’s cost profile much more attractive relative to peers,” said Pawel Rajszel, an analyst at Veritas Investment Research in Toronto.

Analysts say Barrick will likely look at further divestitures as it struggles to right itself after some of the most tumultuous quarters in its history. After firing Mr. Regent, it announced a company-wide review of operations, pledging to shelve or sell assets that were not performing.

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