World Bulletin / News Desk
The world's largest gold miner, Barrick Gold, 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 calls itself the country's largest gold producer - sent African Barrick Gold shares up as much as 13 percent in London, as investors bet the buyer would be prepared to pay a premium to help satisfy China's insatiable appetite for the metal.
Canadian mining major Barrick is grappling with falling profits, soaring costs and the fallout from what some investors see as mistakes, including the takeover of African copper miner Equinox Minerals last year.
Barrick ousted its previous chief executive in June, saying it was frustrated the stock had languished since he took the helm while bullion prices had surged. The shares are down 30 percent over the past year at levels last seen in late 2008.
Chief Executive Sokalsky, who took over in June, is under pressure to show he is investing money wisely. He is reviewing the company's operations, including the 74 percent stake in the African unit, which has disappointed investors since it was listed separately in London in 2010.
African Barrick, whose shares at Wednesday's close were almost a third below their listing price, is one of Africa's largest gold miners, operating mainly in Tanzania. But it has suffered a series of setbacks, ranging from villagers armed with machetes invading its North Mara mine to power outages and fuel and metal thefts.
"Discussions are at an early stage, and there can be no certainty that these discussions will result in the acquisition of all or part of Barrick's holding in ABG," Barrick Gold said, confirming an earlier report. At Wednesday's closing price the 74 percent stake was worth almost $1.9 billion.
An offer for more than 30 percent of African Barrick would trigger a full takeover offer for Tanzania's largest gold producer from the Chinese suitor under UK takeover rules.
"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.
"This now officially puts (African Barrick) in play."
CHINA INC MOVES IN
China is the world's largest gold producer and does not export the metal, but it 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 expects Chinese demand to reach 850 tonnes this year, overtaking India as the world's number-one buyer. Metals consultancy GFMS estimates Chinese mineoutput last year at less than half that.
China only has a small presence in Africa's gold mining industry. The potential purchase of African Barrick Gold would turn China Gold - a low-profile company outside its home patch with ambitions to expand aggressively abroad - into one of the continent's top miners.
African Barrick Gold shares were trading up 9.3 percent at 430 pence at 1215 GMT, outperforming a 1 percent rise in the broader UK mining sector.
If recent gold deals are a guide, analysts said Barrick would hold out for an offer at a premium - potentially over 500 pence per share - for assets which include mines North Mara, Bulyanhulu, Buzwagi and Tulawaka. African Barrick produces around 700,000 ounces of gold a year and is targeting 1 million by 2014.
Analysts at Nomura said recent gold transactions had an average takeover premium of 40 percent, with Endeavour Mining's recent offer for Avion Gold hitting 57 percent.
"Anything north of 500 pence isn't bad considering where they've been trading recently," Numis analystCailey Barker said. "Barrick aren't going to sell down unless its in that sort of order."
Analysts cast doubt, however, on the prospect of a bidding war against the Chinese suitor, with sources familiar with the matter dismissing talk of interest from Zijin Mining Group , a Chinese copper and gold miner, and London-listed Randgold Resources.
African Barrick declined to comment beyond its statement acknowledging the talks. Vancouver-based officials of China Gold International, a subsidiary of China Gold which handles its international assets, were not immediately available.
Barrick Gold is being advised by investment bank UBS.