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Tanzania’s largest gold producer, African Barrick Gold plc (LSE:ABG), confirmed today, press speculations regarding a possible takeover by state-controlled China National Gold Corporation (China Gold).
In a statement, Barrick Gold Corporation, ABG’s parent company, said it is in preliminary discussions with China Gold regarding Barrick’s holdings in ABG.
The story citing people privy to the deal as sources, of which Barrick declined to comment at that time.
ABG is effectively controlled by Barrick, the world’s largest producer of gold, which owns 73.9% of the London-listed miner.
“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 stated.
Any purchase of stake beyond 30% of the issued capital of ABG, being a UK-incorporated company, would require China Gold to make an offer for the entire issued share capital of ABG.
Why Sell?
On 26th July 2012, Barrick’s President and Chief Executive Officer, Jamie Sokalsky, stated the company has renewed its focus on maximising shareholder value and initiated a review of its 26 operated mines to determine their profitability.
ABG’s poor results for the first half of the year made it a target for divestment as Mr. Sokalsky emphasised, “rate of return should drive production”.
Cash cost at ABG’s four mines increased by 43% compared to the same period a year ago, compounded by a 14% drop in production, making Barrick’s only asset in Africa a candidate of divestiture to maximise return on investment and free cash flow.
But according to Financial Times, the team Barrick set up to facilitate the sale halted its’ work even as another state-owned Chinese firm, Zijin Mining Group, showed interest in acquiring ABG to maintain its position as the largest gold producer in China.
China Gold, for its part, is trying to reach its target of quadrupling its’ asset, sales, and profit, which it envisioned five years ago. ABG is expected to contribute around 6.4% to 6.8% of the 7.3 – 7.8 million ounces of Barrick’s gold production for the year.
Analysts projected an offer above 500 pence, based on recent gold deals which averaged 40% premium.
Shares of ABG were at 433.50 pence by midday GMT, increasing 10.1% from yesterday’s close, which is 40% lower than the highest recorded market value since the company was floated at 663.70 pence on 17th June 2010.
Company Spotlight
African Barrick Gold plc was floated on the London Stock Exchange’s main market in March 2010 and enlisted on the Dar es Salaam Stock Exchange in Tanzania in December 2011.
The company posted US$1.2 billion revenue and US$284 million profit in 2011, from sales of nearly 700,000 ounces of gold, making one of the largest gold producers in Africa.
