By Liezel Hill & Thomas Biesheuvel – Jan 9, 2013 12:47 AM GMT+0300
Barrick Gold Corp. (ABX),
the biggest producer of the precious metal, ended talks over the sale
of its 1.44 billion-pound ($2.32 billion) African unit to China National
Gold Group Corp. without reaching an agreement.
Barrick still sees “a lot of value” in the assets held by its
African Barrick Gold Plc (ABG)
subsidiary, Toronto-based Barrick’s Chief Executive Officer Jamie
Sokalsky said yesterday in a phone interview. Shares of African Barrick
fell 21 percent in
London yesterday.
African Barrick “does have some opportunities to enhance that value,
and when we looked at that versus ultimately what China National Gold
was talking about, it just wasn’t the right fit,” Sokalsky said. “We
would have liked to have done this transaction, but it wasn’t about
doing this at any cost.”
Sokalsky declined to comment on the specific issues that led to the
end of the talks. Discussions had stalled because of differences over
taxes and legacy issues, Chinese newspaper 21st Century Business Herald
reported yesterday, citing CNG Chairman Sun Zhaoxue.
The deal would have been the largest gold-company takeover involving a
Chinese company, according to data compiled by Bloomberg. Barrick said
in August that CNG was in preliminary discussions about buying African
Barrick Gold, which would have given the state-owned Chinese company
four mines in
Tanzania.
“This is a big asset, it’s a significant transaction for anyone, it’s
a public company and ultimately over time multiple things came into the
equation,” Sokalsky said. “It just didn’t make sense for both of us to
transact, to ultimately complete a transaction.”
Rising Costs
Wu Zhanming, the vice president of CNG’s overseas investment unit, didn’t answer calls to his mobile phone.
African Barrick slumped to 352.1 pence at the close in London
yesterday, the steepest decline since the shares were first sold in
2010. Barrick
fell 1.3 percent to C$33.14 in Toronto.
Sokalsky, who replaced Aaron Regent as CEO in June, is reviewing
Barrick’s assets in an effort to improve returns and cash flow as costs
rise. The company has received approaches from companies interested in
some of its other assets, he said yesterday.
“If there are opportunities to divest assets that are worth more to
someone else than us, we will absolutely take a look at that,” Sokalsky
said. Barrick doesn’t “have anything to talk about at the moment.”
Illegal Miners
While Barrick will consider new approaches for African Barrick if it
gets them, the company won’t actively solicit third parties for a sale
of the business, Sokalsky said.
Since being spun off by Barrick, African Barrick has struggled to
meet production targets amid operational setbacks and disruption caused
by illegal miners. Selling African Barrick would have lowered Barrick’s
production costs, Brian Yu, an analyst at Citigroup Inc. in
San Francisco, said in an Aug. 16 note.
In October, African Barrick raised its 2013 forecast for average
costs to $900 to $950 per ounce of gold from a July projection of $790
to $860.
Barrick “will continue to look for ways to realize value from the
block,” Numis Securities Ltd. in London said in a note to investors.
“However, the news will come as a disappointment to some who saw it as a
potential exit from this under- performing stock.”
Fewer Deals
Acquisitions in the gold industry have declined as slowing global
growth tightened available credit. There were 175 completed deals worth
$6.8 billion in 2012, the lowest in at least five years, according to
data compiled by Bloomberg.
There are probably other companies interested in buying African Barrick, said
David West, a Vancouver-based analyst at Salman Partners Inc. He didn’t name potential buyers.
“I wouldn’t be surprised to see another offshore entity maybe take a
run at it,” West said in a telephone interview. “This stuff goes on all
the time. I’m sure there are a lot more misses in terms of M&A
activity than hits and this is just one of those misses.”
To contact the reporters on this story: Liezel Hill in Toronto at
lhill30@bloomberg.net; Thomas Biesheuvel in London at
tbiesheuvel@bloomberg.net
To contact the editors responsible for this story: Simon Casey at
scasey4@bloomberg.net; John Viljoen at
jviljoen@bloomberg.net
SOURCE: BLOOMBERG