African Barrick Gold (ABG) may pull out of Tanzania and Africa as well should the deal to sell its 74 percent stakes to a Chinese owned mining giant sail through, the global authoritative financial newspaper—Financial Times—reported on Friday.
According to the Financial Times, China National Gold, the state-owned miner, is in talks to buy Barrick Gold’s stake in London-listed African Barrick, in a move that could lead to a full takeover and underscores the interest of Chinese miners in acquiring international assets.
Barrick Gold Corporation confirmed on Thursday that it was in preliminary talks about its 74 per cent holding in African Barrick, prompting an 8 per cent jump in the shares of Tanzania’s largest gold miner to 425.13p, the Financial Times newspaper reported on Friday.
“Discussions are at an early stage,” Barrick said, adding that there is no certainty the two sides will reach a deal.
Contacted by the Guardian on Sunday yesterday, the Permanent Secretary in the Ministry of Energy and Minerals, Eliakim Maswi said: “We are aware about the deal, but we are still waiting for official notification from ABG.
“We got the news yesterday, but so far we can’t give any further details because we haven’t been informed official,” the PS said.
Deo Mwanyika, ABG’s senior Vice President responding to the Guardian on Sunday through text messages wrote: “The Chinese have just shown interest and we are still in preliminary talks … but it’s not true that the company has been sold.”
Financial Times reported that Barrick has been working with investment bank UBS to consider a sale of its African Barrick stake, according to people familiar with the matter, which would trigger a full takeover offer for the London company under UK rules.
Zijin Mining Group, another state-backed Chinese company, which has been seeking a higher profile on the world stage, had expressed an interest in African Barrick, according to the Financial Times.
But Zijin’s preliminary approach was not considered sufficiently attractive to merit further consideration, they added, and the Canadian group was now talking only to China Gold.
Wu Zhanming, head of the overseas operations department at China Gold, confirmed the talks: “We are in a very preliminary phase of contact and discussion [with Barrick Gold Corporation].”
China Gold, the country’s largest gold producer, focuses on non-ferrous metals including gold, silver, copper and molybdenum and is directly controlled by China’s central government.
Should any party acquire more than 30 per cent of African Barrick, the buyer would have to make an offer for the whole company, under UK rules. If an offer for the company materialises – either from China Gold or another party – a committee of African Barrick’s independent directors would be charged with safeguarding minority owners’ interests.
African Barrick was floated in London by its parent in 2010 at 575p a share. But the miner has since struggled to hit production targets and has been battling power disruptions in Tanzania, which have also pushed up costs.
Tanzania investors lost their shot at a piece of the $1billion Initial Public Offering (IPO) for African Barrick Gold in March 2010, in large part because the government failed to bail out the public investment fund that could have bought shares in bulk and then sold them off locally.
Barrick was selling 100 million shares – which represented only 25 percent of the firm since the Canadian-based company retains 75 percent ownership of ABG.
Major investment firms JP Morgan Cazenove and Morgan Stanley in London handled the IPO, decreasing the likelihood that average Tanzanians would come even close to a share before investment bankers handling international hedge funds had picked over them.
With about 17million ounces in reserves, the sheer size of Barrick’s resource base could be appealing to possible buyers, as could the miner’s sizeable position in Tanzania to other African miners seeking diversification.
According to its half-year report for the six months ended 30 June 2012, ABG produced 297,742 ounces of gold down by 14 percent compared to similar period last year—attributing the low production with lower grade material mined at Buzwagi, waste stripping at North Mara and batch processing at Tulawaka.
According to the half -year report, ABG’s revenue was US$534 million, down by 8 percent compared to similar period in 2011.
If the Chinese deal sails through, ABG will have walked into the path of its predecessors, Placerdome of Vancouver Canada, and Kahama Mining Corporation. The two companies came to Tanzania, did exploration, established gold mines, but sold everything at a profitable amount and left the Tanzanian government in the cold about six years ago.