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
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