Almost a decade after spinning out a minority share in its African subsidiary, Barrick Gold Corp. wants to buy it back.
Toronto-based Barrick said it intends to pay US$285-million in stock to buy the 36.1 per cent of Acacia Mining PLC it doesn’t already own. Barrick hopes that by taking back full control of the London-listed unit, a crippling export ban that has sidelined much of Acacia’s gold production for the past two years will soon be lifted.
In 2017, Tanzania under President John Magufuli banned Acacia from exporting gold concentrate and accused it of US$200-billion in tax fraud.
Acacia’s own management has been locked out of negotiations because of its frayed relationship with the Tanzanian government, and instead Barrick, as its biggest shareholder, has been negotiating on its behalf.
After Barrick’s recent purchase of Randgold Resources Ltd., there was much optimism that its founder, Mark Bristow, might be the one to finally end the dispute. As Barrick’s new chief executive, he joined the company with a stellar reputation as a seasoned African operator who’d operated almost trouble-free on the continent for two decades.
Barely a month into the job, Mr, Bristow announced a new tentative agreement to end the dispute that would have seen Acacia pay a US$300-million penalty. But earlier this month, Mr. Bristow expressed frustration that, despite his team’s best efforts, a final agreement had not yet been reached.
In the past few weeks, relations between Acacia and Tanzania appear to have deteriorated even further. Acacia said in a statement on Tuesday that Tanzania isn’t willing to sign off on a final agreement if Acacia remains as a counterparty.
“An outcome whereby Acacia could return to a normalized operating environment appears increasingly unlikely," Alan Spence, analyst with Jefferies, wrote in a note to clients. "We believe this was the trigger to Barrick proposing the offer.”
While bringing the high cost and high risk Acacia mines back under the Barrick fold isn’t ideal, the status quo would be worse.
“From Barrick’s point of view, I don’t think [shareholders] can be overly upset,” said Adrian Day, president of Maryland-based Adrian Day Asset Management, owner of about 330,000 Barrick shares.
But what is unknown is whether Acacia shareholders will accept the heavily discounted offer. Barrick’s proposal of 0.153 of a Barrick share for each Acacia share is 9 per cent below where Acacia was trading before the deal was announced.
On Wednesday, Acacia told its shareholders to take no action for the time being. Shares in on the miner fell by about 2.9 per cent on the London Stock Exchange on Wednesday.
Barrick spun off a minority stake in Acacia (then African Barrick) in 2010, in an effort to lower its exposure to high cost and geopolitically risky Africa. A few years later, Barrick almost sold its remaining stake to state-owned China National Gold Group Corp., but talks ended after the price of gold collapsed.
If Barrick succeeds in buying back Acacia, the longer-term plan would likely be to sell it again, Mr. Day said.
"Bristow’s very comfortable [in Africa], but as a company they want to be more global,” he said. “It would make sense, if they got a decent offer, to get rid of it.”
Shares in Barrick closed down 1.5 per cent on the Toronto Stock Exchange on Wednesday.