Canadian mining giant Barrick Gold (TSX:ABX)(NYSE:GOLD) finally capitulated to pressure from Acacia Mining, the East African gold mining giant’s minority shareholders, over a deal that will see Barrick assuming full control of the troubled African miner since their separation in 2010. The reprieve to Barrick’s bid to expand its territory came at time when the mining giant is nursing its wounds after a failed merger attempt with Newmont Corporation earlier this year.
The two month battle of control between Barrick Gold and its Tanzanian counterpart Acacia Plc ended with an announcement that the former would be taking over ownership of the later at a cost that will leave Acacia valued at close to £343-million. Barrick, which owns 63.9% of Acacia, in May indicated that it might buy out minorities in an all-stock deal after having previously had tried to buy minority shareholders in its troubled Africa unit at no premium, with a bid of 193p a share to which Acacia had insisted that it is worth 271p a share.
As a result of this takeover, Acacia’s stock shot up 19% to 222p a share in London on Friday morning. Thee takeover will see an upgrade in stakeholding for minority Acasia shareholders having now to get a swap 0.168 of a Barrick share for each share of Acacia in a transaction that values the company at about $1.56 billion (951 million pounds). The tussle has seen a rise in share prices for Barrick from about $16 at the end of May to $22.46 on the Toronto Stock Exchange on Thursday.
An announcement was made that Barrick would be selling Acacia’s exploration properties over the next two years, with net proceeds to be paid to Acacia shareholders. Acacia shareholders will also be entitled to receive special dividends related to Acacia exploration properties and deferred cash consideration dividends paid as a result of the sale of certain Acacia exploration properties.
Acacia has been engaged in a high-profile battle with the Tanzanian government for the past 2 years, a long running dispute that has impacted the ability to attract direct foreign mining investments in the country. However, Barrick is expected to take over the negotiations and finalize the settlement terms with the government, a move that is expected to bring about stability to the group’s Tanzanian mining operations including employees and contractors who stood by the company whilst it went through its trialing time. This comes a few days after the Tanzanian government ordered Acacia to stop using company’s core gold mine, North Mara, from Saturday because of alleged seepage from the facility, Acacia said in a statement on Wednesday.
Acacia faced and is still facing a myriad of challenges in a delicate situation that threatens its closure with the Tanzanian government, where an export ban on metallic mineral concentrates in March 2017 forced the miner to put Bulyanhulu mine on reduced operations.
Barrick Gold has always championed zero premium deals within the gold mining industry with its CEO, Mark Bristow, indicating that taking full control was the only way to end a two-year tax disagreement with the Tanzanian government. There are still ongoing unresolved disputes between the government and Acacia which include among others, disputes in relation to tax, environmental and criminal matters which have left the East African miner unable to export its Gold from the country. In a move to exercise its power, the Tanzanian government handed Acacia a bill close to $200-billion in outstanding tax, which has since been downgraded to $300-million under a 2017 agreement.
Declining reserves are also highlighting the urgency to buy mining assets to boost their production profile. In September, Barrick Gold Corp announced a zero-premium deal to buy Randgold Resources Ltd. In the decade-long bull run that took prices of the precious metal to a record in 2011, companies bought assets in their rush to ramp up output to meet rising demand for the metal, accumulating debt to close those deals. As prices reversed and the metal languished in a bear market for years, investors hit the exit, leaving many miners unable to service their obligations and forcing them to cut costs to survive.
The new offer to Acasia is a premium of 53.5% to the closing price of 155p a share on May 20, the day prior to the first announcement of a possible offer. The bid is also a premium of 24.2% to the closing price of Acacia of 187p a share on Thursday. As majority shareholder, Barrick had taken charge of negotiations with the government of Tanzania to reach a resolution on various disputes. Acacia was not permitted to participate in discussions and was not involved in negotiating terms. In May, discussions between Barrick and the government advanced to a point where draft transaction documents for a possible settlement had been extensively negotiated and initialled by the government. The key principle of the draft agreement was that the government and Acacia’s Tanzanian mine operating subsidiaries will share the economic benefits derived from the mines on a 50:50 basis, based on the life-of-mine plans. The documents also provide for a $300-million payment by the Acacia group for the full, final and comprehensive settlement of all existing disputes between the government and the mining company.
Earlier this week, the North Mara mine had been issued no export letter and a prohibition notice, ordering it to stop using the tailings storage facility. This forced the mine to stop gold production.
“Considering the impending loss of the ability of Acacia to produce gold and operate the mine at North Mara, the Acacia group’s cash flow from operations will be adversely impacted and the Acacia group will be required to meet its on-going working capital requirements and other financial obligations from its existing cash balance. This position is not sustainable and the liquidity of the company will be constrained in the absence of a resolution,” the Acacia statement said.
It is hoped that with the buyout, Barrick would be able to preserve the value of Acacia’s assets.