RPT-UPDATE 2-Barrick Gold in talks to sell Africa stake

Thu Aug 16, 2012 5:15am EDT

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LONDON Aug 16 (Reuters) - Canadian mining major Barrick Gold is in talks to sell all or part of its 74 percent stake in African Barrick Gold to China's largest gold producer, just two years after the underperforming Tanzanian assets were spun off.

News of the early-stage talks with China National Gold Group sent African Barrick Gold shares up more than 13 percent in early London trade on Thursday, as investors bet on a sale at a premium.

Barrick, the world's largest gold producer which is grappling with falling profits and soaring costs, abruptly replaced its chief executive in June. His successor, Jamie Sokalsky, is reviewing the company's operations - including the African unit, which has lagged expectations since it was listed separately in London in 2010.

African Barrick Gold, whose shares at Wednesday's close were almost a third below their listing price, is one of Africa's largest gold miners. It has suffered a series of setbacks over the past two years, ranging from villagers armed with machetes invading its North Mara mine to power outages and fuel thefts.

"Discussions are at an early stage, and there can be no certainty that these discussions will result in the acquisition of all or part of Barrick's holding in ABG," Barrick Gold said, confirming an earlier report. At Wednesday's closing price the 74 percent stake was worth almost $1.9 billion.

An offer for more than 30 percent of African Barrick Gold would trigger a full takeover offer for Tanzania's largest gold producer from the Chinese suitor, under UK takeover rules.

"African Barrick has always looked like it offered good value albeit at a high risk, and if the potential acquirer can get the asset and is comfortable with the risk, you will be able to get a reasonable set of assets for a good price," Investec analyst Hunter Hillcoat said.

"This now officially puts (ABG) in play."

ABG shares were trading up 9.3 percent at 430 pence at 0856 GMT, outperforming a 0.6 percent rise in the broader UK mining sector.

If recent gold deals are a guide, analysts said ABG could expect an offer at a premium - and potentially above 500 pence - for assets which include mines North Mara, Bulyanhulu, Buzwagi and Tulawaka, all in Tanzania. ABG currently produces around 700,000 ounces of gold a year and is targeting 1 million by 2014.

Analysts at Nomura said recent gold transactions had an average takeover premium of 40 percent, with Endeavour Mining's recent offer for Avion Gold hitting 57 percent.

"Anything north of 500 pence isn't bad considering where they've been trading recently," Numis analyst Cailey Barker said. "Barrick aren't going to sell down unless its in that sort of order."

Analysts cast doubt, however, on the prospect of a bidding war against the Chinese suitor, though other miners operating in the region, from South Africa's gold sector to London-listed Randgold are expected to look.

The Financial Times earlier quoted one person with knowledge of the discussions who suggested that Zijin Mining Group , the Chinese copper and gold miner, had indicated interest in African Barrick.

African Barrick declined to comment beyond its statement acknowledging the talks. Vancouver-based officials of China Gold International, a subsidiary of China Gold which handles its international assets, were not immediately available for comment. (Reporting by Clara Ferreira-Marques in London and Brenton Cordeiro in Bangalore; Editing by Erica Billingham)

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