(Adds details on suitors, China mining, background)
By Clara Ferreira-Marques and Brenton Cordeiro
LONDON Aug 16 The world's largest gold miner,
Barrick Gold, is in talks to sell a majority stake in
its African unit to a Chinese buyer, the first move by new boss
Jamie Sokalsky to clear out poorly performing businesses and
revive its flagging shares.
News of the talks with China National Gold Group - which
calls itself the country's largest gold producer - sent African
Barrick Gold shares up as much as 13 percent in London,
as investors bet the buyer would be prepared to pay a premium to
help satisfy China's insatiable appetite for the metal.
Canadian mining major Barrick is grappling with falling
profits, soaring costs and the fallout from what some investors
see as mistakes, including the takeover of African copper miner
Equinox Minerals last year.
Barrick ousted its previous chief executive in June, saying
it was frustrated the stock had languished since he took the
helm while bullion prices had surged. The shares are down 30
percent over the past year at levels last seen in late 2008.
Chief Executive Sokalsky, who took over in June, is under
pressure to show he is investing money wisely. He is reviewing
the company's operations, including the 74 percent stake in the
African unit, which has disappointed investors since it was
listed separately in London in 2010.
African Barrick, whose shares at Wednesday's close were
almost a third below their listing price, is one of Africa's
largest gold miners, operating mainly in Tanzania. But it has
suffered a series of setbacks, ranging from villagers armed with
machetes invading its North Mara mine to power outages and fuel
and metal 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 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 (African Barrick) in play."
CHINA INC MOVES IN
China is the world's largest gold producer and does not
export the metal, but it has still been unable to satisfy
soaring demand for gold bars and jewellery from domestic
investors, seeking stores of value for their wealth.
The World Gold Council said on Thursday it expects Chinese
demand to reach 850 tonnes this year, overtaking India as the
world's number-one buyer. Metals consultancy GFMS estimates
Chinese mine output last year at less than half that.
China only has a small presence in Africa's gold mining
industry. The potential purchase of African Barrick Gold would
turn China Gold - a low-profile company outside its home patch
with ambitions to expand aggressively abroad - into one of the
continent's top miners.
African Barrick Gold shares were trading up 9.3 percent at
430 pence at 1215 GMT, outperforming a 1 percent rise in the
broader UK mining sector.
If recent gold deals are a guide, analysts said Barrick
would hold out for an offer at a premium - potentially over 500
pence per share - for assets which include mines North Mara,
Bulyanhulu, Buzwagi and Tulawaka. African Barrick produces
around 700,000 ounces of gold a year and is targeting 1 million
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
Analysts cast doubt, however, on the prospect of a bidding
war against the Chinese suitor, with sources familiar with the
matter dismissing talk of interest from Zijin Mining Group
, a Chinese copper and gold miner, and
London-listed Randgold Resources.
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.
Barrick Gold is being advised by investment bank UBS.
(Additional reporting by Jan Harvey; Editing by Erica