September 28, 2018 / 7:30 PM / 25 days ago

UPDATE 1-Barrick eyes China money to lower Africa risk after Randgold deal -sources

(Adds London dateline and byline, adds share reaction)

By John Tilak and Clara Denina

TORONTO/LONDON, Sept 28 (Reuters) - Barrick Gold Corp will seek Chinese investments in some of its African mines to offset higher risk stemming from its planned $6.5 billion all-stock acquisition of Africa-focused miner Randgold Resources, people familiar with Barrick’s thinking said.

Toronto-based Barrick will also lean on Randgold Chief Executive Officer Mark Bristow’s expertise in dealing with governments in challenging jurisdictions to navigate the Africa continent risk, the people said, addressing a concern of some Barrick shareholders.

The sources asked for anonymity because they were not authorized to publicly discuss the matter involving the world’s biggest gold miner.

Barrick’s African expansion is a departure from its recent strategy of focusing on relatively safe regions like the United States. Africa will represent about 30 percent of Barrick’s net asset value after the deal closes, up from some 15 percent, Desjardins Securities estimates.

Chinese involvement in Africa will likely include minority stakes or joint ventures in mines, the people familiar with Barrick’s thinking told Reuters.

China’s Zijin Mining Group and Shandong Gold said this week the deal provides additional opportunities to expand their partnerships with Barrick in Africa.

“The question for Barrick is, how do you balance the risk profile with the growth profile?” said David Neuhauser, managing director of U.S. hedge fund Livermore Partners and a Barrick shareholder, who supports the deal but recognizes the risks associated with Africa.

“Barrick’s potential partnerships with the Chinese could de-risk its African exposure,” he added.

A Barrick spokesman declined to comment. Randgold did not immediately respond to a request for comment.

Barrick’s executive chairman, John Thornton, a former Goldman Sachs banker, has been building relationships with Chinese miners as part of a plan to reduce exposure to risky jurisdictions. That work has intensified in recent years, notably with Shandong’s near billion-dollar investment in Barrick’s Argentine mine in 2017.

Barrick shares were down 1.5 percent by Friday afternoon, but still up about 6 percent since the deal was announced. Randgold shares have gained 10.7 percent since the deal.

‘PREFERRED RELATIONSHIP’

“It’s been a goal of ours to build a distinctive and preferred relationship with China,” Thornton said on a conference call on Monday.

Barrick unit Acacia Mining had been discussing an asset-level joint venture with Chinese miners, but two of the people said those talks have been put on hold. The potential Chinese partners are waiting for a tax issue with the Tanzanian government to be resolved, one of the sources said.

Thornton and Bristow first explored a partnership three years ago and renewed discussions this year, which was how the Randgold deal came together, the people added.

The two men hit it off. Frustrated with the mining industry’s poor performance, they share a philosophy that mining companies should be run with a disciplined focus on financials.

Bristow has said the caliber of mines offsets issues about location.

“I’ve always said asset quality overrides jurisdiction,” Bristow said on a conference call with analysts following the deal on Monday.

Some shareholders are betting that China, with its large African investments, would find it easier to deal with governments in the mineral-rich continent than Barrick would.

“If you are a Canadian company operating in Africa, you don’t have a ton of political pull,” said Greg Taylor, a portfolio manager at Purpose Investments and a Barrick shareholder.

“Certainly the Chinese are very active in their building of infrastructure. The Chinese partnership with Barrick would go a long way to add some moral suasion to the politicians.” (Additional reporting by in Zandile Shabalala in London; Susan Taylor and Fergal Smith in Toronto Editing by Marguerita Choy and David Gregorio)

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