Barrick Gold Corp. (ABX), the biggest producer of the precious metal, ended talks over the sale of its 1.44 billion-pound ($2.32 billion) African unit to China National Gold Group Corp. without reaching an agreement.
Barrick still sees “a lot of value” in the assets held by its African Barrick Gold Plc (ABG) subsidiary, Toronto-based Barrick’s Chief Executive Officer Jamie Sokalsky said yesterday in a phone interview. Shares of African Barrick fell 21 percent in London yesterday.
African Barrick “does have some opportunities to enhance that value, and when we looked at that versus ultimately what China National Gold was talking about, it just wasn’t the right fit,” Sokalsky said. “We would have liked to have done this transaction, but it wasn’t about doing this at any cost.”
Sokalsky declined to comment on the specific issues that led to the end of the talks. Discussions had stalled because of differences over taxes and legacy issues, Chinese newspaper 21st Century Business Herald reported yesterday, citing CNG Chairman Sun Zhaoxue.
The deal would have been the largest gold-company takeover involving a Chinese company, according to data compiled by Bloomberg. Barrick said in August that CNG was in preliminary discussions about buying African Barrick Gold, which would have given the state-owned Chinese company four mines in Tanzania.
“This is a big asset, it’s a significant transaction for anyone, it’s a public company and ultimately over time multiple things came into the equation,” Sokalsky said. “It just didn’t make sense for both of us to transact, to ultimately complete a transaction.”
Wu Zhanming, the vice president of CNG’s overseas investment unit, didn’t answer calls to his mobile phone.
African Barrick slumped to 352.1 pence at the close in London yesterday, the steepest decline since the shares were first sold in 2010. Barrick fell 1.3 percent to C$33.14 in Toronto.
Sokalsky, who replaced Aaron Regent as CEO in June, is reviewing Barrick’s assets in an effort to improve returns and cash flow as costs rise. The company has received approaches from companies interested in some of its other assets, he said yesterday.
“If there are opportunities to divest assets that are worth more to someone else than us, we will absolutely take a look at that,” Sokalsky said. Barrick doesn’t “have anything to talk about at the moment.”
While Barrick will consider new approaches for African Barrick if it gets them, the company won’t actively solicit third parties for a sale of the business, Sokalsky said.
Since being spun off by Barrick, African Barrick has struggled to meet production targets amid operational setbacks and disruption caused by illegal miners. Selling African Barrick would have lowered Barrick’s production costs, Brian Yu, an analyst at Citigroup Inc. in San Francisco, said in an Aug. 16 note.
In October, African Barrick raised its 2013 forecast for average costs to $900 to $950 per ounce of gold from a July projection of $790 to $860.
Barrick “will continue to look for ways to realize value from the block,” Numis Securities Ltd. in London said in a note to investors. “However, the news will come as a disappointment to some who saw it as a potential exit from this under- performing stock.”
Acquisitions in the gold industry have declined as slowing global growth tightened available credit. There were 175 completed deals worth $6.8 billion in 2012, the lowest in at least five years, according to data compiled by Bloomberg.
There are probably other companies interested in buying African Barrick, said David West, a Vancouver-based analyst at Salman Partners Inc. He didn’t name potential buyers.
“I wouldn’t be surprised to see another offshore entity maybe take a run at it,” West said in a telephone interview. “This stuff goes on all the time. I’m sure there are a lot more misses in terms of M&A activity than hits and this is just one of those misses.”