Business
By Clara Ferreira-Marques and Brenton Cordeiro
LONDON, Aug 16 (Reuters) - The world's largest gold miner,Barrick Gold, is in talks to sell a majority stake inits African unit to a Chinese buyer, the first move by new bossJamie Sokalsky to clear out poorly performing businesses andrevive its flagging shares.
News of the talks with China National Gold Group - whichcalls itself the country's largest gold producer - sent AfricanBarrick Gold shares up as much as 13 percent in London,as investors bet the buyer would be prepared to pay a premium tohelp satisfy China's insatiable appetite for the metal.
Canadian mining major Barrick is grappling with fallingprofits, soaring costs and the fallout from what some investorssee as mistakes, including the takeover of African copper minerEquinox Minerals last year.
Barrick ousted its previous chief executive in June, sayingit was frustrated the stock had languished since he took thehelm while bullion prices had surged. The shares are down 30percent over the past year at levels last seen in late 2008.
Chief Executive Sokalsky, who took over in June, is underpressure to show he is investing money wisely. He is reviewingthe company's operations, including the 74 percent stake in theAfrican unit, which has disappointed investors since it waslisted separately in London in 2010.
African Barrick, whose shares at Wednesday's close werealmost a third below their listing price, is one of Africa'slargest gold miners, operating mainly in Tanzania. But it hassuffered a series of setbacks, ranging from villagers armed withmachetes invading its North Mara mine to power outages and fueland metal thefts.
"Discussions are at an early stage, and there can be nocertainty that these discussions will result in the acquisitionof all or part of Barrick's holding in ABG," Barrick Gold said,confirming an earlier report. At Wednesday's closing price the74 percent stake was worth almost $1.9 billion.
An offer for more than 30 percent of African Barrick wouldtrigger a full takeover offer for Tanzania's largest goldproducer from the Chinese suitor under UK takeover rules.
"African Barrick has always looked like it offered goodvalue albeit at a high risk, and if the potential acquirer canget the asset and is comfortable with the risk, you will be ableto get a reasonable set of assets for a good price," Investecanalyst 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 notexport the metal, but it has still been unable to satisfysoaring demand for gold bars and jewellery from domesticinvestors, seeking stores of value for their wealth.
The World Gold Council said on Thursday it expects Chinesedemand to reach 850 tonnes this year, overtaking India as theworld's number-one buyer. Metals consultancy GFMS estimatesChinese mine output last year at less than half that.
China only has a small presence in Africa's gold miningindustry. The potential purchase of African Barrick Gold wouldturn China Gold - a low-profile company outside its home patchwith ambitions to expand aggressively abroad - into one of thecontinent's top miners.
African Barrick Gold shares were trading up 9.3 percent at430 pence at 1215 GMT, outperforming a 1 percent rise in thebroader UK mining sector.
If recent gold deals are a guide, analysts said Barrickwould hold out for an offer at a premium - potentially over 500pence per share - for assets which include mines North Mara,Bulyanhulu, Buzwagi and Tulawaka. African Barrick producesaround 700,000 ounces of gold a year and is targeting 1 millionby 2014.
Analysts at Nomura said recent gold transactions had anaverage 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 wherethey've been trading recently," Numis analyst Cailey Barkersaid. "Barrick aren't going to sell down unless its in that sortof order."
Analysts cast doubt, however, on the prospect of a biddingwar against the Chinese suitor, with sources familiar with thematter dismissing talk of interest from Zijin Mining Group , a Chinese copper and gold miner, andLondon-listed Randgold Resources.
African Barrick declined to comment beyond its statementacknowledging the talks. Vancouver-based officials of China GoldInternational, a subsidiary of China Gold which handles itsinternational assets, were not immediately available.
Barrick Gold is being advised by investment bank UBS. (Additional reporting by Jan Harvey; Editing by EricaBillingham)
