Barrick Gold’s new CEO Jamie Sokalsky has gotten straight down to business to help boost the company’s stagnating share price through a possible sale of its African unit.
Sokalsky, who was hired in June, recently rolled out a new strategy to allocate capital to projects that generate the most returns and scrap those that produce high cost ounces.
As part of the plan to tighten spending and optimize its asset portfolio, the world’s top miner is considering selling all or part of its African unit to a Chinese buyer.
The Toronto-based gold producer confirmed yesterday that it was in talks with China National Gold regarding its 73.9% stake in African Barrick Gold.
Under U.K. law, if China National Gold wanted to acquire more than 30% of the London-listed miner it would be required to make a full takeover offer for Barrick's stake.
This is the first step Barrick is taking under Sokalsky’s leadership to unload its poorly performing businesses, Canaccord Genuity analysts write in a note.
The company has recently been under pressure as it wrestles with sinking profits, growing costs and investors fuming over its earlier investment decisions, including the $7.3-billion acquisition of African copper miner Equinox Minerals last year. As a result, Barrick shares have lost 30% of its value over the year, comment Canaccord's analysts.
To revive its performance and maximize shareholder value, the miner is looking to hand off its African unit, which it spun out in 2010.
African Barrick has four operating mines in Tanzania, including Bulyanhulu, Buzwagi, North Mara and Tulawaka. In the second quarter ended June, it reported that three of those mines recorded average cash costs of above US$1,100 per oz.
Barrick’s total production for the period was 1.74 million oz of gold at average cash costs of US$613 per oz., of which African Barrick contributed roughly 8% or 110,000 oz at cash costs of US$950 per oz.
While divesting African Barrick would lower Barrick’s production base, it would also shrink its average cash costs and sovereign risk, analysts from U.K.-based Ivestec write in a note.
While they don’t expect the recent talks to ignite a bidding war for African Barrick, the analysts forecast the potential takeover price to be around £5 per share.
Similarly BMO Research suggests a potential takeover price range of £4.90-5.40 per share for African Barrick.
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