Barrick Gold (ABX-T, ABX-N) has ended talks with China National Gold (CNG) regarding the potential sale of its 74% interest in African Barrick Gold (ABG-L), putting off hopes that the major could distance itself from its underperforming projects in Tanzania.
Investors unhappy with the news pushed African Barrick shares down 21% to £3.52. The firm, which has four mines in northwest Tanzania, has been faced frequently with operational setbacks since going public in March 2010, causing its shares to spend the majority of the past two years trading below its IPO of £5.75.
Barrick shares remained relatively unmoved, slipping 1.3% to $33.14.
The discussions appear to have collapsed because the two parties were unable to agree on a price.
“We are approaching this in a prudent and disciplined manner and will only proceed with opportunities that generate acceptable value for Barrick,” the company’s president and CEO, Jamie Sokalsky, said in a statement, suggesting the firm is still open to selling all or part of its African Barrick stake.
African Barrick in a separate release said it will begin a full operational review of its assets with an aim of generating better returns to shareholders, noting more details on specific initiatives will be provided in mid-February.
Barrick confirmed last August that it was early discussions to sell its majority stake in its African assets to the Chinese firm as part of its strategy to trim its portfolio and pare down costs in a move to optimize its asset base by unloading or delaying projects that generated little return.
Analysts at that time estimated Barrick could possibly net up to US$3 billion from the potential ABG sale, strengthening the company’s balance sheet and lowering its overall cash costs. However, some now suggest the discussions may have distracted African Barrick.
“In addition to the loss of share price floor following the potential deal falling through, BMO Research worries that the discussions and due diligence process might have distracted management from focusing on optimizing and developing ABG’s assets during that period,” BMO analyst David Haughton wrote in a note.
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