The acquisition of mines in Africa through a merger with Randgold Resources early this year, has raised the overall risk of Toronto-headquartered Barrick Gold’s mining portfolio, but analysts at Fitch Solutions believe that South African geologist Mark Bristow, who has a track record of operating successfully in difficult jurisdictions, will be able to pull it off.
In a global company strategy review focusing on Barrick Gold, Fitch said this week that the mining major was stronger after the merger with Africa-focused Randgold, despite having increased portfolio risk by buying assets in a region that it previously withdrew from.
In 2010, Barrick exited the African market in a bid to de-risk its portfolio, leaving behind only Acacia Mining, which it listed on the London Stock Exchange and in which it has a 64% shareholding.
Following the merger with Randgold, about 28% of Barrick’s production now stems from Africa, compared with about 7% before the $18-billion merger. Randgold brought to the table two tier-one mines in Africa – the Loulo-Gounkoto complex, in Mali, and the Kibali mine, in the Democratic Republic of Congo.
“The acquisition of Randgold will be a major boon for the newly formed Barrick in the coming years. While Barrick has the scale, Randgold had a track record of succeeding in more difficult jurisdictions,” Fitch said in its note.
Under the leadership of Bristow, who founded Randgold, the gold major has already made headway to resolve longstanding issues in Tanzania, where Acacia has faced headwinds amid accusations of its operations owing nearly $190-billion in back taxes. Barrick has reached a draft pact with the government of Tanzania, but Acacia has been left out of the agreement.
“With Bristow as the new CEO, a deal on the dispute is plausible in the coming quarters, if Barrick is successful in buying Acacia’s minority owners,” said Fitch.
Bristow said last month that officials in Tanzania would not engage with Acacia in any way, prompting the major to make a no-premium bid of 197p a share for its subsidiary. Acacia, however, is digging in its heels and says it is worth 271p a share, or about 38% more than what Barrick is prepared to pay.
FLOODING THE MARKET
Meanwhile, the Fitch report states that the divestment of noncore assets in Africa and South America could saturate the market, requiring a discount on project prices, as these projects are expected to be on the market at the same time as those that the merged Newmont Goldcorp plans to shed.
Barrick will focus on large, long-life and low-cost assets. The company is only interested in tier-one assets, which are defined as those that produce more than 500 000 oz/y, with a minimum mine life of ten years and that are in the bottom half of the cost curve.
Besides Kibali and Loulo, the mines meeting the tier-one criteria include Goldstrike, Cortez and Turquoise Ridge, all part of the Nevada joint venture (JV) with Newmont Goldcorp, as well as Pueblo Viejo in the Dominican Republic.
Goldrush, which also forms part of the Newmont JV, is seen as a potential tier-one asset.