After a long standoff, Barrick Gold (GOLD) and Acacia Mining (ABGLF) have reached an agreement whereby Barrick will buy out the minority shareholders in Acacia Mining. Barrick already owns 63.9% of the existing ordinary share capital of Acacia.
Barrick Gold buys Acacia Mining
The acquisition will be implemented by a court-sanctioned scheme. Under this scheme, each scheme shareholder will receive 0.168 new Barrick shares and any Acacia exploration properties’ special dividends for each scheme share. Previously, Barrick offered an exchange ratio of 0.153 on its shares. Based on Barrick’s current share price, Acacia is valued at approximately $951 million. Thus, the current offer represents a premium of 24.2% to Acacia’s closing stock price on July 18.
Notably, Barrick launched the offer to acquire the remaining stake in Acacia in a bid to resolve Acacia’s issues with the Tanzanian government. These ongoing disputes have adversely impacted Acacia’s business for over two years now. The Tanzanian government banned mineral concentrate exports from the country in March 2017. It did so because it believed it wasn’t getting a fair share of profits from mining in the country. As a result of this ban, Acacia had to put its Bulyanhulu mine on reduced operations.
Acacia’s issues with the Tanzanian government
There are also other issues between the government of Tanzania and Acacia. These issues include disputes about tax, environmental, and criminal matters. Recently, the Tanzania government ordered Acacia to stop using the tailings storage facility at its North Mara mine. This mine makes up close to 70% of Acacia’s revenues, so a long outage would impact the company significantly.
Removal of overhang on Barrick’s shares
Barrick mentioned in the press release that “This position is not sustainable and the liquidity of the Company will be constrained in the absence of a resolution.” Barrick added, “the only way forward to preserve, to the extent possible, the value of Acacia’s assets was for Barrick to make an offer to acquire all of the Acacia Shares not already owned by it.”
Therefore, a resolution of these issues with the Tanzania government would reduce a huge overhang on Barrick’s shares. So the resolution could help investors to focus more on its value proposition, which is growing profitable production at lower costs and increasing shareholder value.
You can read Will Gold Miners Soar in the Second Half as Gold Rises? for more on Barrick Gold’s and peers’ performance and outlook.