China National Gold Group Corp. is in talks about buying Barrick Gold Corp. (ABX)’s African unit as the world’s biggest commodity-consuming nation continues to snap up resources on the continent.
There’s no certainty that China National Gold will make an offer for Barrick’s 73.9 percent stake in African Barrick Gold Plc (ABG), Toronto-based Barrick said in a statement today. UBS AG is advising the Canadian company, according to the statement.
China, with $3.2 trillion of foreign-exchange reserves, has urged its companies to buy assets overseas, securing energy and commodity resources to feed industries from power generation to construction. Zijin Mining Group Co., its biggest gold miner by market value, said in July it’s looking to buy copper projects in Africa. China’s Minmetals Resources Ltd (1208) bought Australia’s Anvil Mining Ltd in March for C$1.3 billion ($1.3 billion) to gain a copper mine in the Democratic Republic of Congo.
African Barrick, the largest gold producer in Tanzania, rose as much as 14 percent to the highest intraday price since March 5. It gained 8 percent to 425 pence at the close in London, valuing the company at 1.74 billion pounds ($2.74 billion). Barrick rose 3.9 percent to C$35.60 in Toronto.
The company has been dogged by operational setbacks since it was spun off from Barrick. African Barrick has struggled to meet production targets and is forecasting its lowest annual output since the stock began trading in London in March 2010. The shares were down 14 percent this year through yesterday.
Acquisitions in the gold industry have declined as slowing global growth tightens available credit. There were 120 deals worth about $3.9 billion in the first half of the year, compared with 153 deals worth about $12.8 billion a year earlier, according to data compiled by Bloomberg.
The median multiple of earnings before interest, taxes, depreciation and amortisation that buyers paid in the past year was 11, the data show. Even after today’s gains, African Barrick is valued at about at 4.7 times 2011′s estimated Ebitda, according to data compiled by Bloomberg.
“I don’t see them getting a fairly hefty premium on this at the end of the day,” David West, a Vancouver-based analyst at Salman Partners Inc., said in a telephone interview. “It is Africa, it’s fairly risky and its a sizable amount of assets, which means your potential acquirers out there are quite limited.”
African Barrick in 2010 cut its annual output forecast to about 716,000 ounces from an initial estimate of as much as 850,000 ounces. The revision followed delays and fuel theft at its Buzwagi project. Last year, the company produced 688,278 ounces after forecasting as much as 760,000 ounces.
Barrick, the world’s biggest gold miner, said it remains “confident” in its African unit and in African Barrick’s “qualified and experienced management team and its portfolio of world-class assets.”
Barrick is still committed to African Barrick, “but in our view this is not a positive endorsement from what someone classed previously as a major supporter,” Numis Securities Ltd said today in a note.
Barrick is among gold producers battling rising costs for building and operating mines, while gold-mining equities have fallen to their lowest level relative to the price of gold in 28 years.
Barrick fired Chief Executive Officer Aaron Regent in June. His replacement, Jamie Sokalsky, said July 26 that he’d begun a review of assets and would focus on returns instead of production growth. Barrick also said last month that the cost of building its Pascua-Lama mine on the Chile-Argentina border may rise as much as 60 percent to $8 billion.
Wu Zhanming, a Beijing-based spokesman for China National Gold’s overseas operations, did not answer three calls to his mobile phone seeking comment.
State-owned China National Gold, which controls the nation’s largest deposits of the metal, said in May 2011 that it was seeking to invest in projects in Africa.
Should the company buy more than 30 percent of the voting interest in African Barrick, it would be required to make an offer for all its shares, African Barrick said in a separate statement.