Acacia backs higher Barrick takeover offer

North American gold major moves offer to premium after weeks of bad blood

July 19, 2019

Acacia Mining (ACA) has backed a final bid from Barrick Gold to buy the 36 per cent of the company not already under the Canadian gold major’s control.

IC TIP: Sell at 222pp

After weeks of arguing over the quality of Acacia’s assets publicly, the two companies have agreed on terms: 0.168 Barrick shares for each Acacia share, valuing at the company 232p a share or £951m in total. This is a big increase on the original 0.153 for 1 offer, which was a discount on the pre-announcement price of 8 per cent and well down on Barrick’s own valuation of Acacia. This new offer is a 53 per cent premium on the May 20 closing price and a 25 per cent premium on the closing price on the day prior to the agreement.

The takeover bid was launched after the government of Tanzania said it would not deal with Acacia during the negotiations to lift the gold concentrate export ban imposed in 2017. This ban is based on allegations the miner was producing 250,000 ounces (oz) of gold a month instead of 250,000oz a year as reported, which would have made it the world’s largest (and cheapest) gold miner.

Tanzania slapped a $190bn (£151.7bn) tax bill on Acacia following this allegation, which Barrick chairman John Thornton got down to $300m in talks with the government. Barrick has been leading negotiations to get this deal through and the concentrate ban lifted but it has not yet been fully agreed. If the takeover goes through, there is more hope of a resolution as the government has been willing to sit down with Barrick even while arresting Acacia workers on corruption charges and most recently putting in a new export ban and prohibiting use of the North Mara tailings facility from 20 July.

The deal has to get 75 per cent shareholder support (excluding Barrick’s 64 per cent) at a court meeting and following general meeting, which have not yet been scheduled. Barrick said the takeover should be done by the end of the year. Several minority shareholders had said the previous deal was too low, according to the Financial Times, with Odey Asset Management saying 271p per share would be an acceptable price.

The sweetened deal drove Acacia’s share price up 19 per cent to 222p, putting it up 15.6 per cent year-to-date.

Barrick is right in saying Acacia by itself will not be able to exploit its precious metals reserves in Tanzania, with the government refusing to give an inch. The fact interim chief executive Peter Geleta has not been in the country since the arrests in October, as highlighted by Barrick last month, shows how toxic the situation has become. US- and Toronto-listed Barrick offers major exposure to the current gold price highs but is a very different company to hold than Acacia, with a geographically diverse portfolio and the mercurial Mark Bristow likely to keep making big moves in the industry. Usually, we would suggest shareholders vote for or against a takeover offer. In this case, the choice is to sell on the back of the share price rise or become a Barrick investor across the pond. We'd sell, based on the current gold price.

Last IC View: Sell, 158p, 23 May 2019