Barrick has a 73.9% stake in ABG, which owns four gold mines in Tanzania that produced 688,278 ounces of gold in 2011, making the London-listed company Tanzania's biggest gold producer and one of Africa's top five.
"Barrick has adopted a renewed focus on maximizing shareholder value through a disciplined capital allocation program, which includes optimizing Barrick's portfolio of assets and maximizing returns on investment and free cash flow," said Toronto-based Barrick. "The preliminary discussions relating to ABG form part of this program."
Barrick might be looking to sell down its holding in an underperforming operation, while retaining a majority stake, according to a London-based analyst who asked not to be named.
The talks come as Chinese companies grow more keenly interested in acquiring global gold assets. China now ranks as the world's top gold consumer, having surpassed India in the first quarter of 2012.
Earlier this month, China's No.1 gold producer Zijin Mining Group Co., said it had acquired a majority stake in Australia-listed Norton Gold Fields Ltd. after making a A$180 million offer in May.
State-controlled Zijin had also approached Barrick with an offer for ABG in recent weeks, according to a report appearing Thursday on the Financial Times website. The offer was rejected as too low, the report claimed, citing unnamed sources. Barrick Gold spokesman Andy Lloyd could not immediately be reached for comment. An ABG spokesman said he was not aware of any other approaches.
London-headquartered ABG has had a difficult first half of 2012, posting a 14% fall in production year-on-year to 297,742 ounces for the first six months. At the same time the cost of extraction has risen 43% year-on-year to $938 per ounce, resulting in 30% fall in first-half Ebitda to $171 million.
ABG shares leapt Thursday following news of the talks to trade at 436.5 pence, up 42.9 pence or almost 11%. That equates to an equity value of about £1.78 billion, and an enterprise value of about £2.3 billion including debt. Despite Thursday's gain ABG shares remain almost 20% down over the past 12 months and about 24% lower than the 575 pence they were sold at in their IPO in 2010.
ABG was created as a unit of Barrick in 2000 to house its Tanzanian gold mining acquisitions, starting with the Bulyanhulu project, which it acquired as part of the takeover of Sutton Resources Ltd in 1999. The Buzwagi and Tulawaka mines were added in 2000 with the acquisiton of Pangea Goldfields Inc. before North Mara was acquired as part of a $10.4 billion purchase of Placer Dome Inc. in 2006.
ABG said in a statement that it noted the talks were underway and said that the acquisition of any stake that gave China National Gold more than a 30% voting right in ABG would trigger a compulsory offer for all of its shares.
Barrick Gold is taking financial advice from a UBS AG's Simon Lyons and Sam Roberts.
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