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Barrick moves one step closer to putting Acacia out of its misery

Mismanagement by Acacia has led to it being locked out of negotiations about its own future
Barrick moves one step closer to putting Acacia out of its misery
It's conceivable that Barrick may up its bid to placate Acacia's minority investors

Is it all over for Acacia Mining PLC (LON:ACA)?

It certainly looks that way after majority shareholder Barrick Gold (TSE:ABX)(NYSE:GOLD) revealed it was considering making an offer for all the Acacia shares it doesn’t own.

Regulatory requirements necessitated a corresponding announcement from Acacia, in which the embattled gold miner took a rather arch tone.

Acacia’s announcement about the proposed offer had not been released with Barrick’s prior knowledge, it was at pains to point out. And Acacia also took the opportunity pointedly to state that it remains excluded from the current negotiations taking place between Barrick and the Tanzanian government in regard to the future of its own operations.

Not surprisingly, shares in Acacia dropped by nearly 5% to 152p on the news in early trading. They might have dropped even further if Barrick hadn’t put a floor on the price with its own indicative offer of 0.153 Barrick shares for every Acacia share, given that Acacia’s status as an independent company now looks to be all but over.

Still, on the current Barrick price of C$16.25 the all-share offer equates to C$2.48 per Acacia share, or 146p, the market is currently allowing for a tiny bit of wriggle room.

There was no indication from the Acacia board that it’s likely to recommend a deal at a discount, and it seems likely that Barrick chief Mark Bristow has pitched the offer deliberately low, knowing that with Barrick already holding 65% of Acacia all he needs to do is sweeten his initial offer slightly for recalcitrant shareholders to come over the line.

Aside from the huge block of Acacia shares that’s already in Barrick’s hands, the key factor is the Tanzanian government’s unwillingness to negotiate directly with Acacia. It’s unclear and will probably never be known how much that intransigence has been encouraged by Bristow, but between them Bristow and the Tanzanian government have manoeuvred Acacia into a situation where it’s out of options.

The Tanzanian government’s antipathy towards Acacia goes back years and has some justification. Although miners in general in recent years have grumbled that Tanzania has become increasingly hostile to mining, it’s worth bearing the context of that new hostility in mind: repeated failures in terms of social license as well as operationally at Acacia’s North Mara, Buzwagi and Bulyanhulu mines.

There have been repeated strikes, riots, and accusations that the company management, based far to the south in Dar Es Salaam, is out of touch. There’s also the delicate matter of a US$300mln tax liability that the Tanzanian government says it’s owed by Acacia.

That liability will be factored into any final price that Barrick pays for Acacia, according to the Barrick side, and it may be that Bristow is willing to settle the tax issue without demur as the price for the government’s tacit approval of a full takeover by Barrick of Acacia.

But this isn’t just opportunism. With a 65% stake in Acacia, Barrick clearly needed to do something with this perennially underperforming asset. There was some talk when Bristow took over at Barrick a few months ago that the Acacia stake might be put up for sale.

But although such a move would probably have been easy for the market to stomach, that’s not really Bristow’s style. He will have known that any sale would have to have been at the sort of price he’s now offering for Acacia, which is to say, cheap in terms of the quality of the assets.

And Bristow himself, as the former chief executive of Randgold, the London market’s most successful gold company in decades, has years and years of experience of operating in Africa. Going into negotiations with the Tanzanian government as a fresh face, and cutting away all the dead wood of the Acacia management in the process must have seemed like second nature to him.

Progress was never going to be lightning fast, but since Bristow only took over at Barrick in January, getting to the stage of an indicative offer isn’t bad going. After all, along the way he’s also made a US$18bn offer for Newmont Mining (TSE:NMC) which, even if it was ultimately a classic case of brinkmanship in regard to choice assets in Nevada, was very real at the time.

The Acacia bid will have always been second in the in-tray to sorting out the Nevada situation, but now that that’s resolved in the form of a new and satisfactory joint venture, Acacia can have all of his attention. He will also have known that with a 65% stake already in the bag, there was never any need for haste.

So, it’s hard now to see any way that this situation plays out, other than the ultimate absorption of Acacia into Barrick. The original rationale for spinning Acacia out of Barrick was that the company didn’t have enough Africa-specific expertise to make a go of it. But with Bristow at the helm, it does. There might be some further haggling on the price, especially if gold weakens any further against the dollar. But what does seem certain is that the Acacia situation, and by extension the Tanzanian mining sector as a hole, is set for a substantial reboot.

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