Canadian miner Barrick Gold's proposal to acquire all of the shares in UK's Acacia Mining it does not already own sees the miner with a three-way scenario, mining analysts at Peel Hunt said Friday.
"Barrick could make a formal low-ball offer for Acacia, which we think will eventually have to be raised if Barrick is looking to succeed," Peel Hunt analysts said. "We think this as a likely scenario which reflects an inability to compromise and tensions within Barrick rather than the reality of the 'facts on the ground'".
In May, Canadian gold miner and the world's largest gold miner made a $285 million bid for Acacia shares it did not hold. The proposal valued the smaller gold miner at $787 million. Barrick already owned a 63.9% stake.
Barrick said that it has until June 18 to turn the indicative bid into a firm offer.
Acacia mining minority shareholder Odey Asset Management has backed the Canadian gold miner's offer for Acacia Mining but said it would not accept the current bid as it stands and reject any Barrick offer that is are not open for negotiation. The London-based hedge funds owns 1.94% of Acacia. Total assets under management for Odey were $5 billion in 2018.
Acacia's third-largest minority shareholder, Fidelity International, which said Barrick Gold's takeover bid was underpriced. The Bermuda-based fund owns 3.2% of Acacia.
"Barrick's indicative offer to buy the remaining equity in Acacia Mining for $787 million materially undervalues the shares, and Fidelity will not be accepting this bid if it's tabled, at this level," portfolio manager Alex Wright said. "The offer is roughly 150p per share, 44% below Barrick's own audited value of the asset on its balance sheet of $1.4 billion (or 265p per share)."
Peel Hunt analysts believe in order for Barrick "to make a higher (than 0.153 Barrick share ratio) bid...will have to translate into more than 200p per Acacia share in value if Barrick wants to sweep the minorities."
According to Peel Hunt analysts this scenario is less likely to happen than Barrick's formal low-ball offer for Acacia.
IMPASSE REMAINS
There has been a breakdown in relations between Acacia and the government of Tanzania, where the company's main asset is located.
In 2017, the government hit Acacia with a $190 billion tax bill for alleged tax evasion, money laundering and understating its gold exports. Acacia has refuted the Tanzanian government's findings and has been unable to export gold ore from the country since March 2017.
Acacia continues to be excluded from discussions between Barrick and the government of Tanzania, with the Tanzanian Government negotiating directly with Acacia's main shareholder Barrick Gold.
Wright said that Fidelity had noted that Barrick had conducted negotiations with the Government of Tanzania since issues first appeared in 2017.
"Acacia's board and management have been totally shut out of negotiations," Wright said. "Results of these negotiations are now apparently available but have not been shared with minority shareholders."
Wright added that "in our view these events are a serious failing of corporate governance, as Barrick attempts to exploit the situation in Tanzania, (a situation which is of its own making), to gain full control of Acacia at a price which meaningfully undervalues the company's assets."
A source close to the matter told S&P Global Platts that an oppression remedy may be taken into consideration by Acacia's shareholders.
In corporate law in Commonwealth countries an oppression remedy enables shareholders to bring an action against the corporation in which they own shares in instances when the company's conduct has an effect that unfairly disregards the interests of a shareholder.
"Applications of oppression remedy in Canadian corporate law have been successful where there was a lack of appropriate disclosure of information to minority shareholders, and where there was a plan to eliminate a minority shareholder," the source said.
Panmure Gordon's commodities & mining research executive director, Kieron Hodgson, told Platts there is a need of greater transparency on details of the Barrick and Government of Tanzania talks. "Clearly that has been the case all along," he said.
THIRD SCENARIO
For Barrick to walk away from the deal is the least likely scenario but nevertheless a realistic option, Peel Hunt said.
"The risk for Barrick in walking, however, is the perception that there is either split opinion on behalf of the Barrick board or that Barrick has made no progress with the Tanzanian government talks and would like to hand the talks back to Acacia," the Peel Hunt analysts said.
In March, Barrick's attempted takeover of US mining company Newmont appeared to be vociferous and in the public limelight. However the Canadian company's current take-over of Acacia appears to show opposite signs; a much more subdued affair.
BlackRock, the world's largest asset management firm with $6.5 trillion in assets under management in April, is a 5.11% minority shareholder in Barrick Gold and the largest-minority shareholder in Acacia Mining with a 4.82% stake.
Hodgson believes BlackRock's position as minority shareholder in both mining companies and Barrick's subdued position may be as a result of talks behind the scenes.
"I think this is the most likely reason, although I am not convinced the Barrick's board are totally enamoured with Acacia, given historical statements re pulling out of Africa," Hodgson said. "Clearly the take-out is the best route to a solution, although not guaranteed, it will at least be a more 'private' affair."
Barrick, Acacia and BlackRock were not available for comment Friday.
