Barrick Gold Corp, Acacia Mining and Turbulence in Tanzania
Barrick Gold Corporation, based in Canada, is one of the largest gold mining companies in the world. It currently holds 262,246,950 shares of Acacia Mining (64% stake in share capital). To gain the remaining 36%, Barrick has proposed a 24.2% premium on the closing price of Acacia shares on July 18. The deal comes in at USD 430 million and will take the company private.
The Acacia CEO, after finally reaching an agreement, stated: “Given all the circumstances, this is possibly the best outcome.”
Perhaps more importantly, is that the deal aims to resolve many of the longstanding public issues between the Tanzanian government and Acacia that have plagued the mining company’s operations.
Two years ago, the Tanzanian government banned the export of mineral concentrates. This movement was due in part because the government believed they had not received a fair share of profits from mining in the country. Two of Acacia’s units came under fire, being handed a USD 190 billion tax bill from the government. This tax bill has since been reduced to USD 300 million.
Additionally, Tanzania recently demanded that Acacia cease use of a waste-storage facility at a core gold mine. These disruptions have crippled operations and caused Acacia’s shares to fall 50% since 2017.
After facing external pressures and at the insistence of minority shareholders, Barrick CEO, Mark Bristow, proposed a higher offer than what was initially proposed to Acacia in May. This was recently accepted.
Shareholder awareness proved a worthy factor here; Acacia shares rallied 20% on the deal and a positive response was received from the Tanzanian government. This is a fine example of shareholders prioritizing the survival of a company.
Delving into Acacia Mining’s board composition, by utilizing CGLytics’ board effectiveness tools in the online platform, provides insights into why the company may not have managed issues as effectively as possible.
The board expertise and skills matrix from CGLytics show that experience in the area of governance severely lacks, however industry and sector, and financial expertise is heavily present. This may provide an explanation to the problematic relations they experienced with the Tanzanian governance. It generates a question of if more governance experience was present on the board, would the situation have been different? While the survival of the company and acceptance of the “best-we-can-get” deal could be attributed to the strong presence of industry and financial expertise.
The recent movements have rekindled, if only just, a better relationship with the government. Because of Barrick’s increased involvement, the Tanzanian government agreed to receive USD 300 million for the tax debt as a gesture of goodwill. The company was also given the option to pay in installments, with an upfront cost of USD 100 million to be paid out in addition.
Furthermore, Barrick was able to negotiate an agreement in which payment to the Tanzanian government is dependent on the export ban being lifted from Acacia and its subsidiaries in the country. In a “give and take” action, the Tanzanian government also claimed a 16% stake in Acacia in the form of Class B shares.
The complex strategy devised is a clear manifestation of the board leveraging its expertise and abilities to secure a better position. Had there been more Governance oversight, perhaps the company would not have encountered such trifles. The devastating government backlash will certainly continue to have an effect for years to come. Nonetheless the Board can rest easy knowing that it has found the best outcome to a longstanding battle, one that could’ve left Acacia and Barrick incapable of recovering.
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US Research Analyst