Barrick Gold Corp, Acacia Mining and Turbulence in Tanzania

Issues involving the mining industry and corporate governance practices are nothing new. And Barrick Gold’s recently deal with Acacia Mining is no exception. After multiple negotiations and tradeoffs in the past, Acacia Mining has agreed to Barrick, the majority shareholder, buying out the remaining minority shareholders.

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.

Acacia Mining plc’s Board Expertise

Source: CGLytics Data and Analytics

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.

CGLytics offers the broadest, up to date global data set and powerful benchmarking tools to conduct comprehensive analysis for executive compensation decisions and risk oversight. CGLytics is Glass Lewis’ source for global compensation data and analytics. These analytics power Glass Lewis’ voting recommendations in both their proxy papers and their custom policy engine service. To find out more click here.

About the Author

Rollin Buffington

US Research Analyst

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The Billionaire Battle over Anadarko

Much noise has been made around the USD 38 billion hard-fought acquisition of Anadarko Petroleum by Occidental Petroleum and the hotbed of disagreement. An analysis of Occidental’s board, using CGLytics board insight tool, yields telling results.

Much noise has been made around the USD 38 billion hard-fought acquisition of Anadarko Petroleum by Occidental Petroleum (Oxy). Occidental’s CEO Vicki Hollub, in her race to beat Chevron for the acquisition, secured funding from Warren Buffett—USD 10 billion to be exact at 78% cash and 22% stock. This then allows Buffett to acquire 100,000 shares of cumulative perpetual preferred stock and an 8% dividend payout annually.

The deal was born out of Occidental’s board preferring to bypass an extraordinary shareholder meeting, wherein which the initial deal would have required a change of the Company Charter and a slim chance at a passing vote. Enter the second billionaire to the mix: Carl Icahn.

After getting wind of the deal, Icahn launched a lawsuit against Oxy on the grounds that the proposed acquisition was “fundamentally misguided and hugely overpriced.” There may be some truth to his assertion, with Oxy opening nearly 6% lower after the acquisition announcement.

Icahn accused Buffett of exploiting Oxy’s need for cash. Buffett is set to receive an 8% yield, far above Oxy’s pre-bidding 4.7%. This equates to a pre-tax cost of debt of around 10%, which is three times Oxy’s bond yield, and would put the company debt up to USD 40 billion.

In addition, Chevron decided against a counteroffer for Anandarko; thus, the company must now pay USD 1 billion in breakup fees to Chevron. It is also critical to note that this comes at a time when shareholders are calling for spending cuts and improved dividends.

As such, and perhaps the most glaring issue in the governance field, is the clear bypassing of shareholders’ voice by attempting to avoid an Extraordinary General Meeting of Shareholders (EGM).

Because of Buffett’s funding, Hollub and Oxy were able to exclude shareholder votes (as aforementioned). According to Icahn, this move was “disturbing” and “usurped the fundamental and critical role of the stockholders.”

Icahn, acting as the poster child for agitated shareholders, is calling for a restructuring of the board with seats of his own in order to ensure that Oxy acts in the best interest of shareholders. It seems apparent that the market and shareholders alike strongly disagree.

In current market conditions, Icahn has stated that the deal is a bet on the price of oil. Should oil prices fall below USD 45 per barrel, Occidental could be forced to cut dividends and once again defy shareholders. In turn, both Icahn and T. Rowe Price have agreed that the potential to put stockholder dividends at risk should first be cleared with the stockholders themselves.

An analysis of Occidental’s board, using CGLytics’ board effective and insights tool, yields telling results.

Occidental Petroleum Corporation’s Board Expertise

Source: CGLytics’ Board Effectiveness and Insights

Occidental’s board lacks significant expertise in two key areas extremely relevant to the recent deal; Financial and Industry/Sector. While there are a few financial experts, Audit and Capital Management skills particularly stand out as lacking in board discussions. Further, the lack of Financial expertise may certainly have ineffectively prepared the board to examine management’s agenda as well as properly evaluating the financial implications that come with the deal. Additionally, the Industry and Sector expertise appears inadequate; especially when considering the size of this acquisition.

The hotbed of disagreement over the deal is sure to play out in the coming weeks. It is possible that Hollub and Oxy avoided shareholder approval of such an acquisition of this scale because of the risk of disapproval at an EGM. Notwithstanding, Oxy resolved this issue by consulting Buffett.

Buffett saw opportunity arise out of the Company’s dilemma and divvied out premium funding. Now, Icahn demands a justification and correction of this supposed breach in shareholder rights. Following Icahn’s demand, Oxy will be holding a shareholder meeting on August 8th to determine the sentiment on this year’s biggest oil and gas deal. It is improbable that Icahn will win out on a lawsuit of this magnitude, especially when asking to gain seats on the board to prevent such deals in the future; but then again, it was equally unexpected that Occidental would attempt a merger with Anadarko.

Corporate boards and executive teams increasingly require insights and analytical tools to identify any potential areas of reputational risk. Without this oversight, companies may be targets of activist campaigns and cannot proactively prepare.

To learn more about how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you identify these areas of risk, click here.

SOURCES

THE MARKET REALIST
YAHOO FINANCE
CNBC

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