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African Barrick Gold IPO disappoints

Reuters | Sun, 21 Mar 2010 14:31
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[] -- African Barrick Gold raised £581m after floating at 575 pence a share, at the lower end of its range, in a sign that investors remain cool to such large stock market debuts.

The initial public offering (IPO) values the group at $3.6bn, and is the largest on the London stock exchange in almost two years.

The deal was "well covered", according to bankers, but weak performance of recent IPOs in Europe has dented investors' appetite for new offerings.

"It's supply and demand - the IPO market has been very barren for quite a long period of time, and suddenly the supply of IPOs runs really pretty high and the demand of new money people have to put into new companies remains low," said a London-based fund manager, who has not invested in ABG.

Parent firm Barrick Gold Corp (BGC) - the world's largest gold miner - holds a 75 percent stake after ABG's listing, diluted from a 100 percent holding.

Net proceeds of the offer will be used to repay loans of about $575m and the remainder used to pay a special one-off dividend to members of the Barrick Group.

"The market is saying, we'll give you the value that you had inside of Barrick, maybe a little more," said one analyst, speaking on the condition of anonymity.

"But we want you to show your real colours before you attract anything like a Randgold premium. It's a great story but let's see some delivery," the analyst said.

At the issue price, ABG is valued at 1.4 times an estimated net asset value (NAV) of $2.5bn - a 60 percent discount to Randgold Resources, according to Reuters Estimates.

ABG sold its shares at 575 pence each, at the lower end of a 550 pence-650 pence range, and the stock sank to a low of 549 pence after its debut, or 4.5 percent below the issue price. It later recovered to trade at around 570 pence.

The deal is being arranged by J.P. Morgan Cazenove and Morgan Stanley.

Fund managers said pricings of recent IPOs were still not at a big enough discount to get investors buying into them and to generate a positive momentum.

Shares of UC Rusal, the world's largest aluminium producer, have fallen 17 percent since its $2.2 billion listing in January.

And British education technology firm Promethean World, which was priced last week, at the mid-point of a range after the deal was 3.3 times covered, traded 1.5 percent below its IPO price on Friday.

Risky mine

ABG consists of Barrick's four gold mines in Tanzania, of which Bulyanhulu is the biggest. It is a more risky underground, operation compared to the other three open pit mines.

"Investors may be concerned about the three fatalities that occurred this week at Bulyanhulu. There have always been question marks about Bulyanhulu and Barrick's other Tanzanian operations have always performed much better," said analyst John Meyer at investment bank Fairfax.

Last year the four mines produced 716 000 ounces of gold attributable to Barrick and the newly listed firm aims to boost that by 40 percent to 1 million ounces within four years.

"Listing in London puts it (ABG) directly against Randgold whose assets are well rated. However ... this rating has not occurred overnight," said Arbuthnot analysts in a research note.

It took pan-African-focused Randgold almost a decade to reach the current share price, which puts it at a price-to-net asset value (NAV) of 3.8 times, thanks to it ability to perform and its Nasdaq-traded American deposit receipt.

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