Why did Barrick sell Acacia Mining minorities down the river?

14
1124
John Thornton, Barrick Gold chairman with Tanzania president, John Magufuli

ANYONE operating in Tanzania’s mining sector today will be keeping a keen – and perhaps anxious – eye on Acacia Mining minority shareholders next year as they decide whether to accept Barrick Gold’s compromise deal with the Tanzanian government.

This is the ‘framework agreement’ that complies with newly enacted laws in Tanzania, one of which is to hand 16% in shares of locally operating firms to the government. The other key concession is best described as a kind of downpayment of $300m that Barrick recommends Acacia make to the government.

It’s described by Barrick in an October 19 statement as “gesture of goodwill” ahead of its detailed negotiations with the government regarding the alleged under-payment of taxes and duties by Acacia to the Tanzanian fiscus over a period of about 20 years.

Acacia Mining took pains to show it could not have underpaid taxes, at least not on the scale two Tanzanian presidential reviews estimated which was tens of billions in dollars. This goodwill gesture looks more like an admission of guilt. One wonders how much more Acacia will end up having to pay to the Tanzanians, not to mention how it will make the payment given its net cash resources have just ebbed at about $24m.

The most curious aspect of this, though, is why Barrick was so pliant? Acacia has the Tanzanian state’s allegations with the International Court of Arbitration and has set in place an operational plan that should see it withstand the impasse. And why did Barrick agree to have Acacia executives excluded from the negotiations with the government that led to the framework agreement?

Presumably Acacia chairman, Kelvin Dushnisky who is also the president of Barrick Gold, was in full agreement, or he would have relinquished one post of the other. Regardless of the politics, this turn of events is surely the source grievance which has resulted in the resignations of Acacia CEO, Brad Gordon and Andrew Wray, the CFO. A third executive, Mark Morcombe, the company’s chief operating officer, is also leaving.

“The inability of the Acacia executive to participate in negotiations and the resultant framework which proposed the formation of an operating company enabling the government to participate in decisions relating to operations, investment, planning, procurement, and marketing appear to undermine the ability of management to direct the company,” said Andrew Breichmanas, an analyst for BMO Capital Markets.

Acacia is now to lose “… the architects of its operational turnaround” over the last four years, as Breichmanas described it. The exodus of skilled operational staff can’t be positive for Acacia’s future. Barrick has long been a seller of its shares in Acacia – it tried again to offload the firm in 2016 when it was valued then at $1.9bn. Well, it’s certainly sold the firm now … down the river possibly along with other vulnerable miners in Tanzania.

14 COMMENTS

  1. I am sure our friends will comment that, certainly in Africa, minoroties have no say and majority rules. They are also of the opinion that minorities should shut up and take it or go away. The fact that this does not quite ¨Jive¨with acceptable business practice and, in fact, the rules governing share trading in the civilized world, is of no consequence to these people.
    The message is clear, do not invest in Africa or in companies doing business in Africa…

    • Dear Goldminer,

      Lets not attempt to turn business issues INTO race/ethnic issues.

      AS per my postings on this GoT/Acacia matter, I am in agreement with you about the terrible nature that ABX dealt with Acacia minority shareholders. As you will recall , it’s the same script that was used by Pallinghurst to steal Gemfields. Its total abuse of minority shareholders.

      Wishing you well.

      Goldspeculator

      • Hi Goldspeculator, I agree and apologize if I made it sound like a race and or political issue that I had with this deal. This is definitely not the case. In fact, it will be the poorest, most vulnerable African people who will suffer most because of this and similar issues in the past and that are likely to increase in pace as governments get away with crimes against their own people under the guise of reclaiming the minerals for these self same people.
        I was also not referring to your comments but rather to comments made under another pseudonymn. This person was of the view that the majority rules and the wealthiest should decide for us poor small time investors. This was also the view and opinion of Hitler…
        The point I was trying to make was that, increasingly so, the rights (and money) of the minority investors (which, in terms of number of people represent the majority, mind you) can now not be guaranteed in Africa any more. So companies who develop mines in Africa should be avoided for this reason…

        • ‘It will be the poorest, most vulnerable African people who will suffer most because of this and similar issues in the past”

          Your comment made me reply to you. NO we are not going to suffer. Tanzania Gov was gaining nothing out their natural resources. If we talk about employment of 2700 people, most of them part timers, who are paid peanuts.
          Acacia has contributed nothing to Tanzania economy in terms of taxes. I as a Tanzanian , I am supporting the Pres Magufuli to look deep into these companies that have gained contracts by corrupting previous leadership.
          Tanzania has all the right to gain from their natural resources.
          This is one of the reason why Chinese companies are winning contracts in Africa. They do offer better incentive than Western countries.

          • You, as a Tanzanian, should probably make some work out of studying Economics. Because you are sadly wrong.

            The multiplier effect that Acacia had on Tanzanian economy is massive.

            Foreign capital inflows into Tanzania were a massive driver of economic growth.

            This will now cease.

          • You are absolutely correct. The Chinese offer far better incentives… Unfortunately you will only see any of the benefit of these incentives if you happen to be a president of such country, his family members and his cronies…

    • If I may speak on her/his behalf, myself and Goldminer don’t despise “majority”….we abhor abuse of power at the expense of minority shareholders….I can tell you we will expose it wherever we smell/see/feel it!

  2. Acacia looks to have been run as some Australian/UK colonialist outpost, with little integration into Tanzania. Minority shareholders should have paid more attention to the sustainability credentials of the company. Barrick eventually did, but when it was too late, thus the high price to put it right. Long live Randgold, a company that understands this better than most.

  3. “Why did Barrick sell Acacia Mining minorities down the river?” sounds a little emotional. Let’s keep it technical: As Acacia announced, the company won’t be able to operate its three mines in Tanzania much longer than end of Q3 2017, if the export ban is not lifted. So if that’s true, which options does Barrick have other than pay the Tanzanian Gov?

    • Suspend the mines until Government start to honour the MDA ? It is, after all, a legal contract between two willing partners…. The alternative that Barrick have embraced is giving in to blackmail…and I am sure most of us know where that will end…

Leave a Reply to Goldspeculator Cancel reply