BARRICK Gold said it would impair its 63.9% investment in Acacia Mining this quarter following a due diligence of the UK-listed firm’s Tanzanian mines which concluded Acacia had no option but to accept Barrick’s all-share takeover offer.
The due diligence, which was undertaken in the teeth of a tax-related dispute between the Government of Tanzanian (GoT) and Acacia Mining, found that Acacia had over-stated the economic benefits of mining developments and under-stated the cost of developing them.
As a result, there was a discrepancy between the carrying value of the Acacia investment on Barrick’s books as of the firm’s year-end and the value imputed to them by its all-share offer to minority shareholders. This was following an update to Acacia’s life of mine (LOM) plans and the due diligence.
“Given the value implied by Barrick’s adjusted LOM plans, this represents an indicator of impairment and Barrick expects to record a material impairment to its carrying value of Acacia in the current quarter,” said Barrick in a statement today that was also published by Acacia.
GoT TAX DISPUTE
The dispute has been raging for more than two years and turns on the GoT allegation that Acacia owes it $180bn in unpaid tax stretching back 20 years.
Barrick Gold, as the majority shareholder in Acacia, stepped into the fray in 2017. It negotiated a draft settlement with the GoT that has subsequently insisted in negotiations that Acacia cannot be a signatory.
The combined effect of the GoT’s position in respect of the draft agreement, and the technical and economic findings of the due diligence, is that Acacia has “… no other credible alternative solution” and must accept the “take-private transaction”, said Barrick.
Some minority shareholders in Acacia have objected to the level of Barrick’s offer, saying it’s too low. Were minority shareholders in Acacia to vote down Barrick’s all-share takeover offer, it would throw Acacia into the arms of the International Court of Arbitration to which it has lodged a complaint. Barrick said today the option of arbitration was too risky.
Commenting on the findings of the due diligence, in which Barrick took in Acacia’s LOM plans as well as visits to all three of its assets, Barrick said there were questions regarding the resource certainty, throughput rates and grade continuity.
As a result it was necessary to “… reduce the average annual production presented by Acacia and to increase the fixed unit cost component accordingly”.
Barrick added that the $140m to $160m Acacia estimated was required to start-up Bulyanhulu, which was in mothballs amid the dispute with the GoT, was insufficient. There were additional conversion drilling requirements and the refurbishment of the Bulyanhulu plant to restart from care and maintenance.
Similarly, Barrick had identified a need for higher upfront capital spend at North Mara than the $385m currently identified.
“Barrick continues to believe that the terms of the proposal reflect the fair value of Acacia, not taking into account any further discount which could be applied to reflect the significant risks inherent in the Acacia business and remaining uncertainties of the settlement with the GoT,” said Barrick.