Fully owning Acacia Mining PLC might help Barrick Gold Corp. resolve a long-running dispute between the Tanzanian government and Acacia and give Barrick more options for selling the beleaguered gold miner down the road, analysts said.
Barrick already owns 63.95% of Acacia and on May 22 made an offer to buy the rest in an all-share deal valuing Acacia at US$787 million.
If Barrick has full control of Acacia, it may be able to settle tax-related disputes with the Tanzanian government that have put a dent in Acacia's gold output in recent years, according to some analysts.
While Acacia assets come with "above-average cost production and political risk" and are "inconsistent" with Barrick's portfolio, owning the rest of the company might be worth it, Desjardins analyst Josh Wolfson said in a May 22 note.
"However, the ability for [Barrick] to resolve a protracted fiscal dispute between [Acacia] and the Tanzanian government may improve under a consolidated ownership structure and enable [Barrick] to advance future potential partnership or divestiture opportunities of [Acacia]'s portfolio," Wolfson said. Another Toronto-based analyst, who did not want to be named, agreed with that general view.
Wolfson estimated a 1% benefit to Barrick's net asset value in doing the deal and a negative 2% impact to 2020 cash flow per share.
It is not clear if Barrick still plans to sell Acacia, something it has considered regarding its majority interest in the past should it buy the remaining shares it does not own. Barrick declined to comment.
The bid comes as negotiations over issues including alleged unpaid taxes reached an impasse. Acacia said May 22 that Barrick showed it a letter from the acting chairman of the government negotiating committee that said it would not "execute final agreements for the resolution" of the disputes if Acacia was a counterparty to the agreements.
Acacia also said the government indicated it would only finalize agreements if there were "substantial changes" to the "management style" of Acacia's operating companies.
The latest development in negotiations was yet another twist in the long-fraught relationship between Acacia and the government.
The government alleged in 2017 that Acacia owed it US$190 billion in unpaid taxes, interest and penalties. It has also alleged, without providing firm evidence, that Acacia under-reported the metal content in concentrates it produced. The allegation came amid a government ban on exports of concentrates from Tanzania.
Negotiations over the tax dispute, among other issues, appeared to make headway earlier this year. Barrick said it had reached a tentative agreement to end the disputes with a deal that included a US$300 million payment to the government to settle the tax claims.
But on a May 8 earnings call, Barrick CEO Mark Bristow expressed frustration over progress in negotiations.
"The long impasse has already destroyed a great deal of value, and getting the conflicted parties to see that at this stage, almost any solution is better than none," Bristow said. "And that's proving difficult, I might add."