Barrick Gold sells 90 per cent stake in Massawa

Gold producer to dispose of $1.5bn of unprofitable mines by end of 2020

Barrick Gold has agreed to sell its 90 per cent stake in the Massawa project in Senegal to Teranga Gold for up to $430m (£365m, €433m).

The sale consists of an upfront payment of $380m, made up of $300m in cash and around 20.72m in Teranga shares.

There will then be a contingent payment of up to $50m, based on the average gold price in the three years after the deal.

The world’s second largest producer of gold will hold more than 19.1m million common shares. This represents 11.45 per cent of the company’s issued and outstanding shares.

Barrick will have the right to nominate one Teranga director for as long as it retains at least a 10 per cent equity interest in the company.

The sale is part of Barrick CEO Mark Bristow’s plans to sell $1.5bn of unprofitable mines by the end of 2020 after the $6bn takeover of Randgold in January. This was shortly followed by the merger of the Nevada assets of Barrick and Newmont Goldcorp.

“It is gratifying to continue the value-creating consolidation of assets in the gold mining sector,” said Bristow.

The Canadian gold miner’s shares are up 1.75 per cent following news of the sale.

Massawa is one of the highest-grade undeveloped open-pit gold reserves in West Africa. According to Bristow, Teranga was the obvious choice for the sale.

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“Teranga has the appropriate infrastructure and processing facilities approximately 25 kilometres away, and combining the orebodies and the geological prospectivity will add further benefits,” he said.

“This is a good example of where assets we own might be better suited in combination with others.”

Teranga will reportedly invest up to $10 million to begin processing ore from Massawa in the second half of 2020.

Teranga’s purchase follows the $750m sale of 50 per cent of Barrick’s Kalgoorlie-Boulder super pit gold mine to Saracen Mineral Holdings.

Barrick’s sales reflect the current state of the gold industry, which is one of the most fragmented sectors in mining.

Brokerage Pollitt & Co estimates 25 companies account for just 45 per cent of total gold production. To save overheads and increase profits, the biggest producers have been selling off their smaller assets and scaling-up through new acquisitions.

According to this is good news for investors, as the “potential for synergy and value creation rests among the large number of single-asset companies”.

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