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All hope was lost today for those who thought they will be able to make really good money with the sale of African Barrick Gold plc (LSE:ABG) – well, at least for those who bought the shares after Tanzania’s largest gold producer announced talks for a potential offer to sell the company off five months ago.
Unfortunately for those who bet on more profit for the possible sale, the London-listed FTSE 250 constituent advised earlier today there will be no sale of ABG – definitely not at a price unacceptable to its majority owner, the Toronto and New York listed Barrick Gold Corporation (TSX:ABX) (NYSE:ABX).
In a statement by BGC, the effective owner of ABG for a 73.9% stake, it hinted that the collapse of the talks boiled down to money. It seemed the buyer, China’s state-owned China National Gold Corporation (China Gold), did not offer as much as what the directors of ABG asked.
“African Barrick Gold’s assets hold significant potential, and we will continue to look for ways to best realize that value for our shareholders,” BGC’s President and Chief Executive, Jamie Sokalsky, said.
In other words, BGC was saying ABG is worth more than what is offered on the table, even though last year, the confirmation of the discussions for the possible sale of BGC’s only mine in Africa gave credence to rumours the 260,000 ounces-a-year no longer meets the desired profitability output of the world’s largest gold producer.
BGC was sort of subtly telling China Gold, or any other company interested in buying its four African mines, they will only be sold if the divestment generates “acceptable value for Barrick.”
While BGC sends out a gentle but clear message, ABG was also trying to send a message to its parent company that the five-month long negotiations has brought a “period of uncertainty” and “significant extra work” that added to the already deteriorating performance.
ABG reported a 16% drop in gold production for the period January to September 2012 as well as 17% fall in sales coupled by a 42% increase in cash cost per ounce compared to the comparable period in 2011. Profit for the three quarters of 2012 is down 58% to US$94 million compared to over US222 million the year prior.
Whoever thought the talks with China Gold will collapse? State-owned firms of the world’s second largest economy has been buying assets left and right to meet its growing domestic demand and the market bet on the likelihood of the deal getting through.
Analysts did project the deal may reach over 500 pence a share. But minutes after the market opened in London, shares have dropped over 21% to as low as 347.80 pence, some 96 pence less than yesterday’s 444 pence close.
At midday, shares were still down 18.4% to 362.20 pence.
