LONDON (Reuters) - Barrick Gold Corp (ABX.TO) has ended talks on selling a stake in majority-owned African Barrick Gold ABGL.L to a Chinese buyer, dashing hopes of a potential $3 billion deal for the underperforming unit.
Canadian mining major Barrick Gold, which owns 74 percent of London-listed African Barrick, had said in August it was in early-stage talks with state-owned China National Gold about the possible sale of all or part of its stake.
Shares in African Barrick slumped around 19 percent to 359 pence in afternoon trading, hitting their lowest level for five months, on disappointment that the Chinese would no longer be offering an exit from a stock which has frequently traded well below its 575p listing price set in March 2010.
The ending of talks quashes the prospect of what could have been one of China’s largest mining deals in Africa - if China National Gold had opted to buy the whole of African Barrick, the deal would have been worth around $3 billion.
“We are approaching this in a prudent and disciplined manner and will only proceed with opportunities that generate acceptable value for Barrick,” Barrick Gold Chief Executive Jamie Sokalsky said in a statement on Tuesday.
China National Gold declined comment on the ending of talks.
Chinese companies had made a string of deals in gold miners in 2012 as their domestic demand soared for bullion, sought for jewelry and as an inflation hedge, and had been increasingly seen as deep-pocketed investors.
In the last six months for instance Zhongrun Resources Investment Corp (000506.SZ) agreed to buy a stake in Noble Mineral Resources Ltd (NMG.AX), Shandong Gold Group SDONGA.UL agreed to buy part of Focus Minerals Ltd FML.AX, and Zijin Mining Group (601899.SS) acquired Norton Gold Fields NGF.AX.
Barrick, the world’s largest gold producer with output of 7.7 million ounces in 2011, reiterated it was evaluating all of its portfolio as it grapples with falling profits and soaring costs. Its shares were down 0.7 percent at $33.35 shortly after the start of trade on the Toronto Stock Exchange.
African Barrick said it would carry out a review aimed at improving returns from its projects primarily based in Tanzania.
Analysts said its downgrading of its 2012 production forecast in October, during China Gold’s “due diligence” process, would likely have hindered discussions on price between the company’s parent and suitor.
Annual output was forecast 5 to 10 percent lower than the bottom of a previous forecast range of between 675,000 and 725,00 ounces, the company said, citing a rise in illegal mining at one site and a failure to reach planned levels at two others.
Since being listed, African Barrick has also suffered a range of setbacks from villagers armed with machetes invading a mine to power woes and fuel thefts.
Analyst Dmitry Kalachev at brokerage Canaccord said African Barrick’s review of its operations was needed, as since the company’s IPO “they’ve never actually met their production guidance, so 2013 will be a test for them.”
Since it listed the stock has lagged rival London-listed Randgold Resources (RRS.L) by around 50 percent and the STOXX Europe 600 mining index .SXPP by around 25 percent.
However, over the past 12 months it has outperformed South Africa-focused peers such as Harmony Gold (HARJ.J) by around 20 percent and AngloGold (ANGJ.J) by around 15 percent, after the country’s mining industry was last year hit by violent wildcat strikes.
African Barrick Chief Executive Greg Hawkins said in an interview the company would report a “reasonably positive” fourth-quarter performance. Figures are due on January 17.
He said the company’s review would involve looking closely at production costs which had soared in the third quarter.
Rising costs are a problem faced by companies across the mining industry and reflect factors such as higher wages and pressure to exploit lower grades in more difficult geographies.
Hawkins said he saw the company’s Bulyanhulu project as a key focus for investment, but declined to be drawn on whether the review could result in the sale of other assets.
“I think that’s pre-emptive of me to speculate on,” he said.
African Barrick said it planned to keep its dividend at the 2011 level, when it paid out $67 million or 16.3 cents per share.
Additional reporting by David Stanway in Beijing; Editing by Kate Holton and David Holmes