February 18, 2010 / 12:44 PM / 8 years ago

UPDATE 4-Barrick creates new London miner for African assets

* To list African mines on LSE, Tanzanian exchange

* Will create top U.K.-based gold miner

* Reports stronger profit, buys 25 pct of Cerro Casale (Adds CEO comments. In U.S. dollars unless noted)

By Cameron French

TORONTO, Feb 18 (Reuters) - Barrick Gold Corp (ABX.TO) will spin off its African gold assets into a new London-listed company in the hopes of uncorking added value, and will use the proceeds to fund its growing stable of high-cost mega-mines, the company said on Thursday.

The new London-headquartered company, to be called African Barrick Gold (ABG), will become the largest U.K-based gold miner when it begins trading at the beginning of April, with output of up to 850,000 ounces this year, Barrick said.

The Canadian gold miner plans to retain a 75 percent interest in ABG.

Barrick, the world’s largest gold miner, unveiled the move as it reported a doubling of quarterly core profit and said it would spend $475 million to buy an additional 25 percent of the massive Cerro Casale copper-gold project in Chile.

ABG will consists of Barrick’s four operating African gold mines -- all in Tanzania -- as well as exploration properties. It will not include the Kabanga nickel project, which Barrick has said it could sell. ABG will also seek a listing on the Dar es Salaam Stock Exchange in Tanzania.

Barrick Chief Executive Aaron Regent said the company wanted to find a way to unlock value for assets which often get lost in Barrick’s portfolio of much larger mines, and also to establish a vehicle for additional expansion in Africa.

“If you look at the London exchange, there is a real scarcity of high quality gold companies,” Regent told Reuters.

“So there are specific investors who not only have an appetite for precious metals but also have an appetite and understanding of Africa.”

The move is similar to the spinoff by Mexican silver miner Industrias Penoles (PENOLES.MX) of its precious metals division Fresnillo Plc (FRES.L) in 2008.

Taking the assets out of the larger company will initially lower Barrick’s overall cash costs, and should also dilute some of its exposure to security and political risks in the area.

Barrick has faced problems with local miners at its Bulyanhulu and North Mara mines, for instance.

Regent said those concerns did not play a big role in the decision, but he said having more local ownership would help the company’s position in the country.

He said Barrick planned to maintain its 75 percent stake in ABG, which will have reserves of 16.8 million ounces.

Asked on a conference call whether Barrick might consider a similar move in Australia, where it also faces higher operating costs, Regent said ABG was a one-time move.

“We have not given up on growth in Australia,” he said.

INVESTORS, ANALYSTS GIVE THUMBS-UP

Barrick’s shares, which initially did not react strongly to the news, were up C$1.26, or 3.2 percent at C$40.91 by mid-afternoon, the strongest Toronto-listed gold producer.

Some analysts said the move should unlock value in assets often overlooked by the market.

“Given that it’s such a small part of Barrick, as soon as you list it as a growth vehicle, it attracts a much better rating,” said Leon Esterhuizen, analyst at RBC Capital Markets in London.

Barrick said it will use the proceeds from the IPO -- which will go to the parent company -- to invest in capital projects, and Regent said the company would continue to keeps its eyes open for acquisitions.

The spinoff is the second transformative move by Regent, who took over as Barrick’s CEO in early 2009.

Last year, he spent more than $5 billion to buy back the remainder of Barrick’s hedge position -- or gold that it had sold forward at below-market prices -- removing what had been a huge overhang on the company’s stock.

The added stake in Cerro Casale -- which Barrick bought from joint venture partner Kinross Gold (K.TO) -- means Barrick will now hold 75 percent of the project, which holds 23.2 million ounces of gold and 5.8 billion pounds of copper.

However, while huge, the low-grade deposit comes with a hefty price tag of $4.2 billion, and some analysts have said it doesn’t make sense to build it.

Regent said Barrick will make a construction decision on Cerro Casale likely next year, with production possible by late 2014. The project is one of a group of massive deposits owned or under development by Barrick.

PROFIT RISES, TOPS ESTIMATES

Excluding a $241 million charge related to the hedge book buyout and other one-time items, Barrick said fourth-quarter earnings rose to $604 million, or 61 cents a share, from $277 million, or 32 cents a share, a year earlier.

Analysts polled by Thomson Reuters I/B/E/S had expected, on average, earnings of 57 cents a share.

$1=$1.04 Canadian Additional reporting by Euan Rocha in Toronto and Eric Onstad in London; editing by Peter Galloway and Rob Wilson

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