September 28, 2018 / 6:18 PM / 2 months ago

Barrick eyes China money to lower Africa risk after Randgold deal -sources

TORONTO, Sept 28 (Reuters) - Barrick Gold Corp will seek Chinese investments in some of its African mines to offset higher risk stemming from its planned $6.5 billion all-stock acquisition of Africa-focused miner Randgold Resources, people familiar with Barrick’s thinking said.

Toronto-based Barrick will also lean on Randgold Chief Executive Officer Mark Bristow’s expertise in operating and dealing with governments in challenging jurisdictions to help navigate the Africa continent risk, the people said, addressing what has been a concern for some Barrick shareholders.

The sources asked for anonymity because they were not authorized to publicly discuss the matter involving the world’s biggest gold miner.

Barrick’s African expansion is a departure from its recent strategy of focusing on relatively safe regions like the United States. Africa will represent about 30 percent of Barrick’s net asset value after the deal closes, up from some 15 percent, Desjardins Securities estimates.

Chinese involvement in Africa will likely include minority stakes or joint ventures in mines, the people familiar with Barrick’s thinking told Reuters.

China’s Zijin Mining Group and Shandong Gold said this week that the deal provides additional opportunities to expand their partnerships with Barrick in Africa.

“The question for Barrick is, how do you balance the risk profile with the growth profile?” said David Neuhauser, managing director of U.S. hedge fund Livermore Partners and a Barrick shareholder, who supports the deal but recognizes the risks associated with Africa.

“Barrick’s potential partnerships with the Chinese could de-risk its African exposure,” he added.

A Barrick spokesman declined to comment. Randgold did not immediately respond to a request for comment.

Barrick’s executive chairman, John Thornton, a former Goldman Sachs banker, has been building relationships with Chinese miners as part of a plan to reduce exposure to risky jurisdictions. That work has intensified in recent years, notably with Shandong’s near billion-dollar investment in Barrick’s Argentine mine in 2017.

‘PREFERRED RELATIONSHIP’

“It’s been a goal of ours to build a distinctive and preferred relationship with China,” Thornton said on a conference call on Monday.

Though Barrick unit Acacia Mining had been discussing an asset-level joint venture with Chinese miners, the talks have been put on hold, two of the people said. The potential Chinese partners are waiting for a tax issue with the Tanzanian government to be resolved, one of the sources said.

The Randgold deal came together after Thornton and Bristow renewed discussions earlier this year, after first exploring a partnership three years ago, the people added.

The two men hit it off. Frustrated with the mining industry’s poor performance, they share a philosophy that mining companies should be run as businesses, with a disciplined focus on financials.

Bristow argues that the caliber of mines offsets issues about their location.

“I’ve always said asset quality overrides jurisdiction,” Bristow said on a conference call with analysts following the deal on Monday.

Some shareholders are betting that China, with its large African investments, would have greater success than Barrick could ever have on its own in dealing with the governments in the mineral-rich continent.

“If you are a Canadian company operating in Africa, you don’t have a ton of political pull,” said Greg Taylor, a portfolio manager at Purpose Investments and a Barrick shareholder.

“Certainly the Chinese are very active in their building of infrastructure. The Chinese partnership with Barrick would go a long way to add some moral suasion to the politicians.” (Additional reporting by Clara Denina and Zandile Shabalala in London, and Fergal Smith in Toronto Editing by Marguerita Choy)

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