Barrick Gold Corporation (ABX) has raised about $834 million from spinning off African Barrick Gold plc through an initial public offering. Barrick has offered about 101 million shares priced at $8.8 (575 pence), at the lower end of the expected price range of $8.6 to $10.1(550 pence to 650 pence).
Toronto-based Barrick has divested about 25% of the new African Barrick Gold and has retained the rest. The company will continue to hold a 75% equity interest in African Barrick, or about 303 million ordinary shares. Through this spin-off, Barrick has removed some of its high cost mines including the Bulyanhulu, Buzwagi, North Mara and Tulawaka mines in Tanzania as well as a number of exploration properties and projects.
African Barrick Gold will start with an initial cash balance of about $280 million. As of the end of 2009, the proposed new company had total reserves of 16.8 million ounces of gold.
In 2009, Barrick’s African mines produced 716,000 ounces of gold at an average cash cost of $545 per ounce. By comparison, its North American mines produced 2.8 million ounces of gold at a cash cost of $504 per ounce and its South American mines produced 1.9 million ounces at a cash cost of $265 per ounce.
Barrick plans to use the proceeds raised for funding internal growth. The company has a number of development projects in the pipeline. Its major projects include Pueblo Viejo in the Dominican Republic, Cortez Hills in Nevada, and Pascua-Lama on the border between Argentina and Chile.
We doubt if Barrick’s newly formed company will be able to compete with Randgold Resources Ltd. (GOLD) or Agnico-Eagle Corporation (AEM), the well-placed peers. Both of these companies have a superior production growth, reserve additions and lower operating costs compared to African Barrick. We remain Neutral on Barrick Gold.
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