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Barrick to Sell 90% Stake in Massawa Project to Teranga

Zacks Equity Research

Barrick Gold Corporation GOLD announced that it along with its Senegalese joint venture partner agreed to sell the combined 90% stake in the Massawa project to Teranga Gold Corporation for total consideration of up to $430 million.

The consideration comprises an up-front payment of $380 million and a cash payment of around $300 million. Moreover, the consideration consists of a contingent payment of up to $50 million. The contingent payment is based upon the average gold price for the immediate three-year period following closing. It is anticipated to be $25 million if the average gold price for the three-year period is more than $1,450 and less than $1,500 per ounce; $35 million if the three-year average gold price is more than $1,500 and less than $1,600 per ounce; and $50 million if the three-year average gold price surpasses $1,600 per ounce.

Barrick is expected to get 92.5% of the aggregate purchase price for its stake in the Massawa project. Notably, its local Senegalese partner is expected to receive 7.5% of the total purchase price for its minority interest.

Per Barrick’s management, the deal is expected to realize the full value of the Massawa assets and create a substantial new West African gold mining company, with significant African ownership.

In connection with the transaction, Teranga will secure a syndicated debt financing of $225 million of which $25 million will be provided by Barrick.

As per the terms of the agreement to be entered on closing of the transaction, Barrick will be entitled to nominate one Teranga director for as long as it holds at least 10% of Teranga’s equity stake.

Also, Barrick agreed to a 24-month standstill under which it will not increase its stake in Teranga for 18 months, and may increase its stake by a further 5% over the following six-month period.

The transaction is slated to be closed in the first quarter of 2020 and is subject to the receipt of the Massawa exploitation license, residual exploration license and certain other acknowledgments from the Government of Senegal as well as other customary closing conditions.

Barrick is expected to hold 19,164,403 Teranga common shares on a pro forma basis. This represents roughly 11.45% of Teranga’s issued and outstanding common shares on closing.

Barrick is acquiring common shares of Teranga for investment purposes. It may acquire additional common shares or other Teranga securities or dispose of some or all of the common shares or other Teranga securities, depending on market conditions, Teranga’s business and financial condition.

Scotia Capital Inc is serving as the financial advisor to Barrick. Norton Rose Fulbright LLP and Davies Ward Phillips & Vineberg LLP are serving as legal counsel to Barrick.

Barrick’s shares have gained 23.8% in the past year compared with the industry’s 44.1% growth.

For 2019, the company continues to expect attributable gold production of 5.1-5.6 million ounces at all-in sustaining costs (AISC) of $870-$920 per ounce. However, cost of sales is projected to increase $940-$990 per ounce, up from previously mentioned $910-$970 per ounce.

The company continues to expect copper production of 375-430 million pounds at AISC of $2.40-$2.90 per pound. It also anticipates cost of sales of $2.30-$2.70 per pound for the same.

Barrick Gold Corporation Price and Consensus

 

Barrick Gold Corporation Price and Consensus

Barrick Gold Corporation price-consensus-chart | Barrick Gold Corporation Quote

 

Zacks Rank & Stocks to Consider

Barrick currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are General Moly, Inc GMO, Franco-Nevada Corporation FNV and Agnico Eagle Mines Limited AEM, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Moly has an expected earnings growth rate of 12.5% for the current fiscal year. The company’s shares have gained 47.3% in the past year.

Franco-Nevada has a projected earnings growth rate of 45.3% for 2019. The company’s shares have rallied 38.7% in a year.

Agnico Eagle has an estimated earnings growth rate of 167.9% for the current year. Its shares have moved up 51% in the past year.

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