19 July: D-day for Barrick to make offer to acquire Acacia

The UK Takeover Panel has approved a further extension to the deadline for Barrick to make a firm offer for Acacia – first extended to 9 July 2019 and now to 19 July 2019.

On the back of this announcement, Barrick notes that it is also reviewing a report by SRK Consulting on Acacia’s geological and resource modelling, and the preparation of its Life of Mine plans and mineral resource and reserve statements.

SRK’s review and its advice to the board of Acacia concludes that the company’s geological and resource modelling and processes which were used in formulating its life of mine plan scenarios and resource and reserve statements as reported in the CPR are robust.

The independent technical valuation provided by SRK, comprises the following three valuation scenarios:

Preferred case valuation – incorporates Life-of-Mine plans based on (i) Ore Reserves and certain higher confidence Mineral Resources for Bulyanhulu and North Mara, and (ii) Ore Reserves only (the “Tier 1 LoM plan”) for Buzwagi, modified to include all necessary adjustments and modifications identified by SRK throughout its review process;

High case valuation – is similar with regards to production in all material respects to the assumptions incorporated into the Preferred Value, but excludes various adjustments regarding operating expenditure incorporated in the Preferred and Low Value (the “High Value”); and

Low case valuation – incorporates the Tier 1 LoM plans for Bulyanhulu, North Mara and Buzwagi as well as limited value for the Mineral Resources not included in the Tier 1 LoM plan.

All three scenarios assume constant real commodity prices of US$1,300/oz for gold and long term prices of US$17.25/oz for silver and US$2.97/lb for copper, an 8.5% real discount rate, settlement with the government of Tanzania on terms in line with the framework documents agreed between Barrick and the government.

 It includes a value of $57 million (Preferred Value), US$87 million (High Value) and US$37 million (Low Value) for the company’s exploration assets.

The Preferred and High Value scenarios, which support the Company’s life of mine plans, imply a valuation range of 271-281 pence per Acacia share (the “Valuation Range”).

The Low Value, which is considered highly conservative by the Company, implies value of 203 pence per Acacia share.

The valuation range excludes the company’s Tier 3 and Tier 4 scenarios, which reflect further upside potential, as these are not considered sufficiently advanced to a minimum of pre-feasibility study level.

The Transaction Committee confirms that neither the CPR, nor the resulting implied equity value published today, include an estimate of the amount of any potential tax liability which would arise if Acacia’s assets were to be sold at the amount of the valuation.

The Transaction Committee also confirms that an estimate of the potential tax liability that would arise if the assets were to be sold, cannot be provided as a result of the uncertainty associated with the ongoing discussions with the GoT. If the assets were to be sold tax liabilities in respect of transaction, corporate and capital gains taxes may arise.

Barrick is currently reviewing this report against its own due diligence study of Acacia’s assets and notes that the risk factors listed in the SRK report corroborate the importance of the issues raised in “Barrick’s View of Acacia’s Mine Plans”, not least since the valuations of Bulyanhulu assumes the successful conversion of a large portion of deep high grade inferred mineral resources to mineral reserve.

According to Barrick, Acacia’s improved production results for Q2 were achieved principally by developing and mining in the very high-grade Golden Banana 2 portion of Gokona UG, which at 27.5g/t is far above the corresponding Gokona underground proven and probable mineral reserve grade of 5.53g/t.

“Accordingly, it is unsustainable to maintain the UG mined grade of Q2 production, especially when probable mineral reserve replenishment is only being added at a grade of 4.74 g/t,” says Barrick.

The company intends to meet early next week with representatives of Acacia and SRK to discuss the SRK report and related matters.