Saturday, March 31, 2012

Major gold players start looking at cheap African explorers?

(Reuters) - African Barrick Gold (ABG) ABG.L sees increased opportunities for deals in Africa as asset prices ease and potential sellers begin to consider their options in the face of a still-uncertain economic outlook, the mining company said on Tuesday.

ABG, a unit of the world's largest gold producer, Barrick Gold (ABX.TO), is keen to diversify its asset base beyond its current Tanzanian focus, most likely through acquisition.

Prices in 2011, however, were too high for the miner to close what it calls the "valuation gap", with gold at record levels and the price of many commodities at post-crisis peaks.

Chief Executive Greg Hawkins, speaking at the Reuters Mining and Metals Summit on Tuesday, said the miner had looked at some 25 projects across Africa and signed at least 10 confidentiality agreements in the last 18 months - and was finally seeing the prospects for a deal improve.

"When we were looking a year ago, we thought the valuations were too steep... Now most of (the assets) we looked at a year ago are about half the price from where they were," Hawkins said at Reuters' office in London.

"That's brought a lot more things that we like much more into range... I think that landscape has improved dramatically in the last year with the pricing change."

Gold is widely expected to be a focus for merger and acquisition activity in 2012, as corporate cash piles run high and gold producers' valuations are close to historic lows.

Hawkins said the group was looking at assets from exploration through to the production stage across west and northeast Africa, including potential future producers in the Nubian Shield, a region stretching through Eritrea and Sudan.

Another difference from 2011, he added, was asset owners were also becoming more amenable to a sale, as share prices come off last year's levels and financing conditions remain tough.

"Probably a year ago we were knocking on doors, people's share prices were quite high, they were pretty relaxed. A year down the track, maybe they're running out of cash, the share price has halved," he said.

"We've seen in the last three months a lot more inward traffic to us, people talking to us about whether we're interested in taking a stake or a joint venture."

African Barrick had a tough 2011, hit by power outages that held back production at its key Buzwagi mine in Tanzania and the miner has set its target for the year at a modest 675,000 to 725,000 ounces. That means it is unlikely to hit a target set at the time of its IPO of 1 million ounces by 2014, without deals.

But many investors say ABG has to balance resolving its current production issues, power, or community and security concerns at its North Mara mine, for example, with the need to add ounces and diversify its geographical risk.

Hawkins said parent Barrick, however, was supportive of the miner's aim to grow through deals.

"Everybody's cautious, realizing the scrutiny you're going to put yourself under when you go and do that," Hawkins said.

"There is always that question of whether you should get your own house in order... The reality is in Africa you are always going to have issues that come up. They are happy enough that we are getting through them and they do see the long-term strategic rationale in doing something."

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