Barrick Gold Hopes To Improve Relations In Tanzania To Help Sell Mines


Barrick Gold Corporation (NYSE:ABX) through Search For Common Ground (SFCG), an international NGO, is using participatory theater to generate awareness geared towards bringing positive change in communities around its North Mara Gold Mine located in Tanzania. The initiative is aimed at persuading local communities to change their behavior and desist from indulging in sabotage or other criminal activities which hamper operations at the North Mara Gold Mine, operated by African Barrick Gold (ABG) in the Northern Tarime District, Mara Region. ((Tanzania: Using Theatre to Create Positive Change At Mara Mine, All Africa))

Barrick operates mines in North America, South America, Australia and Africa. The company has mainly gold and copper in its portfolio and competes with other mining companies such as Newmont Mining (NYSE:NEM), Goldcorp Inc. (NYSE:GG) and Freeport McMoran Copper (NYSE:FCX). The Search for Common Grounds (SFCG) is an international organization with experience in conflict prevention, solution and transformation. It operates in more than 30 countries across the world.

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See Full Analysis for Barrick Gold Here

Why Such Initiatives Are Needed

Barrick’s African mines have been facing problems due to security issues and power blackouts, leading to production shortfalls. The government in Tanzania has not been very responsive to Barrick’s concerns either. Security issues at the North Mara mine, which is the company’s main driver of production growth, have been a persistent headache and constitute a major risk to operations. North Mara is located in the north of Tanzania in its most problematic region, where historically the government has been apathetic towards looking after security and hasn’t invested much in development. We think that chronic under-development, combined with poverty and unemployment, is causing these people to give vent to deep-seated resentments. They view mining companies as rapacious corporations out to steal their wealth, while giving nothing in return. ((Barrick looks to walk from Africa, The Province))

In 2008, 200 invaders attempting a gold rush destroyed $7 million worth of Barrick property at the North Mara mine, causing operations to be halted for several days. Police intervention resulted in the death of one person at that time, according to local media sources. The atmosphere has been tense since then, and the last major attack having taken place in 2011.

People numbering between 800 and 1,200, armed with traditional weapons, invaded the mine with the intention of stealing gold from one of the crushers. Police action at that time resulted in the death of five people. ABG has already spent millions to construct a fence in a bid to boost security within the vicinity of the mine. It is estimated that ABG has 1,073 workers at the North Mara Mine site and 2,500 more have been employed by the mine contractors.

A sense of disenfranchisement and frustration has been causing local communities to target Barrick Gold. Despite precautions, the latter’s operations will never be fully safe unless it manages to establish a dialogue with the local community and convinces them not to indulge in disruptive activities.

SFCG is striving to educate villagers about health risks associated with mine intrusions and the dangers of unsustainable illegal mining activities in the area. Despite an impressive turnout, some villagers still consider stealing gold sand as an easy way of generating income.

Better Relations Help Potential Sale

James Sokalsky, after taking over as CEO, announced that Barrick would do a review of its portfolio and give priority to projects which provide decent rates of return, rather than those which result in the largest production by volume. It turns out that ABG doesn’t meet the company’s criteria as far as rates of return are concerned as the cost of production is very high and so Barrick could look to sell its someo r all of its stake in ABG.

We believe a sale could make Barrick’s overall portfolio more stable and result in higher valuations for its stock owing to a reduction in risk premiums. It is presently in preliminary talks with China National Gold Group to sell some or all of its 74% stake in the African Barrick Gold (ABG) business. Given the problems ABG is facing in Tanzania where most of its mines are located, it would be difficult for Barrick to command any premium over the market price for its stake in ABG. On the other hand, if ABG succeeds in mitigating some of these problems, it might strengthen Barrick’s hand in price negotiations with potential buyers.

We recently revised the Trefis price estimate for Barrick Gold to $52, which is roughly 20% above the market price.

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