Barrick outlines agreement with Tanzania aimed at ending Acacia gold export ban

Section:

By Niall McGee
The Globe and Mail, Toronto
Wednesday, February 20, 2019

https://www.theglobeandmail.com/business/article-barrick-outlines-agreem...

Barrick Gold Corp. has reached a new agreement with Tanzania that may end a punishing multiyear gold-export ban at its subsidiary Acacia Mining that has weighed heavily on the share prices of both companies.

The development comes about six weeks after skilled African operator Mark Bristow took over as the new chief executive officer of Toronto-based Barrick.

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The latest proposal would see Acacia split "economic benefits," including taxes and royalties from its Tanzanian mines, 50/50 with the East African country. Acacia would also pay Tanzania US$300-million to resolve a long-running tax dispute. While the agreement is similar to one announced in late 2017, the tax penalty can be paid over time, instead of up front. Barrick says it will present a proposal to Acacia in the "near future."

Unusually, Barrick, which owns 63.9 percent of London-based Acacia, has been negotiating with the Tanzanian government on its behalf. Acacia’s management team was locked out of discussions partly because of its poor relationship with Tanzania.

"Significant amounts of real value have been destroyed by this dispute," Mr. Bristow said in a statement today.

"This proposal will allow the business to focus on rebuilding its mining operations in partnership with their respective stakeholders, and, most importantly, long-suffering investors, including Barrick."

In a statement today, Acacia said that an independent committee of its board of directors must review any proposal. A shareholder vote at Acacia must also take place before the agreement could take effect and the Tanzanian government would have to give its stamp of approval.

"Whilst crunching the numbers on all of this is hard to do right now, if it allows operations to return to normal, it could be a net positive for Acacia," RBC Dominion Securities analyst James Bell wrote in a note to clients.

Shares in Barrick, which owns 63.9 percent of Acacia, rose by just more than 1 percent on the Toronto Stock Exchange, while Acacia’s stock shot up by 12.8 percent on the London Stock Exchange, the biggest increase in 16 months.

After Barrick’s US$6-billion acquisition of Randgold Resources Ltd. was announced in September, there was hope that Mr. Bristow, who joined the company as CEO, might be able to end the Acacia impasse considering his long history of operating successfully in Africa.

Over the past few years a number African countries, including Democratic Republic of the Congo and Zambia, have introduced punitive tax measures that have driven up the cost of doing business abroad for Canadian miners.

The Acacia tax fracas can be traced back to the election in 2015 of Tanzanian President John Magufuli, who promised to go after a bigger share of the mineral wealth. Tanzania historically had a relatively light tax code in place for Western miners. In 2017 Mr. Magufuli zeroed in on Acacia, accusing the company of US$200 billion in tax fraud and rolling out a crippling gold-concentrate export ban. While Acacia maintains it has paid a significant amount in taxes to Tanzania over time, both Mr. Bristow and Barrick’s executive chairman John Thornton have argued it needs to pay more.

"Despite all the promises," Acacia hasn’t delivered real taxable profits," Mr. Bristow said in an interview last week.

He also said that a 50/50 split in the economics between Tanzania and Acacia is "reasonable" when compared with current tax rates imposed by other African countries on Western miners.

After a tentative agreement was reached in October 2017, talks between Barrick and Tanzania hit a stalemate, with neither side revealing what had gone wrong. Late last year relations between Acacia and Tanzania deteriorated further with criminal money-laundering charges laid against three employees and one ex-employee. Three of the individuals are still being detained in Tanzania under non-bailable offences. Mr. Bristow characterized the situation as "a product of the fallout of the relationship between Acacia and the government."

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