Update on Potential Offer

08 Jan 2013

  • Discussions between Barrick and CNG ended
  • ABG no longer in offer period
  • Operational Review initiated
  • 2011 total dividend of US$67 million to be maintained for 2012

Further to our announcement of 16 August 2012 confirming that Barrick Gold Corporation (“Barrick”) had entered into discussions with China National Gold Group Corporation (“CNG”) regarding a potential sale of its 73.9% stake in ABG, we have been informed by Barrick that it has now ended discussions with CNG. As a result, ABG is no longer in an offer period under the Takeover Code.

Given the direct nature of the discussions between Barrick and CNG, this has meant an extended period of uncertainty for ABG as well as significant extra work. Throughout this period, our focus has been on ensuring the ongoing integrity and stability of our operations, and our employees have made an important contribution towards achieving this. At the same time, Barrick has made it clear that it sees considerable long-term value in the ABG asset base. Barrick remains committed to supporting ABG in fully realising the potential of the business.

In this respect, ABG will continue to build on its progress over the past two years:

  • our flagship mine, Bulyanhulu, has been a strong performer and we are targeting further production growth as we move forward
  • at North Mara we have renewed our mining licence and are improving our social licence to operate, while delivering on the mine plan
  • targets have not been met at Buzwagi, but we are now seeing greater consistency of performance following a range of initiatives
  • we have advanced a number of growth projects whilst our investment in exploration has delivered a 20% increase in our reserves and resources and we have acquired an extensive and highly prospective land package in Kenya
  • over $100m has been returned to shareholders by way of dividends
  • all of the above has been achieved while strengthening the balance sheet

We believe the operating performance in 2012 is a base for the business going forward, and are reassured to see the step-up in production volumes in the fourth quarter, as expected. Nonetheless, the Board and management are committed to delivering better results and driving greater value for all our stakeholders. As a result, the Board of ABG has asked management to conduct a full Operational Review of the business with the aim of recalibrating our operations so as to drive improved returns from the asset base whilst enhancing the certainty of delivery.

The Operational Review will be guided by the following principles:

  • Focus on value accretive production in order to drive returns
  • Asset review based on cash flow generation not scale
  • Cost and organisational structure appropriate to the scale of the businesss
  • Organic growth capital driven and prioritised by returns
  • Commitment to delivering capital distributions to shareholders
  • Social licence to operate a pre-requisite for all assets
  • Continuing disciplined approach to targeting gold assets across Africa

We will provide further detail on specific initiatives at the time of the preliminary results in mid-February with regular updates thereafter.

Commenting on the update, the CEO of ABG, Greg Hawkins, said: "Whilst the discussions between CNG and Barrick have not led to a transaction, the process has re-emphasised the fundamental long-term value of ABG’s portfolio and the scarcity of large scale producing opportunities to enter the gold market in Africa. We have demonstrated the ability of this business to generate significant cash flows and believe that the Operational Review will create the opportunity to further improve the return profile of the business."

Acting Chairman of ABG, Derek Pannell, added: "The Board is confident in the ability of the management team to deliver significant value from our high quality asset base to the benefit of all stakeholders. While our operational and financial performance in 2012 has been lower than the previous year, we are positive on the future potential of the business, we have built up a strong balance sheet and we recognise the ongoing support of our shareholder base. For this reason, the Board intends to recommend at the time of our full year results that the total dividend for 2012 be maintained at the 2011 level of US$67 million."

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