Barrick Gold Corporation (TSX: ABX), a gold mining company from British Columbia, has reached an agreement with Teranga Gold Corporation to sell their aggregate interest in a mining project in exchange for common shares as a move to expand its investment options.
The Massawa project, which is an undeveloped open-pit gold mine located in the country of Senegal, West Africa, is located near the Sabodala gold mine, owned by Teranga. The two mines are approximately 20 kilometers apart, making this sale economically practical in terms of achieving operational synergy.
The sale will see that Barrick redeems 92.5 percent of the total purchasing price of the gold mine, meanwhile the remaining 7.5 percent will be allocated to a local Massawa project partner whom currently owns a minority interest in the project.
As per the agreement, Barrick and the projects minority shareholder will sell its interest in the Massawa gold mine, in exchange for 20,718,273 Teranga common shares. The common shares have a total value of approximately $80 million, with an individual share valued at $3.85. In addition, Teranga will also make an up-front cash payment of approximately $300 million, in addition to a contingency payment of a maximum of $50 million.
The total transaction is valued at up to US$430 million.
The $50 million contingency payment is dependent on the the 3-year future price of gold after the sale is finalized. If the average gold price per ounce in the three years exceeds $1,600, then Teranga will have to pay the full $50 million; however, if the gold price is less than $1,600 but greater than $1,500, the amount will be $15 million less. In the event that the per ounce price of gold is less than $1,500 but greater than $1,450 then Teranga will only have to pay half of the $50 million.
Also included in the agreement, is if Barrick maintains a minimum 10 percent equity interest in Teranga, the corporation will have rights to nominate a Teranga director of its choice, will have the right to register any unregistered stock, as well as be entitled to anti-dilution provisions. Barrick is also subject to a two-year standstill, meaning it cannot expand its share position for the first 1.5 years, and then can only advance its position by 5 percent in the remainder of the standstill.
Under the terms of the sale agreement, Barrick will own 19,164,403 Teranga common shares, or approximately 11.45% of the outstanding shares.
Once the transaction is closed, Terranga will be granted several Government of Senegal licenses, including residual exploration license and the Massawa exploitation license.
Barrick Gold Corporation last traded at $23.24 on the TSX.
Information for this briefing was found via Sedar and Barrick Gold. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
