African Barrick Gold's London listing in context

By Barry Sergeant, Mineweb.com

Global Tier II gold miner African Barrick is set to list in London with the ticker symbol "ABG", amid what specialists in the mining sector have described as a "vacuum" in the London space, long occupied by Randgold Resources, and to some extent by Petropavlovsk, with Russian interests, and more than just a gold play.

Given the underlying metrics, investors in London-listed precious metal stocks have also shown a ferocious appetite for Fresnillo, the Mexican miner which advertises itself as No 1 in global primary silver production. Given the demonstrable premium commanded by so many listed precious metal stocks listed around the world, it can be argued that mining the markets makes at least as much sense as all the bother, sweat and capital expended on actually mining.

Toronto-based Barrick, the world's biggest gold producer, by value and output, is spinning off 25% of African Barrick, which mines at four addresses in Tanzania. African Barrick is currently marketing a 100m share offering out of 404m post initial public offering (IPO) capital, at GBP 5.50 to GBP 6.50 a share, for a potential market valuation range of USD 3.5 to 3.9bn.

"It's amazing to us" says one London-based sales-trader, "that it has taken so long for a serious gold company to put up an alternative for European investors".

African Barrick broker JPMorgan - also the name behind the Fresnillo listing early in 2008 - has Randgold Resources at two times net present value (NPV), Red Back

(another African miner) at 1.8 times, Petropavlovsk at 1.3 times, and African Barrick pitched, for now, at about 1.5 times, for about 800,000 ounces of gold production a year, increasing to a million ounces. Petropavlovsk only in 2009 merged with an iron ore outfit, and is now the subject of speculation that it could unbundle, given the significant global heave towards iron ore stocks.

Barrick could raise USD 875m to 975m from the African Barrick listing, and will also then have "acquisition currency" via the 75% it retains in African Barrick which, in itself, would have its own stock as acquisition currency after it lists. Possible targets for any predatory miner include Canada-listed Centamin Egypt, a long life 7m ounce resource Egyptian producer, with attributable 100,000 ounces annual production in 2011 increasing to 150,000 ounces, with an underground expansion, by 2012. Centamin trades at an estimated 1.5 times NAV, applying a 6% discount rate.

Canada-listed Banro, a DRC gold developer with a target 100,000 ounces of annual production by the end of 2011, is seen as modest value, with its 11m ounce resource. Banro is seen as the cheapest significant gold resource in Africa, trading at around USD 12.00 an ounce, compared to Moto's takeover metric of USD 30.00 an ounce.

Moto, which holds a substantial resource in the north eastern DRC, was taken over jointly during 2009 by Randgold Resources and global gold major AngloGold Ashanti, for what turned out to be CAD 557m. There will be great interest in the upcoming mine build, given that the only significant mining investments in the country in the modern era have been far to the south, in southern Katanga Province. The Moto deposits, since renamed Kibali, were once mined, fairly lightly, by one-time Belgian colonizers.

For ardent gold stock specialists, activity in Africa has become more than of passing interest, given around 100 listed names that are active on the continent, and also sometimes elsewhere. Beyond the majors, such as Newmont, with significant interests in West Africa, about 20 or so stocks specialising in gold on the continent receive attention from professional investment analysts.

Among stocks that can be regarded as above-interesting, there is Australia-listed Mineral Deposits, which produced 160,000 ounces of gold in 2009 from its Sabodala gold mine in Senegal. The company has indicated production rising to 200,000 ounces a year by 2012, financed by internal cashflow and modest debt. The company is a potential consolidation play with neighbouring Oromin, and also Bassari Resources.

Canada-listed Nevsun Resources has for years been involved in making it above developer status, and is now doing that with its fully financed 200,000 ounces of gold a year profile kicking off around the end of the year from what some have described as its "stunning" Bisha Project, in Eritrea.

Very high grade gold oxides could produce cash flow of as much as USD 170m next year, before Bisha becomes a high grade open pit mine by 2014, featuring copper and also zinc, with silver, to boot. What kind of miner Nevsun would then be is a matter for some discussion, but, for now, the gold classification sticks.