Bristow was always going to have to do something with Acacia once he took over at the helm of Barrick Gold (NYSE:GOLD)(TSE:ABX) at the beginning of this year, given that Acacia had reached a complete impasse with the government of Tanzania in regards to its gold mines there, and given that Barrick controls 64% of Acacia's shares.
The situation was clearly unsustainable, and the mining analysts of the world weren’t exactly winning any prizes for insight when they set out two possible paths Bristow could take – either he could divest Barrick of its troublesome Acacia shareholding, or he could take the whole thing in-house and deal with it directly.
In the event he chose the latter option, and as far as it goes, things look to be working out pretty well for him.
He started, as any good poker player would, with a low ball bid back in May. At 151p per share, the initial offer came it at a level lower even than where Barrick shares were trading on that particular day. And this after Barrick shares have been pummelled in the market for the better part of a year.
That low-ball bid raised eyebrows and legitimate concern amongst some Acacia shareholders that Barrick would try to leverage Acacia’s political difficulties in order to obtain the assets at a steep discount to their intrinsic value.
So, fast forward a couple of months, and Barrick has revised its all-share offer to the equivalent of 232p, an increase of more than 50% on its original bid, and a offer that now looks all the more attractive for coming in the context of that first low-ball price.
Acacia, for its part, is happy to recommend the Barrick offer on that basis, although it’s really run out of other options anyway, as chief executive Peter Geleta concedes.
“When we weighed up our options for getting a better offer, the options weren’t really there and we felt that the offer was fair for all stakeholders,” he says.
“We felt it was the best option, given our operating environment in Tanzania. We’ve been through an extremely tough couple of years. We haven’t got permits to export our doré from North Mara and we’ve also been issued with orders to close the tailings facility at North Mara. That’s clearly not a sustainable situation. Without North Mara operating properly we will get ourselves into liquidity issues.”
But how much is Acacia really worth?
That these issues were largely of Acacia’s own making is really now no longer germane. With 64% of the shares on its books already, and a recommended offer now secured from a management that had its backs to the wall, Barrick is now bossing the situation, as Bristow no doubt knew it always would.
Geleta argues that the current offer “allows shareholders to gain true value for what the company’s worth,” but that’s really a matter of perspective.
While it’s almost certainly true that it is the best offer Acacia shareholders are likely to get, it’s also worth pointing out that three years ago Panmure Gordon had a 400p share price target for Acacia and Royal Bank of Canada had a target of 675p. In those heady days, Acacia was worth around £2.3bn, a shadow of its current £945mln valuation, which is itself only propped up by the Barrick offer.
To put it even more simply, even after raising its offer, Barrick is still only paying less than half of what Acacia was worth three years ago, and not in cash either, but in shares which may not be that easy to trade for some of the UK’s less sophisticated investors.
True, there also could be an additional cash dividend from the sale of exploration assets, valued at US$48mln by SRK, which would add an extra 9p to the total value of the offer.
And true, a year earlier, in 2015, Acacia was worth just 972mln, not far from where it is now, to the point where Numis was setting a much more modest target price of 360p.
But consider the context, in particular, of the gold price. At no point in the last five years has the gold price been as high as it is now, and although in the past Acacia’s share price had to some extent tracked gold, there now appears to be a complete disconnect.
The last time gold had what might be called a run was in 2016, when Acacia’s valuation ballooned out to that £2.3bn mark. But during that run, gold’s best price never breached the US$1,350 mark, and only breached US$1,300 for a couple of months.
This time round, we are firmly ensconced above US$1,400, and yet Acacia is trading at the same valuation it had in 2015, when the gold price was below US$1,200.
So, the best that can really be said for the deal is that Acacia shareholders will end up with shares in one of the world’s leading gold companies, run by a man who knows how to create value and build upon it. Bristow has made brinksmanship during the Acacia negotiations look easy. But he is a past master, as those who followed him up through Randgold will attest, and as Newmont recently found out too in the recent battle for supremacy in Nevada.