How locals missed $1 billion gold deal

Geza Ulole · 2010-03-21T07:19:16+00:00

21st March 10 How locals missed $1 billion gold deal Staff Writer Tanzania investors lost their shot at a piece of the $1billion Initial Public Offering (IPO) for African Barrick Gold this week, in large part because the government failed to bail out the public investment fund that could have bought shares in bulk and then sold them off locally, The Guardian on Sunday has learnt. The London-held IPO for the Barrick spin-off company covering its operations in Tanzania ended on Thursday with shares oversubscribed by 60 percent, but reportedly not a single Tanzanian was able to get one of the shares, which were selling at 575 British pence, or about Sh11,500 a share. ABG is likely to be admitted to the FTSE 100 Index. Parent firm Barrick Gold Corp (BGC) (ABX.TO) -- the world's largest gold miner - is selling 100 million shares, or a quarter of ABG, and retaining the rest. The offering of ABG, the world's 16th-largest gold miner, is occurring as economic recovery kicks in and concern about euro sovereign debt recedes. Net proceeds of the offer are expected to be about 547 million pounds, which the group will use to repay loans to Barrick Gold of about $575 million and use the remainder to pay a one-off special dividend to the members of the Barrick Group. According to details made available to The Guardian on Sunday, the Unit Trust of Tanzania(UTT), a public investment fund whose beneficiaries are the Tanzanian people, requested a bailout of between $100 and $300 million before the IPO in order to allow the investment fund to buy ABG shares, which it would have later sold to local investors at discounted prices. But on Wednesday night, the Ministry of Finance finally responded to the UTT request saying it wasnt in a position to offer the requested amount. The Ministrys response came just one day before the deadline set by ABG, leaving the UTT with no other options but to watch the IPO end without acquiring shares. The government declined to finance the UTT directly, but said it was ready to issue sovereign bonds to the investment fund. But given that the government was responding only a few hours before the IPO ended, the UTT couldn't make use of a sovereign bond, which requires two weeks of processing. Minister for Energy and Minerals William Ngeleja said the problem was not an issue of the government's willingness to support investment in ABG, but an issue of time. The government was willing, and still willing to assist Tanzanians, but the time was too short to raise the required billions, he told The Guardian on Sunday. Barrick was selling 100 million shares which only represented 25 percent of the firm since the Canadian-based company retains 75 percent ownership of ABG. The IPO was handled by major investment firms JP Morgan Cazenove and Morgan Stanley in London, decreasing the likelihood that average Tanzanians would come even close to a share before investment bankers handling international hedge funds had picked over them. Reacting to the news that locals had missed out on the IPO, MP Zitto Kabwe told The Guardian on Sunday, I didnt expect ordinary citizens to buy into the IPO, but I figured that there would have been at least hundreds of local investors who would have taken the opportunity to invest in the large-scale mining industry. Thats why we needed the governments intervention by financing UTT, but to my surprise things came out the opposite, said Kabwe, an MP and a member of the Presidential Mining Review Committee, which has recommended local participation in large scale mining through stock markets. The UTT wanted to buy ABG shares and then warehouse them until a later date, when they would sell shares to Tanzanians. Another option the investment fund had initially proposed, in the interest of meeting the IPO deadline, was for the government to directly buy shares during the IPO and later sell to the public through the UTT. The latter tactic, according to the UTT, has been done before with IPOs for Tanzania Breweries Limited (TBL) and Tanzania Cigarette Company (TCC). Shares for those firms were initially bought and warehoused by the government, and later transferred to the Umoja Fund collective investment scheme, which sold shares to 102,000 Tanzanian citizens. Outside of the UTT's efforts to participate in the IPO, no individual Tanzanian investors purchased Barrick shares either, so the country's large-scale mining industry will remain in foreign-hands despite high hopes to the contrary. "We are delighted with the strong support received for the IPO of African Barrick Gold, and are especially pleased by the level and quality of investor demand in the current market environment," Chief Executive Greg Hawkins told Thomson Reuters on Saturday Interviewed by The Guardian on Sunday this week, ABG General Manager, Deo Mwanyika said, I am very disappointed that no local investor has managed to buy sharesThis is indeed sad news considering the fact that locals have always complained that they were sidelined in this industry. While Tanzanians failed to buy shares, at the international level our IPO has been oversubscribed by 60 percent, Mwanyika told The Guardian on Sunday in a phone interview. As a Tanzanian I thought this was the golden opportunity to join our forces to invest in large scale mining through the stock marketbut I was wrong, he said. Earlier Mwanyika told The Guardian on Sunday that ABG was willing to give additional shares to local investors if they demonstrated an appetite for the 25 percent stake in the company. Minister for Finance Mustafa Mkullo wasnt available for comment on the matter, but an official from his office who was involved in the dealings with the UTT this week told The Guardian on Sunday, We diwhat we did by issuing sovereign bonds to the UTT. The official, who declined to be named because he wasnt the authorized spokesperson of the Ministry, added, The amount of money requested couldnt be raisedhowever we agreed to be guarantor for the UTT by issuing the sovereign bonds. Speaking to The Guardian on Sunday, Professor Lipumba, the countrys well respected economist cautioned that though it was a good thing for locals to buy Barricks shares, investing in gold business was very tricky business that requires thorough analysis before making decisions. I support the decision by our Pensions Funds not to buy Barricks IPO because investing in stock markets is trickier than imaginedthese pensions funds should only invest in highly secured investments like real estates. Professor Lipumba told The Guardian on Sunday. Barrick Gold announced last month that it was establishing Africa Barrick Gold (ABG), which covers all of its African operations and was the biggest listing on the London Stock Exchange in over two years. Currently, ABG has operations in Tanzania and exploration as well as contractual rights in other parts of Africa. In the country, Barrick owns Bulyanhulu, Buzwagi, North Mara and Tulawaka gold mines. In 2008, Barrick produced 7.66 million ounces of gold at cash cost of $443 per ounce. In addition, the company produced 370 million pounds of copper at a total cost of $1.19 per pound. The parent company, Barrick Gold Corporation, trades its shares on the Toronto and New York stock exchanges. African Barrick Gold is expected to produce between 800,000 and 850,000 ounces of gold this year. Barrick Tanzania produced 716,000 ounces of gold last year. GUARDIAN ON SUNDAY http://www.ippmedia.com/frontend/functions/print_article.php?l=14689

Thread starter Geza Ulole
Start date Mar 21, 2010

Geza Ulole

JF-Expert Member

Mar 21, 2010

S. S. Phares

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How locals missed $1 billion gold deal

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