Barrick to Sell Massawa Gold Project to Teranga Gold

Canadian gold-mining giant Barrick Gold (TSX:ABX,NYSE:GOLD) has agreed to sell its 90 percent share in the Massawa gold project to fellow Canadian company Teranga Gold (TSX:TGZ,ASX:TGZ,OTCQX:TGCDF) for up to US$430 million.

The sale of the project represents the company’s continued efforts to offload smaller, less profitable mines from its significant portfolio.

“It is gratifying to continue the value-creating consolidation of assets in the gold mining sector, which started a year ago with the merger between Barrick and Randgold, followed shortly thereafter by the merger of the Nevada assets of Barrick and Newmont Goldcorp (TSX:NGT,NYSE:NEM),” said Barrick CEO Mark Bristow in a statement on Tuesday (December 10).

“In the case of Massawa, Teranga has the appropriate infrastructure and processing facilities approximately 25 kilometres away, and combining the orebodies and the geological prospectivity will add further benefits. This is a good example of an instance where assets we own might be better suited in combination with others,” he said, referring to Teranga’s Sabodala gold mine, also in Senegal.

Indeed, Teranga is chuffed at its acquisition, saying in its own release that Massawa will help transform the Sabodala gold mine into a top-tier complex.

The miner said that, given Massawa has high-grade ore and Sabodala has an already existing mill, the acquisition creates “the opportunity for significant capital and operating synergies.”

Teranga’s CEO, Richard Young, said the company anticipates that the streamlined Massawa-Sabodala asset, along with its existing (and shiny brand new) Wahgnion mine in Burkina Faso, “will increase Teranga’s targeted consolidated annual gold production and reposition Teranga as the next multi-asset, low-cost, mid-tier gold producer in West Africa, one of the world’s premier gold mining regions.”

In a note to investors, analysts at Raymond James said that they believe this divestiture makes sense for Barrick and is another step in its strategy to realize in excess of US$1.5 billion from the disposal of non-core assets by the end of next year.

Barrick previously agreed to sell its share of the Super Pit mine in Kalgoorlie-Boulder, Western Australia, for US$750 million in mid-November.

Under the terms of the agreement signed between Teranga and Barrick, Teranga will provide an upfront payment worth US$380 million, made up of 20,718,273 Teranga shares at US$3.85 each, and a cash payment of US$300 million.

Teranga will also make a contingency payment of up to US$50 million based on the average gold price for the three years following the closing of the agreement, which is expected to take place in 2020.

Teranga will own the 90 percent share of Massawa, with the remainder staying with the government of Senegal. The company said in its release that it’s aiming to achieve first gold production in H2 2020.

Massawa has historical mineral reserves of 2.6 million ounces of gold, which come from its 20.9 million metric tons of ore grading 3.94 grams per metric ton (g/t) gold. According to Teranga, “This will augment Sabodala’s mineral reserves base of 2.4 million ounces from 55.7 million tonnes at 1.35 g/t gold.”

Teranga describes Massawa as one of the highest-grade underdeveloped open-pit gold reserves in Africa.

On the TSX, Teranga Gold was trading at C$5.81 on Tuesday, up by 3.2 percent over the day. Barrick was trading at C$22.62, up 1.53 percent at the same time.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.