Barrick Gold , the world’s largest gold producer, plans to sell its 20.4-per-cent stake in struggling Russian miner Highland Gold, pulling out of one of the world’s most promising but toughest gold frontiers.
Highland, backed by Russian tycoon Roman Abramovich, was Barrick’s only Russian asset. The Canadian firm bought the stake nearly 10 years ago for access to key projects that are still only in development.
Highland’s shares slid 6 per cent to their lowest since last June after the miner said it was that Barrick’s stake was now “non-core to Barrick’s business operations and strategy”. At current prices the stake is worth more than £100-million ($158-million Canadian).
Gold producers are trading at their lowest valuations in about 10 years despite a soaring gold price.
Highland is 40-per-cent owned by entities linked to Millhouse, Mr. Abramovich’s investment vehicle, which said that a sale could be good for the stock.
“One positive effect of the divestiture would be that it would increase the liquidity of Highland’s shares, which would make the stock more attractive,” Millhouse spokesman John Mann said. “We view this as a positive development.”
Mr. Mann said that Millhouse would not rule out buying part of the stake, but thought its “current 40 per cent shareholding is high enough to represent our interest in the company and give us a say in its management.”
VTB analyst Nikolay Sosnovskiy said that Millhouse could be a potential buyer.
“I’m not sure it is a good time for Millhouse to sell, but it may be a good time (for Millhouse) to buy from Barrick, then change the situation and sell to another party going forward,” Mr. Sosnovskiy said. “Maybe Barrick agrees to sell at a discount just to monetize this stake.”
Barrick plans to sell its stake in an “orderly process” and will work with Highland’s largest shareholder, Primerod, through which Mr. Abramovich holds 32 per cent of Highland. His partner, Eugene Shvidler, owns a further 8-per-cent stake.
A source from one Russian gold company told Reuters that Highland’s shareholders had tried to sell the whole company some time ago. However, Highland’s head of communications Dmitry Yakushkin denied this. “It is not true,” he told Reuters.
AIM-listed Highland Gold in January disclosed that it missed a reduced output forecast for 2011. In November, it had cut its forecast for the year because of difficulties accessing high-grade ore at one of its mines.
“Barrick has been one of the core shareholders for so long and has been waiting for large growth projects from Highland Gold (to materialize),” said VTB’s Mr. Sosnovskiy.
Mr. Sosnovskiy said that in the last five years, production has been hovering at around the same level and Highland has still not started the active development phase of its key Taseevskoye project which Barrick contributed to Highland in 2006 in exchange for an equity stake.
“That’s why (Barrick) has decided there is no reason to hold for the sake of an equity investment,” said Mr. Sosnovskiy.
Russian gold miner Polymetal would probably have no desire to buy the assets, while Russia’s Polyus Gold “has enough resources and is busy with their corporate developments now”, said Mr. Sosnovskiy.
The gold price has more than doubled in the past five years as global economic turmoil sent investors looking for a safe haven. Barrick, present in Russia since 1996, has appointed HSBC as its lead adviser on the stake sale.