GEO Monitor Pre-IPO Report: African Barrick Gold Plc – SUBSCRIBE
The African Barrick Gold Plc (ABG) offering consists of 100 mn existing shares. The IPO offer price band has been set at GBp550 to GBp650 per share. At the mid-point of GBp600 per share, ABG intends to raise GBP600 mn (USD900 mn) through its IPO. The shares are expected to list on the London stock exchange on 23 March 2010.
ABG produced 716,000 ounces (oz) of gold in FY 2009 and as of 31 December 2009, the company’s proven and probable reserves stood at 16.8 mn oz (Moz). With an increase in mining output over the coming years, the company’s per unit cost is expected to decline as it accrues benefits from economies of scale. Going forward, we believe gold prices will sustain high levels over the coming 2 years; as countries continue to diversify their forex reserves from US dollar to other assets, with gold being the preferred vehicle for such diversification. However, we expect the increase in gold prices to moderate and correct beyond 2011, after diversification of forex reserves is completed and improving macroeconomic factors diminish its hedging value. Although earnings and margins are expected to contract in an environment of falling gold prices from FY 2012 onwards, we believe the company’s current cost structure will enable ABG to register healthy profit margins over our investment horizon. ABG’s future growth potential, its post IPO debt free balance sheet and our bullish outlook on gold prices over the medium term support our positive stance on ABG’s public offering.
African Barrick Gold Plc (ABG) was incorporated in January 2010 by Barrick Gold Corporation (Barrick) by carving out 4 operating gold mines and 7 exploration leases in Tanzania into a separate entity. ABG produced 716,000 ounces (oz) of gold in FY 2009. As of 31 December 2009, the company’s proven and probable reserves stood at 16.8 mn oz (Moz). Furthermore, the company has prospecting and mining rights for gold exploration in an area covering 309,377 hectares in Tanzania. ABG aims to increase its production to 1 Moz in 4 years and double the existing output to 1.4 Moz by 2020. With an increase in mining output over the coming years, the company’s per unit cost is expected to decline as it accrues benefits from economies of scale.
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