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ACACIA MINING PLC

Acacia Mining plc Recommended final offer by Barrick Gold Corporation

The Boards of Barrick Gold Corporation and Acacia Mining plc (LON:ACA) today announced that they have reached agreement on the terms of a recommended offer by Barrick for the ordinary share capital of Acacia that Barrick does not already own. It is intended that the Acquisition will be implemented by means of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act.

Under the terms of the Acquisition, each Scheme Shareholder will receive:

For every Share: 0.168New Barrick Shares (the “Share for Share Exchange Ratio”) and any Acacia Exploration Properties Special Dividends and any Deferred Cash Consideration Dividends, as described below.

On the basis of the market closing price of a Barrick Share on the NYSE on 18 July 2019 (being the last business day before this Announcement), the exchange rate of US$1.2479:£1 on that date and the total number of 410,085,499 Acacia Shares in issue on that date, the terms of the Share for Share Exchange Ratio imply a value of approximately 232 pence per Acacia Share, total consideration of approximately £343 million ($428 million) for Acacia minority shareholders and a total value of approximately £951 million for Acacia.

On that basis, the terms of the Share for Share Exchange Ratio represent:

  1. a premium of 53.5% to the closing price of 151 pence per Acacia Share on 20 May 2019 (the last business day prior to the announcement of a possible offer by Barrick for Acacia);
  2. a premium of 24.2% to the closing price of 187 pence per Acacia Share on 18 July 2019 (the last business day before this Announcement); and
  3. a premium of 28.2% to the volume-weighted average price per Acacia Share over the twenty trading days ended on 18 July 2019 (the last business day before this Announcement).

In addition to the Share for Share Exchange Ratio, under the terms of the Acquisition, Acacia Shareholders (including Barrick or any other member of the Barrick Group) whose names appear on the register of members of Acacia at the Scheme Record Time (irrespective of whether or not they attended and voted at the Court Meeting or the General Meeting (and if they attended and voted, whether or not they voted in favour of the Acquisition)), will be entitled to receive and retain the Acacia Exploration Properties Special Dividends and any Deferred Cash Consideration Dividends (if applicable) paid as a consequence of the sales process to realise value from the sale of certain of the Acacia Exploration Properties as described under “Sale of the Sale Exploration Properties” below.

The Acacia Exploration Properties are Acacia’s exploration assets located in the Republic of Tanzania, the Republic of Kenya, the Republic of Mali and Burkina Faso, including the Excluded Assets (being Acacia Group’s interests in the Nyanzaga Gold Project in Tanzania and the South Houndé Project in Burkina Faso), in respect of which sale processes have already been commenced by Acacia and are well advanced. Value attributable to the Excluded Assets of US$10 million has been reflected in the increased exchange ratio reflected in the Share for Share Exchange Ratio.

The independent technical value (“ITV”) of the Acacia Exploration Properties set out in the Competent Persons’ Report produced by SRK reflects an attributable value range for the Acacia Exploration Properties of US$37 million (Low Value) to US$87 million (High Value), with a Preferred Value of US$57 million.

Included in the Preferred Value is an amount of US$9 million which relates to the Excluded Assets. The value of the Acacia Exploration Properties excluding the Excluded Assets (the “Sale Exploration Properties”), as reported by SRK, amounts to US$48 million (the “Exploration Value”). Whilst the ITV attributed a value of US$9 million to the Excluded Assets; since publication of the ITV the value has increased to US$10 million as a result of the renegotiation of the agreement in which there will be an increase in the upfront payment, in lieu of the royalty, for the Nyanzaga Gold Project, as reflected in the Share for Share Exchange Ratio.

Barrick and Acacia note that the value of the Sale Exploration Properties included in the ITV is based on a number of assumptions which may or may not be supported and there can be no certainty or any assurance given by Barrick or Acacia that any sale will occur, or in the event that a sale does occur, that a realisation of such value will be achieved through a sale. Scheme Shareholders should therefore not assume that the Exploration Value will be achieved through the sale of the Sale Exploration Properties and that Net Proceeds equivalent to the Exploration Value will be payable to Acacia Shareholders as Acacia Exploration Properties Special Dividends.

Barrick currently owns 262,246,950 Acacia Shares, representing approximately 63.9 per cent of the issued ordinary share capital of Acacia.

The terms of the Acquisition are final and therefore, in accordance with the Code, Barrick will not be permitted to increase the terms of the Acquisition.

Sale of the Sale Exploration Properties

Under the terms of the Acquisition, Barrick has agreed, for the benefit of all Acacia Shareholders, to undertake a sales process to realise value for the Sale Exploration Properties, whereby Barrick will, following a customary marketing process, dispose of the Sale Exploration Properties in an arm’s length transaction or series of transactions at the best cash price reasonably obtainable by Barrick in the market at the time (a “Sale” or “Sales”) during the period of two years commencing on the Effective Date (the “Sale Period”).

In view of Barrick’s 63.9 per cent shareholding in Acacia, Barrick’s interests in the outcome of the sales process to realise value for the Sale Exploration Properties are wholly aligned with those of other Acacia Shareholders.

The Sale Exploration Properties may be sold by Barrick on an individual or combined basis within the Sale Period. Individual sales of the Sale Exploration Properties may take place at different times within the Sale Period, but Barrick intends to conclude the sales process in respect of the Sale Exploration Properties on or before the end of the Sale Period. Further details of the anticipated process for sale of the Sale Exploration Properties and the arrangements that will be put in place will be set out in the Scheme Document.

The Net Proceeds of any Sale or Sales will be paid to Acacia Shareholders (including Barrick or any other member of the Barrick Group) whose names appear on the register of members of Acacia at the Scheme Record Time (irrespective of whether or not they attended and voted at the Court Meeting or the General Meeting (and if they attended and voted, whether or not they voted in favour of the Acquisition)) on a pro rata basis by reference to their existing holdings of Acacia Shares at that time by way of a US Dollar cash payment payable on or before 31 December in the relevant year such Sale or Sales are completed (the “Acacia Exploration Properties Special Dividends”).

To the extent any Sale consummated prior to the end of the Sale Period involves the payment of any escrow, holdback, deferred cash consideration or similar following that date (“Deferred Cash Consideration”), any Net Deferred Cash Consideration will be paid to Acacia Shareholders (including Barrick or any other member of the Barrick Group) whose names appear on the register of members of Acacia at the Scheme Record Time in the manner and on the basis described above (a “Deferred Cash Consideration Dividend”). Deferred Cash Consideration Dividends (if any) will be payable by Acacia once such Deferred Cash Consideration is actually received in cleared funds by Barrick or any Barrick subsidiary.

Barrick will make an announcement by no later than 31 December each year until all Net Proceeds have been paid and all Deferred Cash Consideration has been received, as to any Sale Exploration Properties sold or Deferred Cash Consideration received in the relevant year and the gross and Net Proceeds attributable to such Sale or Sales and the amount of the Acacia Exploration Properties Special Dividend and/or Deferred Cash Consideration Dividend paid or payable to Acacia Shareholders as a result.

No statements made in this paragraph constitute “post-offer undertakings” for the purposes of Rule 19.5 of the Code.

Background to and reasons for the Acquisition

Disputes with the Government of Tanzania

The business and operations of Acacia have been materially affected by the ongoing disputes with the Government of Tanzania (“GoT”). In March 2017, the GoT announced a ban on the export of metallic mineral concentrates (the “Export Ban”) and, as a consequence, in the second half of 2017, Acacia took the decision to place the Bulyanhulu mine on reduced operations. The Export Ban remains in effect.

In addition, there are numerous ongoing unresolved disputes between the GoT and Acacia Group companies, including disputes in relation to tax, environmental and criminal matters. In October 2018, one of Acacia’s employees in Tanzania, was charged by the Tanzanian Prevention and Combating of Corruption Bureau (“PCCB”) with an offence under the Tanzanian Prevention and Combating of Corruption Act. The PCCB also charged two current and one former employee of Acacia’s Tanzanian businesses, together with Bulyanhulu Gold Mine Limited (“BGML”) and Pangea Minerals Limited (“PML”) and North Mara Gold Mine Limited (“NMGML”) and a third party Canadian entity, Explorations Miniers du Nord Ltd., this being the former joint venture partner for the Tulawaka mine, with a number of different offences, including breaches of the Tanzanian Anti-Money Laundering Act. A total of 39 charges were brought. Acacia and Barrick remain deeply concerned regarding the ongoing risks to these individuals, who still remain in custody on criminal charges for a range of allegations without committal for trial or access to bail.

Acacia continues to favour a negotiated resolution to the Company’s disputes with the GoT but, as a fall back, the Acacia Group sought to protect the Company’s business through the contractual arbitration proceedings commenced in 2017 by Acacia’s subsidiaries, BGML and PML.

GoT Arrangements

Barrick and Acacia both believe that a negotiated settlement of Acacia’s disputes with the GoT is necessary. Barrick, the Company’s majority shareholder, has been in discussions with the GoT in an effort to identify and document a solution to the Company’s disputes which would include a lifting of the Export Ban and settlement of all other outstanding disputes. Acacia has co-operated and provided assistance to Barrick in relation to the discussions with the GoT.

On 19 October 2017, Barrick and the GoT signed a set of framework documents which envisaged a US$300 million settlement payment and subsequent 50/50 sharing of economic benefits between Acacia and the GoT. As Acacia was not permitted to participate in the discussion, Acacia was not a party to the framework documents and was not involved in negotiating the terms included therein. There followed a lengthy period of time during which Barrick and the GoT were discussing a set of agreements to implement the framework documents.

In the course of May 2019, Barrick’s negotiations with the GoT advanced to the point where draft Transaction Documents for a possible settlement had been extensively negotiated and initialled by the GoT, albeit with a number of substantive issues still outstanding. The key principle of the draft Transaction Documents under discussion is that going forward the GoT and Acacia’s Tanzanian mine operating subsidiaries (the “TMCs”) will share the economic benefits derived from the Tanzanian mines on a 50/50 basis, based on the life of mine plans of the TMCs. The GoT will receive its share of economic benefits through taxes, royalties, fees and other fiscal levies and through the GoT’s 16% free carried interest in all distributions (including shareholder loan repayments) from the TMCs and a new Tanzanian management company. The 50/50 sharing arrangement will be reviewed annually to ensure that the actual and projected sharing of economic benefits is in accordance with the 50/50 principle. The draft Transaction Documents also provide for payment by the Acacia Group of an aggregate sum of US$300 million in consideration for the full, final and comprehensive settlement of all existing disputes between the GoT and the Acacia Group, including all liability to taxation and a waiver of actual or potential claims on a mutual basis. This US$300 million payment is outside of (and therefore not taken into account for the purposes of) the 50/50 sharing of the economic benefits over time.  The settlement envisaged by the draft Transaction Documents involves a significant value transfer from Acacia to the GoT, but this has been critical to agreeing draft settlement terms with the GoT and creating a viable operating framework for the TMCs going forward. A summary of the material terms of the current draft Transaction Documents under discussion is set out in Appendix 4.

Recent Developments

On 21 May 2019, Barrick informed Acacia that it had made significant progress towards finalising a proposed resolution to the disputes between the GoT and Acacia and provided the Transaction Documents to Acacia, noting their status. On the same date Barrick also provided Acacia with a letter dated 19 May 2019 from the Acting Chairman of the GoT negotiating team, and addressed to each of the TMCs. This letter (the “GoT Negotiating Team Letter”) states that the GoT will not execute final agreements for the resolution of the Company’s disputes if Acacia is one of the counterparties to the agreements and that it will only sign such agreements “if satisfied that substantial changes have been made to the management style of the Operating Companies and of their shareholders”. Acacia immediately reached out to the most senior levels in the GoT to seek clarity on the letter received and to date has received no response.

On 12 July 2019, Acacia announced that its North Mara mine had received a letter (the “No Export Letter”) from the Mining Commission of the Tanzanian Ministry of Minerals informing it that the Mining Commission is soon to conduct an inspection of North Mara’s gold production. The No Export Letter stated that export permits for gold shipments from North Mara would be issued following completion of this inspection. Until such time as Acacia receives permits for gold shipments the Company cannot sell its product and production will accrue to inventory. The Company anticipates that under a normal production schedule it could operate for approximately one further week before running out of storage capacity. Acacia is seeking clarification of the timing for completion of the inspection.

On 16 July 2019, the National Environment Management Council (“NEMC”) issued NMGML with a prohibition notice (the “Prohibition Notice”) which orders the North Mara mine to stop use of its tailings storage facility (the “TSF”) by 6.00 a.m. local time on 20 July 2019. The NEMC cited the North Mara mine’s failure to contain and prevent seepage from the TSF as grounds for its issuance of the Prohibition Notice. The Prohibition Notice stated that it shall remain effective until such time that NEMC were to be satisfied that the North Mara mine has taken measures to contain seepage from the TSF. Acacia is seeking clarification of the Prohibition Notice. The effect of the North Mara mine having to stop using the TSF would be the immediate cessation of gold production, and in time, if the prohibition is not lifted, cessation of mining operations at North Mara.

Transaction Committee observations on current status of operations

The Transaction Committee acknowledges that the GoT Negotiating Team Letter represented a material development in respect of Acacia’s status with the GoT. Shortly following the GoT Negotiating Team Letter, an official spokesman of the GoT confirmed, in a press conference, their position that they would not deal with Acacia going forward. Furthermore Acacia’s local staff have engaged with their counterparts in government who have again confirmed that the GoT will not engage with Acacia for the purposes of agreeing a settlement. As things stand therefore, there is a serious question as to whether Acacia’s entry into the Transaction Documents and the building of a long-term partnership with the GoT on which the future for the business envisaged in the Transaction Documents necessarily relies, are a realisable alternative for Acacia as an independent company.

Whilst Acacia has continued to operate its assets and achieve significant production despite the deteriorating operating environment following the Export Ban, the Transaction Committee views  the No Export Letter and Prohibition Notice as a further material deterioration in the operating environment. In particular the No Export Letter and the Prohibition Notice will restrict the ability of Acacia to operate at North Mara until such time as the Company receives export permits and the prohibition is lifted on use of the TSF.

Considering the impending loss of the ability of Acacia to produce gold and operate the mine at North Mara, the Acacia Group’s cash flow from operations will be adversely impacted and the Acacia Group will be required to meet its on-going working capital requirements and other financial obligations from its existing cash balance. This position is not sustainable and the liquidity of the Company will be constrained in the absence of a resolution.

In the absence of a settlement of its disputes with the GoT the Transaction Committee remain concerned about the potential for the operating environment for the Acacia Group to further deteriorate. Further actions from the GoT have the potential to negatively affect the sustainability of the Acacia Group’s business and present risks to Acacia’s employees and other stakeholders.

The Acacia Group has, to date, and only as a fall-back option, sought to protect its assets via the arbitration proceedings commenced in July 2017.  As the Transaction Committee has previously disclosed, however, there are significant collateral risks in PML and BGML continuing to seek to protect their businesses through maintaining the arbitrations pending a negotiated resolution. Accordingly, as announced on 17 July 2019, PML and BGML have now sought a stay of those proceedings in the light of increasing risks and to allow more time for a negotiated resolution. The Transaction Committee has also concluded that the value to Scheme Shareholders of the Acacia Group pursuing these arbitration proceedings in the future does not exceed the value of the Consideration.

As further explained in the section headed “Acacia Recommendation and Irrevocable Undertakings” below, in light of this background and current circumstances, the Transaction Committee, having considered, amongst other factors, the financial terms of the Scheme, believes that the Acquisition is a fair outcome for the Scheme Shareholders. It is also an attractive solution for the Company’s other key stakeholders, as it may enable Barrick to finalise the terms of a settlement with the GoT, thereby resolving the long-running disputes and potentially allowing the Acacia Group’s Tanzanian business, and its employees in Tanzania, who have provided exceptional and unstinting support in continuing operations in country, to return to a normalised operating environment.

Background to the Acquisition

It is against the background of the GoT’s position as highlighted above that Barrick concluded that the only way forward to preserve, to the extent possible, the value of Acacia’s assets was for Barrick to make an offer to acquire all of the Acacia Shares not already owned by it and on 21 May 2019, Barrick presented Acacia with an indicative proposal to acquire all the issued and to be issued share capital of Acacia not already owned or controlled by Barrick. The consideration originally proposed by Barrick was in the form of new common shares in Barrick, with Scheme Shareholders receiving 0.153 of a new common share of Barrick for every ordinary share in Acacia (the “Possible Offer”). Acacia’s announcement confirming Barrick’s indicative proposal stated that any firm intention to make an offer in accordance with Rule 2.7 of the Code would be subject to a deadline of 5.00 p.m. on 18 June 2019 (the “First PUSU Deadline”).

On 18 June 2019, Acacia announced that Barrick had requested that Acacia seek an extension to the First PUSU Deadline in order to facilitate further engagement with Acacia and its minority shareholders. In order to provide further time to determine a proposal that might receive sufficient shareholder support, the Acacia Board requested that the Panel extend the First PUSU Deadline and, in light of this request, an extension was granted by the Panel to 5.00 p.m. on 9 July 2019 (the “Second PUSU Deadline”).

On 24 June 2019, Acacia announced that in 2018 it had engaged SRK, an independent technical consultancy, to carry out a comprehensive review of its geological and resource modelling and preparation of its life of mine plans and mineral resource and mineral reserve statements.  SRK presented the results of this review in the form of a Competent Persons’ Report which was effective on 30 June 2019 and published by Acacia on 9 July 2019. The Transaction Committee Directors confirm that SRK have confirmed that an updated valuation of Acacia’s assets as at the date of this announcement would not be materially different from the valuation thereof contained in the Competent Persons’ Report. The Competent Persons’ Report and an executive summary thereof can be found on Acacia’s website as follows: https://www.acaciamining.com/media/press-releases/2019/2019-07-09.aspx.

On 9 July 2019, Acacia also announced that Barrick had requested that Acacia seek an extension to the Second PUSU Deadline in order to allow Barrick more time to review the Competent Persons’ Report and facilitate further engagement with Acacia on the terms of the proposal. In order to further facilitate such discussions, the Acacia Board requested that the Panel extend the Second PUSU Deadline and, in light of this request, an extension was granted by the Panel to 5.00 p.m. on 19 July 2019.

Acacia has subsequently engaged with Barrick on the contents of the Competent Persons’ Report and other matters relating to the terms of the Possible Offer. Following these discussions, Barrick informed the Transaction Committee that, while constructive, the discussions with SRK and Acacia, and Barrick’s detailed review of the Competent Persons’ Report, did not result in Barrick attributing greater value to Acacia’s operating mines than taken into account in connection with its Possible Offer. Barrick has informed the Transaction Committee that the discussion did, however, lead it to conclude that it was in a position to revise its proposal to take into account two additional value items unrelated to Acacia’s operating mines as noted below.

Barrick’s revised proposal

Barrick’s Possible Offer did not attribute any value to the Acacia Exploration Properties. The Competent Persons’ Report ascribed an ITV to the Acacia Exploration Properties ranging from US$37 million (Low Value) to US$87 million (High Value), with a Preferred Value of US$57 million. Barrick has agreed with Acacia (i) to improve the exchange ratio upon which Scheme Shares will be exchanged for Barrick Shares to reflect US$10 million in respect of the disposal by Acacia of the Excluded Assets, and (ii) to undertake a sales process (for the benefit of all Acacia Shareholders) to realise value for the Sale Exploration Properties, with the Net Proceeds of any Sale or Sales being paid to all Acacia Shareholders by way of Acacia Exploration Properties Special Dividends.

In addition, Barrick has agreed to further improve the exchange ratio upon which Scheme Shares will be exchanged for Barrick Shares to reflect general and administrative expense savings expected to be realised following the Effective Date through the office closures and personnel reductions referred to under the section headed “Directors, management and employees and locations of business” below.

The Transaction Committee has considered the terms of the Acacia Exploration Properties Special Dividends and any Deferred Cash Consideration Dividends. The Transaction Committee notes that the Competent Persons’ Report attributes a value of US$48 million to the Sale Exploration Properties. However, the Transaction Committee notes that there is no certainty around the outcome of any sales process and therefore the cash amount that may be realised from the disposal of the Sale Exploration Properties may be materially lower (or higher) and have taken this into account in assessing the value of the Consideration.

In considering the merits of these terms, the Transaction Committee has also taken the following into account:

  • The terms of the Transaction Documents as summarised in Appendix 4 to this Announcement and their likely impact on the operations, future financial results and prospects for Acacia, based on the management’s long-term business plan for the Acacia Group’s mines (while acknowledging at the same time that it is not known what the final terms of such settlement may comprise)
  • The recent and continuing deterioration of the operating environment, as exemplified by the No Export Letter and Prohibition Notice
  • The urgent need to create certainty and stability for Acacia, its people and the communities in which it operates, which the Transaction Committee believes is more likely to happen under the full ownership and control of Barrick given the current attitude of the GoT towards Acacia
  • The statement in the GoT’s Negotiating Team Letter as to the inability  of Acacia to enter into the Transaction Documents and the significant uncertainty as to the ability of Acacia to build a long term partnership with the GoT
  • The risks and uncertainties associated with the fall-back alternative of continuing with the outstanding arbitration, as described above
  • The Transaction Committee has also concluded that the value to Scheme Shareholders of the Acacia Group pursuing these arbitration proceedings in the future does not exceed the value of the Consideration
  • The certainty created for Scheme Shareholders to receive the Consideration if the Acquisition were to proceed
  • The apparent lack of alternative buyers of Acacia or any of its Tanzanian assets at this time of great uncertainty for the Company
  • The significant risks that Barrick is assuming given that it has not yet reached a final agreement with the GoT on the Transaction Documents.

Acacia Recommendation and Irrevocable Undertakings

The Transaction Committee Directors, who have been so advised by J.P. Morgan Cazenove and RBC Capital Markets as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable.In providing their advice, J.P. Morgan Cazenove and RBC Capital Markets have taken into account the commercial assessments of the Transaction Committee Directors.

Accordingly, the Transaction Committee Directors have unanimously approved the Acquisition and intend to recommend that the Scheme Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting, as Rachel English and Andre Falzon, the only members of the Board who hold any Acacia Shares, have irrevocably undertaken to do in respect of their own Acacia Shares (representing approximately 0.01 per cent. of the issued ordinary share capital of Acacia).Further details of these irrevocable undertakings are set out in Appendix 3.

The irrevocable undertakings will cease to be binding only if one of the events set out in Appendix 3 takes place.

In addition, Lazard & Co., Limited is providing independent financial advice to the Transaction Committee Directors, in providing such advice Lazard & Co., Limited has relied upon the commercial assessments of the Transaction Committee Directors.

Transaction Committee

Stephen Galbraith, who is both a non-executive director of Acacia and an employee of Barrick, has played no part in the consideration by the Transaction Committee Directors of the Acquisition, the recommendation of it by the Transaction Committee Directors or the discussions between Barrick and the GoT.

General

It is intended that the Acquisition will be implemented by means of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act.

The Acquisition will be conditional on, among other things: (i) the requisite approvals of the Scheme Shareholders for the Scheme and the Acquisition at the Court Meeting and of Acacia Shareholders at the General Meeting; (ii) relevant regulatory clearances being received and other conditions satisfied; and (iii) the Court sanctioning the Scheme and the Acquisition becoming effective, no later than the Longstop Date.

It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and General Meeting, together with the Forms of Proxy, will be mailed to Acacia Shareholders and (for information only) the participants in the Acacia Share Plans as soon as practicable, and in any event, within 28 days of the date of this Announcement (unless the Panel agrees otherwise).

The Scheme is expected to become effective during Q4 2019, subject to the satisfaction or waiver of all relevant conditions.

This summary should be read in conjunction with, and is subject to, the full text of the following announcement (including its Appendices).  The Acquisition will be subject to the Conditions and certain further terms set out in Appendix 1 and to the full terms and conditions to be set out in the Scheme Document.  Appendix 2 contains the sources and bases of certain information contained in this summary and the following announcement. Appendix 3 contains details of the irrevocable undertakings received by Barrick. Appendix 4 contains a summary of the material terms of the current draft documentation under discussion (but not yet finalised) with the GoT.  Appendix 5 contains the definitions of certain terms used in this summary and the following announcement.