Berenberg raises Acacia to 'hold' as Barrick deadline draws near

Analysts at Berenberg upgraded their recommendation for shares ofTanzania-focussed gold miner Acacia Mining from 'sell' to 'hold' on Tuesday, highlighting the potential to reap increased value even beyond its own forecasts.

Following Barrick Gold's indicative offer for Acacia on 22 May, the takeover code gave the firm until 1700 BST on Tuesday to announce a firm offer for Acacia or to reveal that it did not intend to make an offer.

Berenberg pointed out that, based on the current share price for Barrick, the indicative offer implied a 173p per share valuation for Acacia - well below its new 224.0p price target (previously: 214.0p) and at the low end of its 158p-245p valuation range.

As a result, the German bank outlined three potential scenarios for minority shareholders to consider.

First, with minority shareholders having publicly shown their lack of support for the current indicative offer of a 0.153 exchange ratio, there was a broad consensus that this was "an opportunistic offer that is set at the lower end of the valuation range for the business".

So if the offer was formally made on the same terms, then the minority shareholders could either take up the offer - which Berenberg said currently seemed "an unlikely outcome" - or wait for the resolution of the national arbitration case.

Second, given Barrick chief executive Mark Bristow's previous deal track record, Berenberg also thought it unlikely that the group would increase its exchange ratio, as he was known for not paying a premium in M&A.

Lastly, if the Barrick offer were to fall away, Berenberg said the company would likely have to hold out for a negotiated settlement of its historical tax dispute and the concentrate export ban with the government of Tanzania and, given the recent letter from the government indicating its unwillingness to sign a settlement while Acacia is involved in the assets, the analysts highlighted this as "the least attractive outcome for minority holders".

All in all, Berenberg said: "The indicative offer appears opportunistic, and it came soon after Barrick announced that it is nearing a settlement with the government; we, therefore, question the fairness of the offer at a time when Barrick is the only shareholder with the ability to assess the fair value of the company. We would hope that Barrick releases the detailed terms of the potential settlement in conjunction with making a firm offer."