08/16/2012 03:33 EDT | Updated 10/15/2012 05:12 EDT

Barrick Gold in talks with China National Gold Group over African Barrick stake

TORONTO - Barrick Gold Inc. (TSX:ABX) is in talks that could result in the sale of its African assets as the world's biggest gold miner moves to shore up its balance sheet after reporting a 35 per cent drop in quarterly profits.

The talks with China National Gold Group Corp. over the future of spinoff African Barrick Gold are at an early stage "and there can be no certainty that these discussions will result in the acquisition of all or part of Barrick's holding in ABG," Barrick said in a release Thursday.

Still, the news sent African Barrick shares up more than eight per cent to close at 4.25 pounds Thursday on the London Stock Exchange.

Barrick Gold's stock was up $1.09, or 3.18 per cent, at $35.235 on the Toronto Stock Exchange on Thursday midafternoon.

ABG is Tanzania's largest gold producer and one of the five largest gold producers in Africa, but recent production costs have been higher than anticipated.

The company was formed when Barrick decided to spin off its African operations into a separate company and its shares began trading on the London exchange in March 2010. Barrick holds a 73.9 per cent interest in the company.

Barrick Gold and ABG both said in separate statements that if China Gold decides to acquire more than 30 per cent of the voting interest in ABG it would be required to make an offer for a full takeover.

Toronto-based Barrick said the negotiations are in line with "a renewed focus on maximizing shareholder value," including "optimizing Barrick's portfolio of assets and maximizing returns on investment and free cash flow."

"The preliminary discussions relating to ABG form part of this program," Barrick said, adding that it remains "both committed to and confident in ABG, its qualified and experienced management team and its portfolio of world-class assets."

In its second-quarter financial report released in July, Barrick reported a profit of US$750 million, down from $1.16 billion a year earlier as capital costs related to its Pascua-Lama gold mine project were significantly higher than expected.

It said those costs, previously estimated at $5 billion, now are expected to go up 50 per cent to 60 per cent. First production at the mine now is forecast for mid-2014 instead of next year.

The quarterly report also noted that Barrick's total and net cash costs for gold were expected to be slightly higher, mainly due to higher costs in Australia Pacific and at ABG.

In addition to higher costs, African Barrick has faced other problems, including a report in May 2011 that it was investigating allegations of sexual assaults against local women at its North Mara mine in Tanzania.

Barrick said at the time that a preliminary investigation by ABG had found credible evidence of sexual assaults by members of the Tanzanian police and the company's security guards.

North Mara was also the site of deadly clashes between police and a crowd of about 800 people trying to steal ore from the mine. Seven people were killed and a dozen more were injured.

Barrick owns and operates gold mines in Canada, the United States, Peru, Argentina, Chile, Australia and Papua New Guinea.

Major development projects include Pueblo Viejo in the Dominican Republic, Cortez Hills in Nevada, and Pascua-Lama on the border between Argentina and Chile.