Barrick takes to Highland

Facing pressure from South Africa’s Reserve Bank to consolidate ownership or cut bait, Harmony Gold (HMY-N) has dealt its 31.7% interest in Russian gold miner Highland Gold to Barrick Gold (ABX-T) and an group of institutional investors.

Barrick, the world’s third largest gold producer, picked up a 10% stake at US$3.93 per share, or US$43 million in all. London-listed Highland has also conditionally agreed to issue the major another 29.6 million like-priced shares to bring Barrick’s stake to 29%. Pending due diligence, the transaction is slated to close by mid December.

As part of the equity deal, Barrick and Highland have agreed to team up in Russia’s promising gold sector; Barrick will nominate two directors to Highland’s board and will have the right to second certain personnel to the company.

Barrick’s chief executive Gregory Wilkins said in a prepared statement, “Highland Gold is an attractive and growing mid-tier producer and this transaction represents a strategic investment opportunity for Barrick Gold. It provides us with a window into one of the world’s most prospective gold mining areas. We are making this investment due to the markedly improved investment climate in Russia, and an abundance of quality gold targets in this region.”

Highland Gold’s key asset is the Mnogovershinoe gold mine near the Russian border with China and Mongolia. The company also recently acquired JSC Mayskoye, which holds the licence for the high-grade Mayskoye gold deposit in the Chutkota region of northeast Russia.

Highland Gold plans to use the proceeds from the share issue to refinance existing bank debt and to finance its development projects. The company says it will use any surplus funds for potential acquisitions and investments.

For its part, Harmony gained some US$73.2 million on its original investment in Highland, netting US$119 million on the sale.

Harmony is facing similar pressure from the foreign exchange regulators with respect to its 17% stake in High River Gold Mines (HRG-T), acquired late last year for US$14.5 million. Harmony has until next June to decide what to do with its High River stake.

At the end of June, Harmony valued its stake in High River at US$22 million. The company warned in its June quarter financial statement that it would need to re-assess the relevance of its investment, as it was unable to gain “operational control”.