Thieves cut production at African Barrick

When African Barrick (ABG-L) listed on the London Stock Exchange in March there was a certain amount of optimism in the air.

Not only did the initial public offer represent the largest the exchange had seen since before the recession, but it was offering European investors access to a mid-tier gold producer with the weight of the world’s largest gold miner, Barrick Gold (ABX-T, ABX-N), behind it.

That’s because African Barrick is a spin-out of Barrick Gold’s Tanzanian assets, and so brought the expertise, and the backing of the parent company. (Barrick Gold holds roughly 75% of African Barrick.)

But such hopeful beginnings have come crashing down on to hard times thanks to corruption at one of its key assets, the Buzwagi mine in Tanzania.

The mine was already responsible for the company reducing its initial gold production forecast of between 800,000 and 850,000 oz. to 750,000 and 800,000 oz. That announcement came in July, just a few months after the initial forecast was given in connection to the initial public offer.

African Barrick blamed difficulties in getting to higher ore grades at Buzwagi as the culprit. Now the company has reduced its forecast again, this time by 50,000 oz.

The reason: a theft ring that had infiltrated the mine and was planning to plunder its fuel supply.

“We have recently uncovered an organized and systematic on-site fuel theft which has impacted production at Buzwagi,” the company said in a statement. “Investigations into this matter indicate that criminal fuel-theft syndicates have widely infiltrated our mining department.”

“Widely infiltrated” indeed, as the company had to fire 60 employees and several contractors in connection with the theft. That amount made up 40% of its mining department.

The resulting lack of staff means further delays in mining higher-grade ore, leaving the company to process low-grade stockpiles.

The news had the expected effect on African Barrick’s share price as it fell by 10%, to 564 pence on Oct. 14 — the day word of the events was released. Its shares had initially begun trading on the board at 575 pence in March.

To make up for the loss in labour, the company has sent 20 specialists to the mine to help train a new team. A new general manager was also named to the mine, Boyd Timler, with 28 years of mining experience.

“Despite the short-term impact on production, these actions were necessary to maintain the integrity of the operating environment at Buzwagi,” the company said.

The Tanzania assets — which comprise four mines — produced 716,000 oz. gold last year, accounting for roughly 10% of Barrick Gold’s production. The assets finished the year with reserves of 120 million tonnes grading between 1.61 and 12.81 grams gold for a total of 16.8 million oz. gold.

Speaking at the Denver Gold Forum last month, African Barrick’s chief executive Greg Hawkins said Barrick decided to spin out its Tanzanian assets in hopes that they would be more fully valued by the market.

He also said that the independence of the company would make it easier for investors to value any acquisitions it may make in the near future. “If African Barrick acquires a 150,000 oz. per year project it will have a bigger impact on us than it would have had on Barrick,” Hawkins said.

Hawkins also noted a North American listing for the company wouldn’t be coming any time soon as the company wants to differentiate itself from its parent company, and listing on the same exchanges as Barrick would only complicate that objective.

He did say the company was looking at a possible Johannesburg listing.