AJN Resources slides after Barrick issues cease-and-desist notice over Kibali stake sale

DRC Gold

27/02/2020 09:33

By Hereward Holland, Jeff Lewis and Helen Reid
    KINSHASA/TORONTO/JOHANNESBURG, Feb 27 (Reuters) - Shares in
junior miner AJN Resources took a hit after Reuters reported
Barrick Gold, the operator of Congo’s biggest gold mine, issued
a cease-and-desist notice to block its acquisition of a 10%
stake in the mine which it says the deal undervalues.
    AJN Resources shares  AJN.CD  fell 16.7% in Canada, and the
company’s Frankfurt listing  5AT.F  was down 9.6% in early
trading on Thursday, having slid 8.6% on Wednesday.
    Barrick and AngloGold Ashanti, which each own 45% of the
Kibali mine, said they had not been consulted about the
acquisition even though the stake’s owner Societe Miniere de
Kilo-Moto (SOKIMO) may not transfer or sell its Kibali shares
without their approval.
    The two companies and the chair of state-owned SOKIMO say
AJN’s planned acquisition was prematurely announced to the
market, without notifying stakeholders or securing approval from
SOKIMO’s board.
    Barrick has issued a cease and desist notice to AJN, and its
executives in Congo are currently engaged with the government on
the matter, Chief Executive Mark Bristow said.
    The miner won’t support the sale for reasons of valuation as
well as process, he said.
    “From what little we know, it’s a deeply discounted
transaction,” he told Reuters. “It’s cheeky at best.”
    AJN CEO Klaus Eckhof on Wednesday confirmed the previously
unreported cease and desist notice from Barrick, which he said
instructed AJN to stop pursuing the asset because Barrick has
first right of refusal if SOKIMO chooses to sell.
    However, his firm can still go ahead with due diligence, he
said. He declined to comment on what value the deal gives the
Kibali stake.
    AJN announced a memorandum of understanding with SOKIMO on
Feb 6 under which the state-owned firm’s 10% stake in Kibali,
plus stakes of between 30% and 35% in five other gold assets,
would be exchanged for a 60% stake in AJN.
    Investec in 2014 valued 45% of Kibali, one of the world’s
biggest mines, at $2.1 billion, meaning a 10% stake would have
been worth $467 million.
    Before the latest share price moves, Canada-listed AJN
Resources had a market capitalisation of just C$11.93 million
($9 million), according to Refinitiv Eikon.
    Asked about the gap between AJN’s valuation and the
valuation of the mine, Eckhof said: “The market will adjust. The
share price will be different and actually value the project.”
    The deal would also give SOKIMO access to capital markets,
he added.
    
    "SURPRISED”
    On Tuesday AJN said it had closed a C$2 million equity
issue. Eckhof said he aims to raise C$20 million ($15.05
million) “at minimum” by the time the deal is signed.
    At the close of the deal, AJN said its board would consist
of two nominees from SOKIMO and three current directors of AJN,
making SOKIMO board members a minority even though the firm
would hold 60% of the shares.
    SOKIMO chair Annie Kithima said she was “surprised” by AJN’s
statement and that the make-up of the board was still to be
negotiated.
    “The way AJN rushed to make this public is quite puzzling to
me because at the board level we were still waiting for the full
report from our management,” she told Reuters.
    Eckhof said the MoU had been approved by the minister of
portfolio, who manages state-owned enterprises.
    Elisabeth Caesens, researcher at Brussels-based NGO Resource
Matters, said: “AJN has headed straight into a legal obstacle
course.”
    “It’s not even sure that SOKIMO is allowed to transfer its
stakes, since the mining code provides for a non-transferable
10% DRC stake for exploitation permits,” she added.
    DRC changed its mining code in 2018, hiking royalties and
demanding higher government participation in mining projects in
a bid to benefit more from mining activities. The code caused
consternation among mining companies.
    Barrick said it believes SOKIMO should maintain its stake.
    “We don’t believe the state should be selling that asset
because it’s got so much value,” he said. “They should be
participating in it.”
    AJN’s Canada-listed shares spiked 140% on the day of the
statement, and hit a record high of C$1.34 the following day.
The small-cap is thinly traded, making it more volatile.
    A representative with the British Columbia Securities
Commission declined to comment on AJN’s announcement of the
stake sale, citing a policy of not discussing interactions with
issuers.

 (Reporting by Hereward Holland, Jeff Lewis, and Helen Reid;
Writing by Helen Reid; Editing by Jan Harvey and Hugh Lawson)