Is Barrick’s Strategic Partnership a Step in the Right Direction?
Barrick Gold Takes Key Steps towards Debt Reduction in 2015
Barrick’s 50% stake sale in Porgera JV
Just two days after announcing the sale of Cowal mine, Barrick Gold (ABX) took a solid second step towards its debt reduction target. On May 26, Barrick announced that it had agreed to divest its 50% stake in the Porgera joint venture (or JV) in Papua New Guinea for $298 million in cash. The company expects that this transaction will be completed in 3Q15.
Barrick has formed a strategic partnership with Chinese mining company Zijin Mining Group. Under the new structure, Barrick and Zijin will jointly control Barrick Niugini, which manages the Porgera JV.
Barrick’s 95% share of production from the Porgera joint venture in 2014 was 493,000 ounces at all-in sustaining costs (or AISC) of $1,015 per ounce. The company has guided for 2015 attributable production of 500,000 to 550,000 ounces at AISC of $1,025 to $1,125 per ounce from Porgera.
Strategic partnership with Zijin
In addition to this investment, Barrick and Zijin have agreed to collaborate on future projects and joint investments. Zijin is expected to bring low-cost capital and leading Chinese engineering and construction skills, and other supplies at competitive costs.
With the completion of this deal, Barrick has already raised $850 million in cash towards its $3 billion debt reduction target.
Could the Pascua-Lama project be the next JV candidate?
Market speculation is such that the strategic partnership could include development of projects such as Pascua-Lama. The Pascua-Lama mine is one of the world’s largest gold and silver resources with more than 15 million ounces of proven and probable gold reserves and 675 million ounces of silver reserves. The project is currently stalled.
To read more about the Pascua-Lama project, read Market Realist’s Why Barrick suspended Pascua-Lama operations. Barrick’s other highly capital intensive projects could also be seen as potential opportunities over time.
There are other projects as well that have been stalled by local governments citing environmental concerns. One example is the $3.9 billion El Morro mine owned by Goldcorp (GG) and New Gold (NGD). The companies are working on a new plan for its development. GG and NGD make up 7.3% and 1.9%, respectively, of the Market Vectors Gold Miners ETF (GDX). Investors can also access the gold industry through gold-backed ETFs such as the SPDR Gold Trust (GLD).
Other potential non-core assets for Barrick could include its 64% interest in Acacia Mining and its 50% interest in Kalgoorlie, apart from its stake sale in the Zalvidar copper mine.
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