| Barrick targets Chile project: Miner bids for Arizona Star to gain control of hugely expensive gold, copper venture by ANDY HOFFMAN AND JOHN PARTRIDGE , The Globe and Mail |
Barrick targets Chile projectMiner bids for Arizona Star to gain control of hugely expensive gold, copper ventureIn a deal marking a bullish shift in sentiment for the world's largest producer, Barrick Gold Corp. is offering $773-million for Arizona Star Resource Corp. to gain control of a massive gold and copper project in Chile that has languished in uncertainty for more than a decade. Toronto-based Barrick is bidding $18 a share for Arizona Star, which owns 51 per cent of the Cerro Casale project in northern Chile. Discovered in 1995 by Arizona Star and Bema Gold Corp., Cerro Casale holds roughly 23 million ounces of gold and six billion pounds of copper, making it one of the largest undeveloped gold mines in the world. The deposit is relatively low grade and will require huge building costs in excess of $2.5-billion. With gold prices rocketing toward $800 (U.S.) an ounce and copper more than $3.50 a pound due to strong demand from China, Barrick believes the project, forecast to produce about one million ounces of gold and 280 million pounds of copper annually for 18 years, is likely to prove economically viable. "Everything is big about [Cerro Casale]. Big capital costs and big ounces," Barrick spokesman Vince Borg said in an interview. "It's not the highest grade, but $800 gold is here," Mr. Borg said. Gold prices yesterday punched their way up to $794.70 in London, the highest since January, 1980, when they hit an all-time record of $850. Analysts said the friendly bid, which is being recommended by Arizona Star's board of directors, is a positive development for Kinross Gold Corp., the project manager and owner of the remaining 49 per cent of the project. "We believe the involvement of Barrick significantly increases the likelihood of a construction decision for Cerro Casale. Consequently, we have removed the 25-per-cent probability discount on the project," UBS Securities' Tony Lesiak said in a note to clients. The analyst increased his valuation of Kinross's 49-per-cent stake to $1.36-billion, making it the most valuable development property in the Toronto miner's portfolio. Barrick has the right to match any competing Arizona Star offer that may emerge. If Barrick was to lose out to another bid, it would be paid a break fee of $27-million (Canadian). Barrick said the target company's largest shareholder, FMCI Resources Ltd., has signed a lockup agreement under which it will tender its 34-per-cent-plus stake in Arizona Star to the offer, while its officers and directors also will tender their holdings, which total less than 1 per cent. FMCI is controlled by Toronto commodity trader Albert Friedberg and his family. FMCI won control of Arizona Star's board of directors in a proxy battle in December, 2004, defeating Bema's then-chief executive officer Clive Johnson, who had been pushing for the development of Cerro Casale. Investors welcomed the news. Arizona Star shares soared from the opening bell on the TSX Venture Exchange and ended the day up 21.36 per cent. Barrick closed up 1.38 per cent on the Toronto Stock Exchange, while Kinross rose 3.45 per cent. Due to its rich potential but enormous building costs, Cerro Casale has served as a kind of bellwether for gold sector sentiment. The excitement of the find diminished significantly following a devastating downturn for the industry that began in 1997. Vancouver's Placer Dome paid $20-million for a 51-per-cent interest in Cerro Casale in 1998 during a dismal period for bullion prices. By 2005, Placer had declared the project economically unfeasible. In October, 2005, Placer agreed to return the asset to Bema and Arizona Star. Just a few days later, Barrick launched a hostile takeover bid for Placer that eventually led to a $10-billion friendly deal to create the world's biggest producer. Mr. Borg said Barrick was not interested in holding on to the stake at the time because it would have had to assume the brunt of the capital risks of developing the project but would only be eligible for 51 per cent of the returns. Kinross gained its stake with its $3-billion takeover of Bema last year. If the bid for Arizona Star is successful, Barrick hopes to engage Kinross in discussions to help finance Cerro Casale's significant construction bills. Barrick's Pasqua Lama project, which straddles the border of Chile and Argentina, is roughly 185 kilometres from Cerro Casale. Barrick plans to build an electricity generating station at Pasqua Lama, which could be used to power Cerro Casale. BARRICK (ABX) Close: $41.99, up 57� ARIZONA STAR (AZS) Close: $17.84, up $3.14 KINROSS (K) Close: $18.30, up 61� |
