protestbarrick.net is now an archive of Protest Barrick's work from 2007 until 2016.
For updates on Protest Barrick's current work, go to: https://protestbarrick.org

  Protest Barrick
Home About us Issues International Campaigns Press Actions

Barrick to buy Arizona Star for $773M, looking to cash in on high gold prices

The Canadian Press

Barrick to buy Arizona Star for $773M, looking to cash in on high gold prices

TORONTO - Barrick Gold Corp. (TSX:ABX) is hoping to cash in on high gold prices by buying Arizona Star Resource Corp. (TSXV:AZS) for C$773 million in a friendly deal that will give it control of one of the world's largest undeveloped gold and copper projects - the Cerro Casale deposit in Chile.

The deal "fits with our focused strategy to acquire long-life assets in places where we have significant operations and projects," said Barrick spokesman Vincent Borg.

"It is a vote of confidence in the actual deposit, which we see as being very complementary to our assets in Chile and in the region (and) there's potential synergies with our Pascua Lama project."

Analysts said the deal was a positive move for Barrick, since it provides millions of new gold ounces, allows for cost savings with its other Chilean projects and is in a low-risk jurisdiction.

"They paid a pretty nice premium for it, but it is a good long-term asset," said Ron Coll, an analyst with Jennings Capital Inc.

"At US$700 (an ounce) gold and here now close to US$800 gold, these projects start to make a lot of sense. In this environment, it's a great thing for Barrick to do."

The deal offers $18 in cash per share for Arizona Star, which owns 51 per cent of the Cerro Casale deposit. The rest is owned by Kinross Gold (TSX:K). For Barrick, the transaction gives the company control over a project with proven and probable reserves of 22.9 million ounces of gold and 5.8 billion pounds of copper.

The project, previously estimated to cost about $2 billion to develop, is likely to cost more than that to develop because a lot of rock will have to be removed to get to the ore body, said analyst Patrick Chidley of Barnard Jacobs Mellet.

But, he added: "Barrick is the sort of company that has the capital to do that, and that's one of the challenges that Arizona Star wouldn't be able to get over, and even Kinross Gold probably wouldn't have wanted to tackle that itself."

Barrick had initially acquired a stake in the project when it purchased Placer Dome in 2006. At the time, Placer Dome held the interest but decided developing the mine wasn't financially feasible because gold prices were around US$450 an ounce and copper was at 95 cents.

As well, there was an agreement in place with the junior miners that held the rest of the project, requiring a company like Barrick to pay for most of the development while only benefiting from 51 per cent of the upside. Barrick chose to dispose of the asset by honouring Placer Dome's agreement to sell the interest back to the companies after acquiring Placer Dome.

"Today, gold and copper prices are higher, the circumstances are different and the project can more easily be advanced," Borg said.

On Monday, the December bullion contract in New York was at US$791.30 an ounce.

"The real question with a project like this is. what will the final capital cost be? Because it's certainly going to be more than the $2 billion that they've talked about recently," said Kerry Smith, a senior metals analyst with Haywood Securities.

"The other issue will be the length of time it takes to actually permit and build out the project and get it into production and start getting a return, and what will the metal prices be when you get there? To me this project is probably seven, eight years away from production."

Barrick didn't release a development estimate for the project, saying more analysis is needed before costs can be assessed.

"It's a capital-intensive project, but we haven't had a chance to look at it in great detail and review all of the work that's been done on it with more than publicly available information," Borg said.

"We'll focus on our offer to Arizona Star shareholders, we'll turn our attention to discussing things with Kinross and we'll look to advance the project within a reasonable amount of time."

As part of Monday's deal, Barrick has also entered into a lockup agreement with Arizona Star's largest shareholder, FCMI Resources Ltd., to buy FCMI's stake. FCMI, controlled by Albert Friedberg and members of his immediate family, holds about 35.4 per cent of Arizona Star's shares.

The deal, which has been approved by the Arizona Star board and senior executives, would require Arizona Star to pay a termination fee of C$27 million if the transaction falls through.

James Anthony, chairman of Arizona Star, said the company was pleased with Barrick's price, which represents a 27 per cent premium to the company's stock price over the last three weeks, and it is unanimously recommending Barrick's offer to shareholders.

Analysts don't expect much competition for the deposit, because it is so capital-intensive and many major gold companies are tied up with other projects or have recently made acquisitions.

"The only probable, logical bidder would be Kinross, but I don't think Kinross would bid. I think they'd be quite happy to have Barrick as a partner," said Smith.

"It's too much capital, it's a big project, it's going to produce a lot of ounces, so there's enough to share there, really."

Toronto-based Barrick has major operations in South America, including the Zaldivar copper mine in Chile, the Pascua-Lama gold-silver project in Chile-Argentina, the Veladero gold mine in Argentina and the Lagunas Norte and Pierina gold mines in Peru.

The Pascua-Lama project in the Andes has come under fire in the past over accusations that the gold and silver mine project is displacing indigenous populations and harming the local environment - including claims of irrevocable damage to glaciers that are essential to their agriculture and water supply.

Barrick has denied interfering with the glaciers, and says the project has widespread local support.

On the TSX Monday afternoon, Barrick was trading up 48 cents or 1.16 per cent at $41.90, while Kinross rose 46 cents, 2.6 per cent, to $18.15.

Arizona Star shot up 21 per cent, or $3.09, to $17.79, with 12.9 million shares changing hands.

 

Join our e-mail list