Barrick reworks Highland deal (January 28, 2004)

Barrick Gold (ABX-T) has decided to take a smaller stake in Russian gold miner Highland Gold Mining than previously planned, preferring instead to invest directly into mines in the world’s largest country.

Barrick, which picked up a 10% stake in Highland late last year, has agreed to take on another 9.3 million shares for US$40 million. When the dust settles, Barrick will own around 17% of Highland, less than the previously agreed 29%. The deal also allows the major to and to assign personnel to Highland and nominate one director to Highland’s board.

As part of the new deal, Barrick and Highland will join forces in a four-year partnership aimed at building a portfolio of Russian gold mines. Under the new deal, either company will have a right to take up to a half-interest in any acquisition made by the other. Highland’s rights exclude the Irkutsk region.

The pair are also looking at setting up a joint venture at the Mayskoye deposit in the far northeast region of Chukotka. Barrick will have a right of first refusal over the deposit.

Highland acquired Mayskoye in November for US$34.9 million. A technical study is slated for completion by the end of the year, and results form process testing of some 11 tonnes of ore are expected in the second half of the year. The company also plans to begin building a camp and related infrastructure later this year. Capital costs are currently pegged at around US$90 million.

Indicated resource at Mayskoye (C1 reserves under Russian guidelines) total 6.7 million tonnes grading 12.1 grams gold per tonne. Another 17.7 million tonnes running 11.2 grams gold are classified as inferred resources (C2 reserves).

Plans call for a small starter pit to produce 670,000 tonnes running 14.4 grams gold from the oxide ore cap over four years. Thereafter, underground reserves will be accessed via two major shafts and a spiral decline. Production during this phase will average 550,000 tonnes per year. Underground grades are expected to average 12 grams gold over the 20-year operation; that includes losses of around 10% and overall dilution of 21-29%.

Highland anticipates that ore from Mayskoye, which is predominantly refractory, will be processed by gravity flotation followed by bioxidation of the concentrate. Previous metallurgical test work indicated recovery rates of 86-90%.

Highland is aiming for production before the end 2006.