Barrick buys rest of Cortez for US$1.7B

One of the planet’s best gold assets is now solely in the hands of the world’s biggest gold miner.

Barrick Gold (ABX-T, ABX-N) has picked up the 40% of the Cortez property in Nevada that it didn’t already own for US$1.695 billion in cash from Kennecott Explorations (Australia), a subsidiary of base metals giant Rio Tinto (RTP-N, RIO-L).

Kennecott isn’t entirely out, as it retains a sliding-scale gross royalty on 40% of all future production in excess of 15 million oz. gold from Jan. 1, 2008, and Barrick must pay out another US$50 million in cash if it adds another 2 million contained ounces gold to Cortez’s Dec. 31, 2007, reserve statement.

Barrick expects to close the Cortez deal before April, and the transition will be effective for accounting purposes March 1, 2008.

“We are very delighted to have that acquisition under our belts,” Barrick Gold president and CEO Greg Wilkins told listeners during a conference call to discuss fourth-quarter results. “That is something many people have tried unsuccessfully in the past to acquire, and we were able to bring it home, and it is going to be a very, very important asset for us going forward.”

Barrick will have no trouble putting that much cash on the table, having ended 2007 with a cash balance of US$2.2 billion, net debt of US$900 million and a US$1.5-billion un-drawn credit facility.

“It’s in a great area like Nevada, and the scarcity of high-quality assets in Nevada just makes this a remarkable opportunity,” Wilkins said. “We’re doubling down in Nevada, where we like to operate, and this increases our production on a reserves-per-share basis because, of course, it’s a cash transaction.”

Located 60 miles south of Barrick’s flagship Goldstrike property in northern Nevada, the Cortez property is comprised of the operating Cortez mine and the advanced Cortez Hills development project. Last year, the Cortez joint venture produced 83,000 oz. gold at total cash costs of US$419 per oz.

Barrick acquired its first 60% stake in Cortez through its hostile takeover of rival Canadian gold miner Placer Dome in March 2006.

This latest deal increases Barrick’s share of proven and probable reserves at Cortez by 4.6 million oz. to 11.5 million oz., and boosts measured and indicated resources by 1.4 million oz. to 3.5 million oz.

Barrick notes that last year, the joint-venture partners focused work on the prized Cortez Hills portion of the Cortez property. They spent US$88 million for open-pit mining equipment, project infrastructure engineering, installation of dewatering wells, and the completion of another 439 metres of an underground exploration decline.

Detailed engineering is substantially complete, and Barrick expects major permits to be in hand by the second half of 2008.

The company says Cortez Hills could be producing within 15 months of the record of decision becoming effective, with capital costs estimated at about US$500 million.

In the first five years of production, Cortez Hills is expected to crank out an average of 950,000 to 1 million oz. gold annually at total cash costs of about US$285 per oz.

“Not only does this acquisition definitely help from a reserve standpoint, but also from a production profile standpoint, and that’s very important to us, particularly in this time of high gold prices,” Wilkins said.

Noting that Nevada will continue to be a key focus for the company’s exploration program in 2008, Alex Davidson, Barrick’s executive vice-president of exploration and corporate development, said that he is “particularly excited about the Cortez Hills potential, as I always have been, and we will be continuing aggressive exploration there this year, now that we have one-hundred per cent.”

Barrick’s other mines in Nevada include Bald Mountain, Ruby Hill, Turquoise Ridge (75%), Round Mountain (50%), and Marigold (33%).

Companywide this year, Barrick expects to produce 7.6 to 8.1 million oz. gold plus 380 to 400 million lbs. copper. Last year, Barrick produced 8.06 million oz. gold at total cash costs of US$350 per oz. and 402 million lbs. copper at total cash costs of US83 per lb. Much of the year-over- year shortfall comes from the winding down of gold mining operations at Eskay Creek in B.C.

Barrick made US$1.12 billion in profit (US$1.29 per share) on US$6.3 billion in sales revenue in 2007, compared with the previous year’s profit of US$1.51 billion (US$1.79) on sales revenue of US$5.6 billion.

The company ended 2007 with total gold reserves of 124.6 million oz., based on a US$575-per-oz. gold price. Barrick now ranks as the biggest gold company in three ways: by production, reserves, and market capitalization.

Of Barrick’s US$200-million exploration budget for 2008, about one-third is earmarked for North America.

For Rio Tinto, the Cortez deal comes a week after the sale of its majority stake in the Greens Creek silver mine in Alaska to its minority partner there, Hecla Mining (HL-N), for US$750 million, including US$700 million in cash.

Rio Tinto is pushing forward with its plan to unload US$15 billion of assets — including US$10 billion this year — in order to reduce its debt load to around US$28 billion, after having taken on about US$39 billion in debt to acquire Canada’s Alcan.

“This (Cortez sale) illustrates that high-quality assets will continue to attract financially strong strategic buyers,” said Guy Elliott, Rio Tinto’s chief financial officer, in a release.

Rio Tinto stated in November that it was also looking at selling: Rio Tinto Energy America (coal); its talc business and borates business; Alcan’s packaging and engineered products units; its interest in the Northparkes copper mine in Australia; and its interests in the Sweet-water and Kintyre uranium assets in the U.S. and Australia, respectively.