Barrick sues New Gold over El Morro

Barrick Gold (ABX-T, ABX-N) is taking New Gold (NGD-T, NGD-X) to court over an unusual deal it made with Goldcorp (G-T, GG-N) to acquire a majority stake in the El Morro copper gold project in northern Chile.

Barrick had made a deal with Xstrata (XSRAF-O, XTA-L), 70% owner of El Morro, in the fall to acquire the project for US$465 million.

But its plans were ruined when New Gold, which holds the remaining 30%, announced a plan to exercise its right of first refusal with the financial help of Goldcorp.

Under the new deal, Goldcorp will advance New Gold US$463 so it can buy the 70% stake in El Morro from Xstrata. Goldcorp will then acquire the majority stake in the project from a New Gold subsidiary, paying New Gold US$50 million in cash when the deal closes.

But Barrick alleges that New Gold has broken a Chilean law in the process, and has filed a claim with the Ontario Superior Court.

“New Gold’s purported exercise of the right of first refusal is illegal, defective and ineffective under the laws of the Republic of Chile as well as under the terms of the El Morro shareholders agreement,” Barrick said in a statement of claim obtained by Reuters.

Vince Borg, Barrick’s vice president of corporate communications, said the company had planned to check the Goldcrop-New Gold deal to make sure it was done properly.

“We haven’t seen the agreement to make sure that it was done appropriately, and will do so, but I can’t comment on the scenarios where it may not have been done (appropriately) … we don’t have a basis to know one way or the other,” Borg said last week.

El Morro has measured and indicated resources of 8.3 million oz. gold and 6.3 billion lbs. copper. A feasibility study completed in 2008 put a US$2.5-billion price tag on development.

But El Morro is located close to Barrick’s 100%-owned Pascua-Lama and 50% owned Cerro Casale projects in Chile and the company had hoped to take advantage of the synergies with all three.

No one from New Gold or Barrick was available for comment.