Goldcorp Outfoxes Barrick In Chile

The first full trading week of 2010 kicked off with yet more M&A activity, as metal prices firm up and miners continue to gain more confidence.

• Goldcorp has usurped Kinross Gold for the moment as the gold subsector’s wiliest dealmaker. Goldcorp surprised the market with an unusual bid to acquire a majority stake in the advanced El Morro gold-copper project in north-central Chile, where reserves stand at 6.7 million oz. gold and 5.7 billion lbs. copper.

Xstrata had already arranged in October to sell its 70% interest in the project to Barrick Gold for US$465 million, with the latter betting that 30% owner New Gold wouldn’t have the financial heft to exercise its right of first refusal.

That has all changed with Goldcorp now offering to advance US$463 million to New Gold so it can buy Xstrata’s interest and then flip it to Goldcorp at a substantial profit in the form of upfront cash and reduced interest rates for project financing.

Who must be smiling the most from all this cleverness? New Gold executive chairman Randall Oliphant, who was turfed as Barrick president and CEO in 2003 when shareholders got testy over a languishing share price.

• Signalling a large deal to come, Ivanhoe Mines announced it has hired Citi’s Global Investing Unit and Hatch Corporate Finance to help the company evaluate a full range of strategic options.

Ivanhoe needs to raise in the neighbourhood of US$3 billion in the next few years to fund mine construction at its huge Oyu Tolgoi copper-gold project in Mongolia, with the Ivanhoe-Rio Tinto technical committee already budgeting US$758 million to be spent this year alone.

One possible move for Ivanhoe would be to sell its interests in 79%-owned SouthGobi Energy Resources and 83%-owned Ivanhoe Australia, which could bring in roughly US$3 billion.

Another would be to sell all of Ivanhoe to a major such as Rio Tinto, Chinalco, Anglo American or Freeport-McMoRan. Rio Tinto already owns 19.7% of Ivanhoe and is a natural fit, but may be a little gun shy for now after only recently getting a handle on its debt load.

Also up for grabs is Ivanhoe executive chairman Robert Friedland’s 22.8% stake, over which Rio Tinto has a right of first refusal.

• Vancouver-based junior Terrane Metals announced it would start construction this year of a 60,000-tonne-per-day, open-pit copper-gold mine at Mt. Milligan, 150 km northwest of Prince George.

Terrane greenlighted Mt. Milligan after getting federal environmental approval for the project last month, and despite Goldcorp declining to convert its 60% fully diluted stake in Terrane into a participating interest in the project.

However, Goldcorp is still helping Terrane by extending a $40-million credit line until May. That should give Terrane enough time to line up a couple hundred million dollars to fund mine construction this year. Total developments costs for the mine are pegged at $915 million — a daunting sum for a junior but not out of reach, as copper and gold look to be two of the hottest metals in the years ahead.

• Venezuela spun lower in its 11-year-long downward spiral, with President Hugo Chavez devaluing the country’s currency by 50% on Jan. 8. The bolivar has been devalued to 4.3 from 2.15 per U.S. dollar for most imports, though a second, subsidized peg of 2.60 bolivars per U.S. dollar will be used for importing food, medicine and some machinery. The dual rates mean that a lively black market in bolivars enriching high-level government officials is inevitable.

Even before this latest devaluation, which will, of course, create a torrent of inflation, Venezuela’s inflation rate ended 2009 at almost 27% — one of the world’s highest rates.

And there’s no relief in sight: the socialized Venezuelan economy now relies on its nationalized and inefficient oil industry to generate 93% of the country’s export income. With oil prices on the decline last year, Venezuela’s gross domestic product shrunk by 4.5% in the third quarter.

• At presstime, southern Haiti has just been hit by a major earthquake, which, in early reports, looks to have inflicted major damage on the capital Port au Prince and its inhabitants. The country has no major mines, but is highly prospective, with Eurasian Minerals and partner Newmont Mining leading the way in the country’s north.

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