Barrick sells half of Zaldivar to Antofagasta

VANCOUVER — Barrick Gold (TSX: ABX; NYSE: ABX) is selling a 50% interest in its wholly owned  Zaldivar copper mine in northern Chile to Antofagasta (LSE: ANTO; US-OTC: ANFGY) for US$1 billion in cash. The deal will result in the formation of a joint-venture partnership whereby Antofagasta will take over as operator, with Barrick nominating three members to a newly formed, six-member board overseeing the mine’s operation.

The sale culminates an auction that attracted big-name companies like BHP Billiton (LSE: BLT; NYSE: BHP), Teck Resources (TSX: TCK.B; NYSE: TCK), Hudbay Minerals (TSX: HBM; NYSE: HBM) and China Molybdenum. Antofagasta will pay Barrick US$980-million cash upon closing in late 2015, and US$25 million in additional cash payments over the next five years.

Zaldivar sits in Chile’s Andean Precordillera in Region II, 1,400 km north of Santiago and 175 km southeast of the port city of Antofagasta. 

It is an open-pit, heap-leach copper mine producing pure copper cathode, and it cranked out 222 million lb. copper in 2014 at cash costs of US$1.79 per lb. 

Production this year is an expected 230 million and 250 million lb. at cash costs ranging from US$1.65 to US$1.95 per lb.

According to Barrick’s 2014 reserve statement, Zaldivar hosts 461 million proven and probable tonnes grading 0.5% copper for 5.6 billion contained lb. This translates to a 14-year mine life at current production rates.

Barrick sold the Zaldivar stake so that it could continue slimming down its bloated balance sheet. The company hopes to cut its US$10-billion debt load by US$3 billion this year, and has completed US$1.9 billion in asset sales over the past six months.

Barrick said it was “actively exploring a number of other joint venture and sales opportunities,” including a potential deal at its Pueblo Viejo joint venture with Goldcorp (TSX: G; NYSE: GG) in the Dominican Republic.

“The [Zaldivar sale] is consistent with our strategy to create long-term value for our shareholders,” Barrick co-president Kelvin Dushnisky said in the release. “Antofagasta has an outstanding track record of building and operating mines in Chile, and we see this as the first step in an ongoing, collaborative partnership. There are many potential opportunities to benefit from Antofagasta’s experience, as [we evaluate] development projects in the future.”

Antofagasta is a good fit at Zaldivar, given its Chilean roots and extensive operational experience in South America. The company operates in mining, transport and water. Antofagasta produced nearly 705,000 tonnes of copper-in-concentrate and copper cathode in 2014, with Zaldivar expected to add between 50,000 and 65,000 tonnes to its annual output.

Antofagasta CEO Diego Hernandez also cited “other opportunities” for future collaborations in Chile. The company said the partnership is “well positioned” to enhanced Zaldivar’s long-term value through “collective best practices.”

BMO Capital Markets analyst Andrew Kaip said the deal is another “meaningful step toward Barrick’s annual debt reduction target, and should further enhance investor confidence in the company’s ability to deliver on its deleveraging objectives.” 

BMO Research has an “outperform” rating on the company with a $16 per share price target.

Writing on the deal from Antofagasta’s point of view, BMO analyst Edward Sterck added the Zaldivar transaction “is ultimately a strategic one that will probably be viewed in the future as a great acquisition. In current myopic market conditions, however, the market will likely be upset that this eliminates the chance of a special dividend.” 

Barrick shares have traded within a 52-week range of $8.86 to $21.14, and lost 43¢ after news of the deal en route to a $9.02-per-share close at press time. The company has 1.2 billion shares outstanding for a $10.5-billion market capitalization.

Meanwhile, Antofagasta shares have moved within a 52-week range of US$17.62 to US$27.83, and closed at US$17.81 per share at press time. The company has 986 million shares outstanding for an US$8.7-billion market capitalization. 

Antofagasta expects to pay for the Zaldivar acquisition with cash-on-hand.