Barrick bids for Arizona Star (November 05, 2007)

Don’t look now, but Barrick Gold (ABX-T, ABX-N) is going on a spending spree.

Less than a week after announcing it was supplementing its treasure chest with the Kainantu gold mine and exploration ground in the rugged highlands of Papua New Guinea, Barrick has tabled a cash offer for Arizona Star Resource (AZS-V, AXS-X), which owns a majority stake in the Cerro Casale copper-gold project in Chile.

Barrick is offering to acquire all of Arizona Star’s shares for $18 in cash per share. The offer price is a 27% premium over Arizona Star’s 20-day volume-weighted average trading price on the TSX Venture Exchange and values the company at about C$773 million on a fully diluted basis.

Cerro Casale is a low-grade disseminated gold-copper porphyry deposit, about 145 km southeast of the Chilean city of Copiapo. It has proven and probable reserves of 1.03 billion tonnes grading 0.69 gram gold per tonne and 0.25% copper. The deposit contains 23 million oz. gold and 6 billion lbs. copper.

Arizona Star owns a 51% stake in the project, located in the Maricunga district of Region III. Kinross Gold (K-T, KGC-N) owns the remaining 49% interest.

Arizona Star’s board of directors has unanimously approved Barrick’s offer.

Paul Parisotto, president and chief executive of Arizona Star, says a production decision had not been made on the project but that if it goes ahead, the deposit would produce 990,000 oz. gold per year and 294 million lbs. copper.

The deposit, the top of which sits at an altitude of 4,450 metres, will be developed as a conventional open-pit and milling operation processing ore at a rate of about 150,000 tonnes per day.

It is expected to be a low-cost producer with cash costs of about US$107 per oz., assuming a copper price of US$1.50 per lb.

The project life is estimated at about 17 years with a payback of 4.9 years.

Barrick and its predecessor companies have been operating in Chile for more than a decade. Its other assets in the region include the Zaldivar copper mine in Chile, the Pascua-Lama gold-silver project straddling the border of Chile and Argentina, the Veladero gold mine in Argentina, and the Lagunas Norte and Pierina gold mines in Peru.

Meanwhile, thousands of miles away in Papua New Guinea, Barrick has purchased the Kainantu gold mine and 2,900 sq. km of exploration licences from Highlands Pacific (HLPCF-O, HIG-A).

With the US$141.5-million acquisition announced in late October, Barrick will have access to more than 5,300 sq. km in one of the most highly endowed gold and copper regions in the world.

The acquisition “is a further reflection of the long-term, multimillion-ounce potential we see in Papua New Guinea,” said Alex Davidson, Barrick’s executive vice-president of corporate development and exploration, in a prepared statement.

Barrick plans to launch an exploration program on identified high-grade gold vein targets and indicated copper-gold porphyry potential in the district.

The Kainantu gold project is in PNG’s Eastern Highlands province and consists of the Irumafimpa deposit and the Kora mineral resource.

According to Highlands Pacific, the total geological resource at Kainantu is 3.1 million tonnes grading 20.2 grams gold per tonne for 2 million contained ounces gold.

The Irumafimpa reserve is 1.3 million tonnes grading 16 grams gold per tonne for 655,700 oz. gold. The Kora mineral resource is estimated at 900,000 tonnes grading 29 grams gold, for 820,000 oz. gold.

Production last year reached 104,000 tonnes averaging 8 grams gold for 21,094 oz. gold recovered. The process plant averaged 87% recovery of gold into concentrate against a design level of 98%.

Highlands Pacific estimates that the mine will produce about 110,000 oz. gold per year over a mine life of more than six years.

Kainantu is an underground mine with narrow, steeply dipping, gold-bearing veins.

Two months ago, Barrick upped its stake to 95% in the Porgera gold mine, another PNG project.

Production at Porgera, situated in the highlands of Enga province, 600 km northwest of Port Moresby, reached about 542,000 oz. last year.

The mine has proven and probable reserves of 9.42 million oz. gold.

Barrick acquired its original 75% interest in Porgera after completing a hostile takeover of Placer Dome in early 2006.

Porgera is being mined using open-pit and underground methods. Last year, underground ore accounted for 30% of the contained gold in mill feed.

Rich in gold, copper and silver, PNG’s mining sector contributes about 60% of the country’s exports and 20% of its fiscal revenues, according to the World Bank.