Goldcorp, Barrick creating another NuevaUnión-like JV at close to discovery cost

VANCOUVER (miningweekly.com) – Canadian gold majors Goldcorp and Barrick Gold on Tuesday announced a series of transactions that will result in the creation of a new 50:50 joint venture (JV) over a new project located in the Atacama region of Chile, that combines Barrick and Kinross Gold’s Cerro Casale project, with Exeter Resource Corp’s Caspiche project.

“This JV structure with Barrick has the potential to allow us to consolidate infrastructure to reduce costs, reduce the environmental footprint and provide higher returns compared to two standalone projects. With our combined technical and financial strength, we see significant potential to increase net asset value per share and deliver value for all partners and stakeholders,” Goldcorp president and CEO David Garofalo said on Tuesday.

Following five years of misery amid tumbling metals prices that saw majors defer project spending in favour of cleaning up their balance sheets by reducing debt and selling noncore assets, the gold majors are only now starting to invest in development projects once more, touting partnerships as a preferred route to reduce infrastructure duplication and lower costs.

GOLDCORP ACQUISITIONS
Vancouver-based Goldcorp has agreed to acquire TSX-listed Exeter, whose Caspiche project is about 10 km from Cerro Casale, which is currently a JV project between Kinross and Barrick, but will become a JV between Goldcorp and Barrick.

Exeter is being acquired for $185-million in Goldcorp shares, exchanged on a 0.12 basis, valuing Exeter at C$2.58/share, a 67% premium from Monday’s market close.

Goldcorp is also acquiring Kinross’s 25% interest in Cerro Casale, as well as its 100% interest in the Quebrada Seca project, in exchange for $260-million in cash payable at closing, $40-million payable after a positive construction decision on Cerro Casale is made and the assumption of $20-million of debt due to Barrick payable at commercial production, plus a 1.25% net smelter return (NSR) royalty based on 25% of gross revenues from sales from Cerro Casale and Quebrada Seca.

Goldcorp is acquiring a further 25% interest in Cerro Casale from Barrick in exchange for a deferred payment obligation of $260-million, which will be paid via Cerro Casale development expenditures, partially offset by a $90-million credit for the contribution of Caspiche to the JV, a 1.25% NSR royalty on 25% of gross revenues from metals sold from Cerro Casale and Quebrada Seca, $40-million payable after a positive construction decision, and the transfer of a 50% interest in Quebrada Seca to the JV.

Goldcorp is required to spend a minimum of $60-million in the two years (50% credited against the $260-million owed to Barrick) following the closing of the transaction and a minimum of $80-million in each subsequent two-year period until the deferred payment obligation to Barrick is satisfied.

“We are pleased to welcome Goldcorp as our new JV partner at Cerro Casale and look forward to the fresh perspective it can bring to the project, in addition to the potential for synergies in the district. This agreement will allow us to direct capital elsewhere in our portfolio, while ensuring shareholders retain exposure to the optionality associated with one of the largest undeveloped gold and copper deposits in the world,” Barrick president Kelvin Dushnisky stated.

PROJECT SYNERGY
The JV deal resembles Goldcorp’s NuevaUnión 50:50 JV with Teck Resources that combines the Relincho and El Morro deposits, in Chile, to reduce costs and capitalise on synergies.

A February 2010 feasibility study on Cerro Casale by Kinross envisioned a large openpit mine with a 20-year life and a heap leach processing operation. Cerro Casale contains proven and probable reserves of 23.2-million ounces of gold and 58.7-million ounces of silver. It also contains 5.8-billion pounds of copper.

A December 2014 technical report on Caspiche had calculated measured and indicated resources of 23-million ounces of gold, 54.2-million ounces of silver and 5.9-billion pounds of copper.

A concept study is expected in 18 months to 24 months, but with an acquisition cost of $18/oz of gold equivalent reserves, analysts deemed the price being paid as relatively in line with the discovery cost, and fair.

Kinross also said it would enter into a water supply agreement with the JV as part of the sale. The company, in August 2016, suspended operations at its Maricunga gold mine, also in Chile, after an environmental regulator decided to shut down the water supply to the mine on environmental grounds.

Kinross said it expected to use the sale proceeds for organic development projects and to strengthen its balance sheet.