Barrick Gold Corp. [ABX-TSX, NYSE] reported that it has reached an agreement with Goldcorp Inc. [G-TSX; GG-NYSE] to form a new partnership at the Cerro Casale Project in Chile. Under the terms of the agreement, Goldcorp has agreed to purchase a 25% interest in Cerro Casale from Barrick. This transaction, coupled with the concurrent purchase by Goldcorp of Kinross Gold Corp.’s [K-TSX; KGC-NYSE] 25% interest in Cerro Casale, will result in a 50/50 joint venture between Barrick and Goldcorp.
“We are pleased to welcome Goldcorp as our new joint venture partner at Cerro Casale, and look forward to the fresh perspective they can bring to the project, in addition to the potential for synergies in the district,” said Kelvin Dushnisky, President of Barrick. “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.”
As consideration for the 25% interest acquired from Barrick, Goldcorp will fund Barrick’s first $260 million of expenditures on the project following the formation of the Joint Venture, and will spend an equivalent amount on its own behalf for a total project investment commitment of $520 million.
Payment of the committed expenditures will be made pursuant to budgets approved by the Cerro Casale Joint Venture Board. Under the agreement, Goldcorp must spend a minimum of $60 million in the two-year period following closing, and then $80 million in each successive two-year period. The outstanding funding commitment will accrue interest at an annual rate of 4.75%. In the event that Goldcorp does not spend the minimum amount, 50% of any shortfall will be paid directly to Barrick in cash. In addition, Goldcorp will pay Barrick $40 million in cash upon a construction decision.
Goldcorp will also fund the Cerro Casale Joint Venture’s acquisition of a 100% interest in the adjacent Quebrada Seca property from Kinross upon closing. Goldcorp has granted Barrick a 1.25% royalty interest on 25% of gross revenues derived from metal production from both Cerro Casale and Quebrada Seca.
Under the new 50/50 ownership structure, the project’s management team will be subject to oversight and direction by a Joint Venture Board comprised of an equal number of nominees from Barrick and Goldcorp. The transaction is expected to close in the second quarter of 2017 and is subject to customary closing conditions.
Goldcorp has entered into a separate agreement for the acquisition of Exeter Resource Corp. [XRC-TSX; XRA-NYSE MKT; EXB-FSE] whose sole asset is the Caspiche Project, located approximately 10 km north of Cerro Casale. Following closing of this acquisition, Goldcorp will contribute the Caspiche Project into the Cerro Casale Joint Venture. Fifty percent of the acquisition costs incurred by Goldcorp will be deducted from the $260 million expenditure commitment described above.
Credit Suisse Securities (Canada), Inc. is acting as financial advisor to Barrick. Davies Ward Phillips & Vineberg LLP is acting as legal counsel to Barrick.
Cerro Casale is one of the world’s largest undeveloped gold and copper deposits, located in the Atacama Region of northern Chile. As of December 31, 2016, Barrick reported proven and probable gold reserves of 17.4 million ounces at Cerro Casale, as well as 2.5 million ounces of measured and indicated gold resources (both on a 75% basis). Barrick also reported 4.3 billion pounds of contained copper in proven and probable gold reserves, and 794 million pounds of contained copper in measured and indicated gold resources (75% basis).