Kinross Gold (TSX: K; NYSE: KGC) and private-equity firm Waterton Global Resource Management are the latest bargain hunters to find something they like at Barrick Gold’s (TSX: ABX; NYSE: ABX) year-long sale emporium. On Nov. 12 Barrick said it would sell four assets in Nevada for US$720 million in cash, with Kinross and Waterton each coming away with a pair of gold properties.
Barrick has pledged to cut its debt by at least $3 billion this year, and it has been in a dealmaking frenzy to meet that goal. Including the Kinross and Waterton deals, Barrick has so far raked in US$3.2 billion in asset sales, which should please shareholders and analysts who have demanded the company lower its debt, and streamline its portfolio.
Kinross was rumoured to be in the acquisition market, but for the past eight months it seemed content to sit on over US$1 billion in cash and equivalents. The company is now paying Barrick US$610 million for the Bald Mountain and Round Mountain gold mines in Nevada.
“We’ve been selective in our approach to [mergers and acquisitions] in recent years,” Kinross president and CEO Paul Rollinson said.
“We’re taking advantage of an opportunity that would only be possible given Barrick’s strategic objectives in the current gold price environment, and our trusted relationship with them after having partnered at Round Mountain. It’s really rare that quality producing assets with such potential become available in Nevada,” he added.
Bald Mountain is a run-of-mine, heap-leach gold operation that could produce 160,000 oz. gold per year at all-in cash costs ranging from US$700 to US$900 per oz.
The mine has proven and probable reserves of 1.36 million oz., based on 60 millon tonnes at 0.7 gram gold per tonne. Measured and indicated resources total 4.16 million oz., based on 207 million tonnes of 0.63 gram gold.
The 600 sq. km Bald Mountain property is the largest mine site in the U.S., and lies along the southern extension of Nevada’s prolific Carlin trend.
“We recognize that since these mines have not recently been core to Barrick’s portfolio, they haven’t received much attention from the investment community. But we look forward to working with investors to help everyone understand why we are so enthusiastic,” Rollinson elaborated during a conference call. “We’re acquiring a significant amount of upside potential, including access to a sizeable land portfolio at Bald Mountain, with numerous brownfield and greenfield targets.”
Barrick and Kinross have agreed to a fifty-fifty exploration joint venture for a large land package at Bald Mountain, which Barrick president Kelvin Dushnisky said was “important to maintain exposure to a highly prospective land package.”
Meanwhile, Round Mountain is a consolidation for Kinross, as it had operated the mine under a fifty-fifty joint venture with Barrick. The conventional open-pit gold mine uses four processing operations, including: crushed ore leaching, run-of-mine ore leaching, milling and a gravity concentration circuit.
Round Mountain could yield 340,000 to 430,000 equivalent oz. gold per year at all-in sustaining costs between US$850 and US$1,000 per oz. through 2018.
“There is further upside,” Rollinson said. “We’re starting up scoping studies on the Phase-W expansion [in December], which is targeting a large mineralization zone at depth and west of the main Round Mountain pit. We haven’t included that material in our resource statements, but we’re hoping to incorporate new drill and geological information to complete an optimized mine plan.”
Waterton has made waves in the mining space since raising US$1 billion in private equity last year. The company has made more than 25 varied deals in the last year, with a focus on the continental U.S.
Barrick will get US$110 million from Waterton for a 70% stake in the Spring Valley gold project, and a 100% interest in the Ruby Hill mine. Waterton has struck a US$25-million deal with beleaguered junior Midway Gold (US-OTC: MDWCQ) for the other 30% in Spring Valley.
The project is a porphyry diatreme-hosted gold system beneath pediment gravels 30 km northeast of Lovelock, Nev. The deposit hosts 202 million measured and indicated tonnes at 0.55 gram gold for 4.1 million contained oz.
BMO Capital Markets analyst Andrew Kaip expects that the value realized through Barrick’s asset sale will be “well received.” BMO Research had valued Barrick’s “non-core” Nevada asset basket at US$440 million.
“The Bald Mountain acquisition appears to be of reasonable value,” Kaip wrote on Nov. 12. “However, [Kinross] appears to be paying up for Round Mountain based on the potential to extend mine life through Phase-W and re-evaluate satellite pits. The details are limited at this stage, and it may take up to two years to fully daylight value from the deposit.”