Goldcorp (TSX: G; NYSE: GG) is teaming up with Barrick Gold (TSX: ABX; NYSE: ABX) to develop gold-copper deposits in Northern Chile’s Atacama region — similar to what Goldcorp did earlier with Teck Resources (TSX: TECK.B; NYSE: TECK) at the NuevaUnion joint venture in the region.
The perceived risk of replenishing reserves is high, so collaboration among seniors to develop resources is regaining popularity after years of less exploration and capital spending in the industry. In late 2015, Goldcorp combined its El Morro gold-copper deposit with Teck’s Relincho copper-molybdenum asset in the Atacama region. It is now joint-venturing with Barrick to advance the Cerro Casale and Caspiche projects.
Goldcorp has announced three transactions — costing US$445-million upfront in cash and shares — to create the fifty-fifty partnership with Barrick.
First, it intends to buy Kinross Gold’s (TSX: K; NYSE: KGC) 25% interest in Cerro Casale and 100% interest in the Quebrada Seca exploration gold project for an initial US$260 million in cash. It will provide US$40 million after a positive construction decision on Cerro Casale, plus a 1.3% royalty on 25% of gross revenues from sales from Cerro Casale and Quebrada Seca.
Second, Goldcorp will buy another 25% interest in Cerro Casale from Barrick — lowering Barrick’s 75% stake to 50% — for a deferred payment of US$260 million, which it would pay through project expenses. Barrick will also get a 1.3% royalty on 25% of gross revenues, US$40 million after a positive construction decision and US$20 million when commercial production starts, as well as half of Quebrada Seca.
Goldcorp will take over Exeter Resource (TSX: XRC; NYSE-MKT: XRA) for US$185 million in shares for the junior’s wholly held Caspiche project. The gold-copper porphyry system is 10 km north of the Cerro Casale project. Goldcorp will exchange 0.12 of a share for each Exeter share. The deal values each Exeter share at $2.58 (US$1.93), marking a 67% premium over its March 27 close.
The Cerro Casale and Exeter transactions should close by June 30, and are not conditional on completing the other.
Goldcorp will transfer Caspiche into the joint venture, with half of the acquisition cost (US$85 million) deducted from the US$260 million it owes Barrick.
BMO analyst Andrew Kaip, who covers Barrick and Goldcorp, writes that the joint venture “represents a long-term opportunity for the two companies, but we do see how some investors might question the decision in the near-term, given the capital outlay.”
Desjardins analyst Michael Parkin says that “with an acquisition cost of US$18 per equivalent oz. gold reserves, we see the price being paid as relatively in line with the discovery cost.”
The partners plan to advance the Cerro Casale and Caspiche deposits in a similar fashion to NuevaUnion. “The joint venture with Barrick has the potential to allow us to consolidate infrastructure to reduce capital and operating costs, reduce the environmental footprint and provide increased returns, compared to two stand-alone projects,” Goldcorp’s CEO David Garofalo said in a release.
Under the partnership, Goldcorp must spend at least US$60 million in the two years after the transaction closes, and US$80 million in each subsequent two-year period until it satisfies Barrick’s deferred payment. Garofalo was unavailable for comment at press time.
On a 100% basis, Cerro Casale’s gold and copper reserves are 23.3 million oz. gold and 5.8 billion lb. copper (1.2 billion tonnes at 0.6 gram gold per tonne and 0.2% copper). It has 3.4 million oz. gold and 1.1 billion lb. copper in measured and indicated (297 million tonnes at 0.35 gram gold and 0.2% copper), plus significant silver credits.
Caspiche has a measured and indicated resource of 23 million oz. gold and 5.9 billion lb. (1.4 billion tonnes of 0.51 gram gold and 0.2% copper). It has another 198 million tonnes in inferred.
The partners expect to publish a concept study on the combined project in 18 to 24 months.
Cerro Casale sits 200 km from NuevaUnion. Goldcorp’s director of corporate communications Christine Marks notes there “won’t be a lot of operating synergies” between the joint ventures.
On the March 28 acquisition reports, Goldcorp shares fell 7% to $19.98; Exeter soared 56% to $2.41 per share; Barrick shares dropped 2.6% to $25.55; and Kinross fell 2.5% to $4.53.