Barrick Gold Corp. has sold several Nevada properties for $720-million (U.S.) in a flurry of transactions that underline how the gold industry is reshaping itself to deal with falling prices for the precious metal.
Kinross Gold Corp. of Toronto is the major purchaser of the assets. It will pay Barrick $610-million for its Bald Mountain mine and for its half interest in the Round Mountain mine. Kinross already owns the other half of the Round Mountain property.
In addition, Waterton Precious Metals Fund II of Toronto will pay $110-million to Barrick for its Ruby Hill mine and for a 70-per-cent interest in the Spring Valley project.
The deals demonstrate the impact of falling gold prices. Over the past four years, the metal has tumbled from $1,900 an ounce to below $1,100 an ounce.
As prices have fallen, Barrick has struggled under the weight of $13-billion in debt, much of it accumulated at the peak of the commodity cycle. At the start of this year, the Toronto company vowed to cut its indebtedness by $3-billion in 2015 and put many non-core assets on the auction block.
Over the past few months, it sold assets in Australia, Papua New Guinea and Chile, and also peddled a stream of gold from a gold mine in the Dominican Republic. The sales announced Thursday bring the total cash it has raised this year to $3.2-billion and puts it on target to meet its aggressive target for debt reduction.
Barrick received more for the Nevada assets than some analysts had expected. In a research note, Goldman Sachs analysts said the $610-million paid by Kinross was more than double the net asset value of $275-million that Goldman had assigned to the two properties.
Chris Mancini, an analyst for the Gabelli Gold Fund, agreed the gold producer did well. "Barrick is getting good value for the assets," he wrote in an e-mail. "I'm encouraged at Barrick's actions as it continues to execute on its strategy of selling non-core assets and reducing debt."
More asset sales may be in the offing. Barrick president Kelvin Dushnisky had previously said the company was interested in selling six U.S. properties and the sales announced Thursday cover only four of them.
Golden Sunlight, a mature mine, and Hilltop, an early stage project, "remain in our portfolio. However, we will continue to look at options to realize value from those assets," according to a company spokesman.
At Kinross, chief executive officer Paul Rollinson said the new acquisitions will allow the company to expand its output and cash flow while operating in a region it already knows well, using familiar open-pit technology. "This is a great fit for us, a very logical fit," he said in an interview.
The company saw the opportunity to add the other half of the Round Mountain project as too tempting to pass up, he said. Kinross is already the operator of the mine.
Meanwhile, Bald Mountain offers both substantial reserves as well as the possibility of finding more. As part of the deal, Kinross and Barrick are forming a joint venture to explore a large land package on the Bald Mountain property.
One important aspect of the Nevada acquisitions, according to industry sources, is that they help to shift Kinross's focus toward safe locales. The company operates two mines in Russia and also owns the problem-plagued Tasiast property in Mauritania.
However, Mr. Rollinson said the deals were driven purely by how well the Nevada assets fit with Kinross's existing portfolio. "We've looked at a lot of things over the last three years," but Bald Mountain and Round Mountain were the first deals that made sense, he said.
One particularly interesting player in the transactions announced Thursday was Waterton Precious Metals Fund. The Toronto private equity fund has raised $1-billion and looks for late-stage, high-quality gold and copper assets in the western United States and Canada that it can add value to as an owner-operator.
Isser Elishis, managing partner of the fund, says the fund is a patient investor willing to wait five to 10 years for a payoff. In the short term, he says, commodity prices are likely to continue their downward path, but "if you look down the road five years, I believe you'll see materially higher gold and copper prices."