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Barrick’s Argentina deal furthers Peter Munk’s dream of close China ties

A traffic sign is seen near Barrick Gold Corp.'s Veladero gold mine.

STRINGER/CHILE/REUTERS

Barrick Gold Corp. chairman John Thornton is closer to fulfilling company founder Peter Munk's dream of aligning the Canadian gold miner with China.

Barrick has formed its second so-called strategic partnership with a Chinese company, with a deal to sell half of a top Argentinian mine to state-owned Shandong Gold Group for $960-million (U.S.) and a promise to work together on the mothballed Pascua Lama project in South America.

Unlike Barrick's first Chinese union with Zijin Mining Group Co. Ltd., the Shandong deal is three times larger and required the 50-per-cent sale of one of Barrick's key mines, Veladero.

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Despite the partial loss of a good mine, the partnership represents another milestone for Mr. Thornton and Mr. Munk – both of whom weathered shareholder anger over executive pay and deals gone bad during the commodities slump.

Since Mr. Munk's early days at Barrick, his vision was to align Barrick more closely with China. The Canadian mining magnate picked Mr. Thornton to succeed him as chairman because of the former Goldman Sachs president's deep connections in China.

It is too soon to say whether the Chinese partnerships will lead to further investments.

Barrick joined forces with Zijin in 2015 when it was desperate for cash to pay down the debt and there was speculation that Zijin would buy a stake in Barrick's African company Acacia or help fund the development of Pascua Lama.

But that did not happen. Barrick spokesman Andy Lloyd said: "We have also discussed other investment opportunities with them, just nothing that has come to fruition yet."

As for the latest Chinese deal, the plan is for Shandong and Barrick to study the development of Pascua Lama immediately after the Veladero sale closes around the end of June.

Pascua Lama is one of Barrick's mining jewels. The gold and silver deposit sits on top of a mountain that borders Argentina and Chile. But it has brought Barrick untold headaches with development costs ballooning to more than $8-billion from an initial estimate of around $3-billion.

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Barrick suspended the project in 2013 when the price of gold was plummeting and the company's debt problems were growing. Since then, the company has overhauled its culture, sold assets to restore its balance sheet and enjoyed a bump in its stock price.

This deal is the first concrete step the company has taken with a partner to renew the development of Pascua Lama. Barrick recently announced plans to explore the possibility of an underground mine on the Argentinian side of the deposit.

Shandong will send a team of mining engineers and other specialists to Pascua Lama. The partnership does not mean that Barrick is required to resume building Pascua Lama with Shandong.

It also does not require Shandong to provide funding for the project or give the Chinese company the right of first refusal if Barrick finds another partner for Pascua Lama.

"Should we decide to proceed that would be subject to additional agreement and investment," Mr. Lloyd said.

The nearly $1-billion agreement marks the largest mining deal in Canada so far this year. Deals in the mining space have rarely topped the $1-billion mark over the past few years of the commodities downturn.

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Canadian Imperial Bank of Commerce was hired for this job, though Barrick has used most of its other major lenders on other merger and acquisition deals.

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About the Author
Economics Reporter

Rachelle Younglai is The Globe and Mail's economics reporter. More

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