Chile: Where there's gold there's dirt!

Published by MAC on 2010-01-19
Source: Reuters, Financial Post, The Sanatiago Times

Goldcorp to buy Xstrata stake in El Morro project

By Euan Rocha, Reuters

7 January 2010

TORONTO - Goldcorp Inc said on Thursday it will spend $513 million to buy mining giant Xstrata's  70 percent interest in the El Morro copper-gold project in Chile, foiling Barrick Gold's plans to acquire the stake.

In October, Swiss-based Xstrata agreed to sell its interest in the project to Canada's Barrick, the world's No. 1 gold miner, for $465 million. But, New Gold had the right of first refusal on Barrick's purchase -- meaning it had the right to match the offer -- until January 2010.

New Gold, through a wholly owned subsidiary, will exercise that right and acquire the 70 percent interest.

Goldcorp will advance $463 million to New Gold to fund the deal. After the acquisition by the New Gold subsidiary, Goldcorp will acquire that subsidiary from New Gold.

Goldcorp will pay New Gold $50 million in cash upon closing the acquisition of the subsidiary. Goldcorp has also agreed to amend certain terms of the El Morro shareholders agreement, with respect to New Gold's capital funding obligations.

On closing, Goldcorp will hold 70 percent of El Morro and New Gold 30 percent.

El Morro is an advanced stage copper-gold project located in north-central Chile. It contains proven and probable reserves of 6.7 million ounces of gold and 5.7 billion pounds of copper.

Goldcorp looks for large, high quality assets that have low operating costs and a long mine life, Chief Executive Chuck Jeannes told Reuters.

"This ticks all of those boxes. Additionally, we look for large property positions that are relatively unexplored, so that we have the opportunity for continued organic growth -- this property also fits that bill," said Jeannes.

For Barrick, the property had the additional appeal of promising costs-savings, as it is located not far from its Veladero mine, and Pascua Lama and Cerro Casale projects.

Barrick spokesman Vince Borg said the company would review the agreement and then decide whether it might try to stay in the process.

"It would depend on the agreement that they struck (but) we haven't seen that yet," he said.

Borg played down the prospect of frosty relations between Barrick and Goldcorp, which are the world's top two gold miners by market size and partners on the Pueblo Viejo project in the Dominican Republic.

"We're partners, peers and competitors," he said.

The deal comes as Goldcorp is also entangled in a bidding war for Canplats Resources , which owns the Camino Rojo gold-silver deposit in Mexico that sits close to Goldcorp's Penasquito gold-silver mine.

Construction of the Penasquito mine is nearing completion and Goldcorp plans to use the expertise of the team that led the build of that mine, to help spearhead work on the El Morro project.

Goldcorp expects its first full-year of production from El Morro in 2015, said Jeannes.

New Gold shares were up 6.5 percent at C$4.28 midday on the Toronto Stock Exchange, while Goldcorp fell 8 Canadian cents to C$43.30.

($1=$1.03 Canadian) (Reporting by Euan Rocha and Cameron French; editing by Rob Wilson)

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Allies turn adversaries in El Morro gold dispute

Financial Post

13 January 2010

TORONTO -- A few years ago, Barrick Gold Corp. and Goldcorp Inc. were close allies, working together to complete the most ambitious takeover in the history of the gold industry. And they continue to co-operate as joint venture partners on a massive project in the Dominican Republic.

But as of Wednesday they are at odds after Barrick filed a hostile legal action against both Goldcorp and New Gold Inc. to try to block their deal to take control of the El Morro copper-gold deposit in Chile.

The suit, filed in the Ontario Superior Court of Justice, pits the world's two biggest gold companies against each other and throws the ownership of El Morro into question. It also places Randall Oliphant, the executive chairman of New Gold, against the company he used to run.

The saga started last October, when Barrick agreed to buy a 70% stake in El Morro from Xstrata PLC for US$465-million.

As the owner of the other 30% of El Morro, New Gold had a right of first refusal to match Barrick's bid and take control of the asset itself.

The company did just that this week, only with a twist: It cut a deal with Goldcorp under which Goldcorp would provide New Gold with the funds to buy the asset, and would then take control of it after New Gold bought it. Barrick was left out of the picture.

After studying the transaction, Barrick's legal team concluded the agreement is "unlawful, defective and ineffective pursuant to the laws of the Republic of Chile."

Barrick's statement of claim argues that the El Morro shareholders' agreement prohibits New Gold from transferring rights of first refusal to a third party, "either directly or indirectly."

"New Gold is monetizing its right of first refusal, even though it is prohibited from doing so," the statement of claim says.

The statement demands, among other things, a permanent injunction to prevent New Gold and Goldcorp from completing their transaction, and potential damages to be determined by the court. It also calls for a restraining order preventing Goldcorp from using confidential information it may have received regarding El Morro. Barrick asked for an "expedited trial," saying the defendants may try to complete their transaction in the near future.

Goldcorp and New Gold had little to say about the suit, apart from saying it is without merit and they plan to fight it.

But Seymour Schulich, New Gold's largest individual shareholder, had more to say about Barrick's move.

"Some people might say they are poor losers," the famed entrepreneur said in an interview. "I knew they were experts at hedging, but I didn't know they were also experts in Chilean law."

Paul Burchell, an analyst at Dundee Securities, said Barrick's action does not surprise him.

"I didn't expect them to just lay down and let the project go to Goldcorp without making some effort," he said.

"We noted back in October that [El Morro] seemed to be a very accretive acquisition for Barrick, and obviously the same for Goldcorp."

In 2005, Barrick and Goldcorp co-operated on Barrick's US$10.4-billion takeover of Placer Dome Inc. The deal left Goldcorp with Placer's gold assets in the Red Lake camp in Northern Ontario.

Barrick is no stranger to legal battles with joint venture partners. It also engaged in a prolonged dispute with partner NovaGold Resources Inc. before the two companies agreed to drop all litigation in 2007.

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Mining Giants Begin Legal Fight Over Chilean Mine

Written by James Fowler, The Sanatiago Times

15 January 2010

Canadian court presides over El Morro ownership row

The world's two largest gold mining companies entered into a legal battle in Canada this week over the ownership of the El Morro gold facility in Chile's northern Atacama Region III.

Canadian mining giant Barrick Gold claims that minority stake holder New Gold's decision to sell the mine to rival company Goldcorp is illegal under Chilean law.

"The actions of New Gold were illegal, defective and have no validity under the laws of the Chilean Republic," read a Barrick statement to the supreme court of Ontario in Toronto.

Barrick claim to have originally purchased a 70 percent stake in the mine from major owner Xstrata in October last year for US$473 million.

However New Gold, holders of a 30 percent stake in El Morro, refused to recognize this deal on the basis that they hold the right of first refusal on any offers for the mine.

They instead opted to sell the 70 percent share to Gold Corp, the world's second largest gold miner, in a US$513 million deal announced last week.

Legal sources at New Gold defended their actions and said that they expect the case to be referred to Chilean courts in the near future.

Barrick had planned a US$2.5 billion investment in the El Morro site, which has one of world's largest deposits of gold and copper.

The El Morro facility is located only 70 km from another Barrick owned mine, the controversial Pascua Lama site. Work started developing the Pascua Lama facility in October last year. However legal action has threatened to halt the construction (ST. Jan 7).

The company is accused by Chile's environment agency CONAMA of failing to comply with the nation´s environmental legislation. The agency fears that the mining activity will cause local glaciers to melt, creating a potentially devastating impact on local communities dependant on the glaciers as a water source.

Barrick Gold, the world's biggest gold mining company, has 26 operations across the globe. The company's Chilean portfolio also includes the Zaldivar copper mine located 175 km from Antofagasta.

Last year Barrick produced a global total of 7.7 million ounces of gold. The company has estimated reserves in the region of 140 million ounces.

The company also holds reserves of other minerals, including 6.4 billion pounds of copper and 1.09 billion ounces of silver.

Chile currently ranks 16th in the world for gold production. A recent study conducted by Chile's National Copper Commission (COCHILCO) reports that the country will most likely triple its gold production within the next five years (ST. Nov 10).