Barrick finds Saudi partner for stalled Jabal Sayid project

VANCOUVER — Saudi Arabian Mining Co. is buying a 50% stake in the Jabal Sayid copper project from Barrick Gold (TSX: ABX; NYSE: ABX) for US$210 million.

Saudi Arabian Mining (also known as Ma’aden [TADAWUL: 1211]) is getting a good deal, according to Dundee Capital Markets analyst Josh Wolfson. The deal implies a US$420-million value for Jabal Sayid, while he pegs its value at US$644 million.

But Barrick is getting more than money. The gold major will also be able to resume advancement of the project, which has been mired in regulatory and licensing woes since late 2012.

“This joint venture will enable the Jabal Sayid project to move forward with the benefit of Ma’aden’s extensive experience in the Saudi Arabian mining sector, combined with Barrick’s technical and operating expertise,” Barrick president and CEO Jamie Sokalsky said in a statement.

The process plant at Jabal Sayid was completed in the third quarter of 2012. Barrick had then intended to put the mine into production, but commissioning was delayed when regulators determined the mine was not in compliance with recently changed safety and security standards.

The compliance issues arose in the midst of another regulatory dispute: whether Barrick’s takeover of the project required consent from the Saudi Deputy Ministry for Mineral Resources.

Barrick acquired Jabal Sayid when it took over Equinox Minerals in 2011, a $7.3-billion deal primarily aimed at Equinox’s Lumwana copper mine in Zambia. Barrick has since written down much of that deal, reducing the book value of Lumwana by US$3.8 billion and that of Jabal Sayid by US$704 million.

Located 120 km southeast of Medina, Jabal Sayid will be an underground mine that produces 100 million to 130 million lb. copper in concentrate annually.

It should cost US$1.50 to US$1.70 to produce each pound of copper during the mine’s first five years of production, according to earlier estimates, and the deal with Ma’aden has Barrick hopeful that the mine could start production in late 2015.

Reserves stand at 25.3 million tonnes grading 2.56% copper, or 1.4 billion lb. copper — enough to support a 15-year mine life. Barrick says the partners will conduct more exploration within the mining licence and exploration-licence areas with the aim of extending the mine life.

Ma’aden was formed by royal decree in 1997. Originally the Saudi government owned the corporation outright, but in 2008 shares representing half of the company were floated on the Saudi Stock Exchange.

At the start Ma’aden was focused on developing gold operations — of which it now has five in Saudi Arabia — but the company has recently expanded its scope to include phosphate, aluminum and copper. 

On the phosphate front, Ma’aden is advancing a US$7-billion project in Saudi Arabia in partnership with North American fertilizer-maker Mosaic (NYSE: MOS) and Saudi Basic Industries.

Ma’aden is also partnered with U.S aluminum maker Alcoa (NYSE: AA) to build and operate a massive aluminum smelter in the kingdom.

Barrick has had a small team working to bring the project into compliance, while also assessing ways to lower production costs through alternate ore-hoisting methods.

The Jabal Sayid deal marks the first partnership Barrick has formed since John Thornton took over the chairman’s seat from company founder Peter Munk.

It also reinforces Barrick’s shift in focus: the company no longer intends to spend billions of dollars developing large assets by itself, but instead find partners for project development.

The major’s latest large project developments have failed spectacularly, forcing Barrick to record $11.5 billion in writedowns in recent years and suspend construction at its key Pascua-Lama gold project on the border between Argentina and Chile.

On news of the Ma’aden deal Barrick shares fell 47¢ to close at $20.24. The company has a 52-week share price range of $15.37 to $23.78, and 1.2 billion shares outstanding.