Barrick buys rest of Cortez from Rio Tinto for US$1.7B

One of the best gold assets in the world is now solely in the hands of the world’s biggest gold miner.

Barrick Gold (ABX-T, ABX-N) has picked up the 40% of the Cortez property in Nevada that it didn’t already own for US$1.7 billion in cash from Kennecott Explorations (Australia) Ltd., a subsidiary of base metals giant Rio Tinto (RTP-N).

Kennecott retains a sliding-scale gross royalty on 40% of all future production in excess of 15 million oz. gold from Jan. 1, 2008, and Barrick must pay out another US$50 million in cash if it adds another 2 million contained oz. gold to Cortez’s Dec. 31, 2007, reserve statement.

Barrick expects to close the Cortez deal before April, and the transition will be effective for accounting purposes March 1, 2008.

Barrick will have no trouble putting that much cash on the table, having ended 2007 with a cash balance of US$2.2 billion, net debt of US$0.9 billion and a US$1.5 billion un-drawn credit facility.

Located 60 miles south of Barrick’s flagship Goldstrike property in northern Nevada, the Cortez property is comprised of the operating Cortez mine and the advanced Cortez Hills development project. Last year, the Cortez joint-venture produced 83,000 oz. gold at total cash costs of US$419 per oz.

Barrick acquired its first 60% stake in Cortez through its hostile takeover of rival Canadian gold miner Placer Dome in March 2006.

This latest deal increases Barrick’s share of proven and probable reserves at Cortez by 4.6 million oz. to 11.5 million oz., and boosts measured and indicated resources by 1.4 million oz. to 3.5 million oz.

Barrick notes that last year, the joint-venture partners focused work on the prized Cortez Hills asset. They spent US$88 million for open-pit mining equipment, project infrastructure engineering, installation of dewatering wells, and completion of another 439 metres of an underground exploration decline.

Detailed engineering is substantially complete, and Barrick expects permits to be ready in the second half of 2008.

The company says Cortez Hills could be producing within 15 months of the Record of Decision becoming effective, with capital costs estimated at about US$500 million.

In the first five years of production, Cortez Hills is expected to crank out an average of 950,000 to 1 million oz. gold annually at total cash costs of about US$285 per oz.

Barrick’s other mines in Nevada include Bald Mountain, Ruby Hill, Turquoise Ridge (75%), Round Mountain (50%), and Marigold (33%).

“Nevada remains a key focus of our exploration dollars and we see excellent potential on the Cortez property, which shares many of the geological characteristics of our Goldstrike mine,” said Alex Davidson, executive vice-president of exploration and corporate development, in a release.

Companywide this year, Barrick expects to produce 7.6 to 8.1 million oz. gold plus 380 to 400 million lbs. copper. Last year, Barrick produced 8.06 million oz. gold at total cash costs of US$350 per oz. and 402 million lbs. copper at total cash costs of US$0.83 per lb.

Barrick made US$1.12 billion in profit (US$1.29 per share) on US$6.3 billion in sales revenue in 2007, compared with the previous years’ profit of US$1.51 billion (US$1.79) on sales revenue of US$5.6 billion.

The company ended 2007 with total gold reserves of 124.6 million oz., based on a US$575-per-oz. gold price.

Rio Tinto, meanwhile, has raised US$2.6 billion by selling off non-core assets this year, as it aims to lower its debt by US$15 billion to around US$28 billion.