Tight negotiations continue between Barrick Gold Corp. (ABX, Financial) and Newmont Mining Corp. (NEM, Financial) Â for the sale of ABX's 50% stake in Kalgoorlie to the U.S. gold mining company. The two gold mining companies agree on the resource value of the mine, but not on its future value.
According to the most recent news about this transaction, other companies besides Newmont have entered into negotiations for the purchase of Barrick’s 50% stake in the Australian Super Pit.
However, the company that showed the greatest interest in acquiring Barrick’s 50% stake in Kalgoorlie is Newmont. With the Canadian company, the largest gold producer in the U.S. has already found an agreement on the resource value of the asset.
But according to Gary Goldberg, Newmont’s CEO, what the two companies did not manage to find yet is an agreement on the future value of the asset due to “different assumptions on exchange rates and gold price, those sorts of things.” (Bloomberg TV Canada).
Newmont and Barrick didn’t disclose any information about the value they give to their stakes. According to analysts their stakes’ value ranges between $400 million and approximately $1.5 billion.
These negotiations still going on have allowed the inclusion of Kinross Gold Corp. and other Chinese mining companies in the race for the purchase of the 50% of the Australian mine that belongs to Barrick.
The Kalgoorlie mine is an open-pit mine located next to the town of Kalgoorlie, about 550 kilometers east of Perth, Western Australia.
Source: Wikimedia Commons
The mines are managed by Kalgoorlie Consolidated Gold Mine Pty Ltd. (KCGM) for the joint venture owners, Newmont and Barrick.
On May 1, 2015, Barrick and Newmont in joint venture partnership signed the new Management Services Agreement under which the U.S. gold mining company took on the management oversight of the Kalgoorlie operations.
Since then, Newmont increased gold production and decreased costs at Kalgoorlie.
As seen in pictures below, both consolidated and attributable ounces of gold produced increased from 83,000 in second quarter 2015 to 96,000 in second quarter 2016.
Source: NEM’s Q2 2016 Report
CAS and AISC decreased with 14% year over year and 19.8% year over year, respectively.
Source: NEM’s Q2 2016 and Q2 2015 Reports
In 2015 Newmont produced 316,000 ounces of gold (-3.95% year over year) at costs applicable to sales (CAS) of US$853 per ounce (-1.7% year over year) and AISC of US$965 per ounce (-4.4% year over year).
In first half 2016, higher production at Kalgoorlie, together with Tanami, Ahafo and the inclusion of CC&V, contributed to a 10% increase year over year in attributable production, offsetting declining production at Yanacocha and the sale of Waihi. During second quarter 2016, Kalgoorlie plus the inclusion of CC&V led CAS per ounce improvements of CAS per ounce decrease of 0.8% year over year.
Barrick’s side: from its 50% interest stake, in 2015 Barrick produced approximately 320,000 ounces of gold (-1.8% year over year) at cash costs of $752 per ounce (-8% year over year), AISC of $886 per ounce (-14.6% year over year) and cost of sales of $307 million (-0.6% year over year).
Following the divestitures that were completed in 2015 and early 2016, Barrick now reports non-core properties, among which Kalgoorlie, into the "Other Mines" group that also includes Porgera, Zaldàvar and Lumwana.
In first half 2016, at non-core properties Barrick reported a decrease in the attributable gold production of -51% year over year and AISC -20.7% year over year.
In 2016, due to the decrease in the expected currency exchange rate, the fall in diesel prices and reduced capex, Barrick expects to sustain lower cash costs and all-in sustaining costs per ounce (350,000-365,000 ounces of gold at cash costs of $610 to $630 and all-in sustaining costs of $670 to $700 per ounce) on higher sales than in 2015 at Kalgoorlie.
Besides Kalgoorlie, Barrick is also considering selling its 64% stake in Acacia, 50% stake in Zaldivar, the copper mine in Chile and the Lumwana copper mine in Zambia.
These divestments belong to the Canadian miner’s strategy to further strengthen the balance sheet.
Barrick is successfully pursuing this strategy since 2015, when it was able to reach the 23% reduction in total debt target with the sale of Bald Mountain and 50% of Round Mountain.
Last Friday, Oct. 14, Barrick Gold Corp. (NYSE:ABX) closed at $15.69 per share, down 31 cents (or -1.94%) from the previous trading day and gained 112.6% year to date. But the stock heavily declined since the beginning of August (-28%).
The enterprise value/EBITDA is 6.69 and the price-book ratio (mrq) is 2.49.
Last Friday, Oct. 14, Newmont Mining closed at $34.23 per share, down 53 cents (or -1.52%) from the previous trading day and gained 90.27% year to date. But the stock heavily declined since the beginning of August (-31%). NEM also heavily declined 22% since early August.
The enterprise value/EBITDA is 6.80 and the price-book ratio (mrq) is 1.59.
Disclosure: I have no positions in any stock mentioned in this article.
