Looking for another way to boost the oil-dependent economy that has been bitten by a collapse in energy prices, the government of Venezuela turned to mining, taking a 55% stake in a gold mining venture with Barrick Gold Corporation (ABX, Financial), the world’s biggest producer of the precious metal.
Nicolas Maduro, the President of Venezuela, said that investments from the ventures would amount to approximately $5 billion, but he did not provide further details.
The gold mining venture with the Venezuelan government is part of the overarching objective of Barrick to grow its free cash flow per share and represent a new opportunity to gain access to attractive exploration projects in Venezuela.
Evaluating these third-party opportunities is a focus in 2016 for Barrick.
In South America, during recent decades, Barrick has already discovered the Lagunas Norte (Peru) - one of the two largest gold deposits - as well as its new Alturas discovery in Chile. This gold mining venture with the Venezuelan government is an opportunity for Barrick to identify, evaluate and rank exploration projects in this country as well:
“At the invitation of the government, we intend to review information pertaining to mining opportunities in the country,” Andy Lloyd, a spokesman for Toronto-based Barrick, wrote in an e-mailed response to Bloomberg.com
Let’s see how the market will react to the news, since traders generally do not trust joint ventures made with South American governments as they are perceived as being politically unstable countries and because of risks of nationalization of US companies’ stakes in joint ventures.
Of course, we do not  yet know the results that this joint venture will produce in the long term. In the short term, if the market reacts negatively to this news, there may be more chances to buy stocks of the world’s biggest producer of the precious metal at lower prices.
The stock gained a 135% year to date on the NYSE, but it is down trending since the beginning of August.
Barrick has a high quality asset-based portfolio that cannot be replicated by any other gold mining company in the industry.By December 31, 2015, Barrick had proven probable gold reserves of 91.9 million ounces. The company also had 79.1 million ounces of measured and indicated gold resources.
As of today, the Enterprise Value/EBITDA is 7.48 and the Price/Book (mrq) is 2.89.
Disclosure: I have no positions in Barrick Gold Corporation.
Start a free 7-day trial of Premium Membership to GuruFocus.
