Barrick Gold Corp. (ABX, Financial) and Goldcorp Inc. (GG, Financial) announced the decision to create a 50-50 joint venture on March 28.
According to the terms of the deal, Goldcorp will purchase a 25% interest stake in the Cerro Casale project from Barrick.Â
As payment, Goldcorp will not only fund Barrick's first $260 million in expenditures following the formation of the joint venture, but will spend an equal amount on its own behalf for a total commitment of $520 million. Golcorp will pay $60 million over a two-year period, followed by $80 million in each successive two-year period.Â
The two companies will share the risk related to the development of the Maricunga belt in Chile, which includes the Cerro Casale project, one of the largest undeveloped gold and copper deposits in the world.
In addition to the 25% stake, Goldcorp will also fund the joint venture's purchase of the Quebrada Seca exploration project from Kinross Gold Corp. (KGC, Financial). The project is adjacent to Cerro Casale’s undeveloped gold deposit.
In a separate deal, Goldcorp is acquiring Exeter Resource Corp. (XRA, Financial), a Canadian junior mining company engaged in the exploration and development of mineral properties in Chile, for about $185 million in shares. The sole asset held by Exeter is the Caspiche project, which is not far from the Cerro Casale project.
The Caspiche property will be incorporated into the joint venure upon closing.
Barrick reports Cerro Casale has 17.4 million ounces of gold in proven and probable reserves and 4.3 billion pounds of copper in proven and probable reserves as of Dec. 31, 2016.
This agreement marks a very important step for Goldcorp in its strategy to improve the quality of its assets in terms of enhanced average grade and the production levels mined from its reserves.
It appears the market has not enthusiastically reacted to the news of this agreement. Goldcorp closed at $14.94 yesterday, down $1.11 per share or -6.92%. It was trading with a price-sales (P/S) ratio of 3.70 and a price-book (P/B) ratio of 0.95. The EV/Ebitda ratio is 13.42.
Barrick Gold closed at $19.08 per share yesterday, down 52 cents or -2.65% from the previous trading day, with a P/S ratio of 2.65 and a P/B ratio of 2.80. The EV/Ebitda ratio is 6.78.
Disclosure: I have no positions in any stock mentioned in this article.
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