Barrick Gold Corp. announced in late July it had reached an agreement to sell a 50% interest in the Zaldívar copper mine in Chile to Antofagasta Plc for a total consideration of $1.1 billion in cash.
“The sale of 50% of Zaldívar is consistent with our strategy to create long-term value for our shareholders. By selling a stake in this noncore asset, we strengthen our balance sheet while maintaining significant exposure to a strong cash-generating operation,” said Kelvin Dushnisky, co-president of Barrick. “Following a highly competitive auction process, we are pleased to reach an agreement with the ideal partner for Zaldívar. Antofagasta has an outstanding track record of building and operating mines in Chile, and we see this as the first step in an ongoing, collaborative partnership. There are many potential opportunities to benefit from Antofagasta’s experience as Barrick evaluates development projects in the future.”
“We have consistently been impressed with the workforce at Zaldívar, and look forward to partnering with them,” said Diego Hernandez, CEO of Antofagasta. “We also look forward to exploring other opportunities to collaborate with Barrick in the future. We are enthusiastic about partnering with Barrick at Zaldívar. Together, we believe that we are well positioned to enhance the longterm value of the Zaldívar operation through our collective best practices.”
Antofagasta will pay Barrick $980 million in cash upon closing and $25 million in additional cash payments over the next five years. The transaction is expected to be complete in late 2015 and is subject to customary closing conditions.
Barrick said it would work with Antofagasta to maximize the value of the Zaldívar mine, as it has intimate knowledge of the operation and its potential. Antofagasta will help to realize that potential by leveraging its extensive operating expertise in Chile, including potential synergies with its existing portfolio. Such synergies may include the ability to leverage Antofagasta’s in-country procurement programs, contractor relationships and administrative efficiencies.
Under the new ownership structure, Zaldívar will have a joint Barrick-Antofagasta Board of Directors consisting of three Barrick nominees and three Antofagasta nominees. Antofagasta will act as the operator of the mine and will be subject to oversight and direction by the board. The initial chairman of the board will be appointed by Antofagasta and will hold the office of chairman until January 2017, at which point the right to appoint the chairman will rotate between the parties on an annual basis on January 1 of each year. Barrick noted that, including Zaldívar, it has to date announced transactions valued at approximately $1.85 billion, or nearly two thirds of its debt-reduction target. Apart from the Zaldivar transaction, these include sale of 100% of the Cowal mine for $550 million in cash and sale of a 50% interest in Barrick (Niugini) Ltd., operator of the Porgera Joint Venture, for $298 million in cash.
Barrick said it is actively exploring a number of other joint venture and sales opportunities and intended to provide a general update on debt reduction activities with the company’s second quarter results on August 5. Zaldívar is located in the Andean Precordillera in Region II of northern Chile, approximately 1,400 km north of Santiago and 175 km southeast of the port city of Antofagasta. The mine lies at an average elevation of 3,000 m. It is an open-pit, heap-leach copper operation. Pure cathode copper is produced by three stages of crushing and stacking, followed by heap leaching and bacterial activity to remove the copper from the ore. Run-of-mine dump leach material is placed on the old sulphide ore pad and leached.
Zaldívar produced 222 million lb of copper in 2014 at C1 cash costs of $1.79/lb. Production for 2015 is expected to be 230-250 million lb at cash costs of $1.65- $1.95/lb. At the end of 2014, Barrick had 5.6 billion lb of proven and probable copper reserves at Zaldívar on a 100% basis. Antofagasta Plc is a Chilean-based copper mining group with significant byproduct production and interests in transport. During 2014, its operations produced 704,800 mt of copper in concentrate and copper cathode, 271,000 oz of gold and 7,900 mt of molybdenum in concentrate.