China | China miners may take stake in Barrick's Veladero gold mine
The Veladero mine camp near the city of Jachal, Argentina, is pictured on September 15, 2016. Reuters/Sergio Leiva
The Veladero mine camp near the city of Jachal, Argentina, is pictured on September 15, 2016. Reuters/Sergio Leiva

China miners may take stake in Barrick’s Veladero gold mine

A deal would be the latest instance of Chinese companies investing in Latin America's resource-rich commodities sector

October 26, 2016 8:16 AM (UTC+8)

China’s Zijin Mining Group Co. and Shandong Gold Mining Co have held separate talks with Barrick Gold Corp to buy a 50 percent stake in its Veladero gold mine in Argentina, according to four sources with knowledge of the process.

Veladero is one of Barrick’s five core mines; all are in the Americas. It is expected to produce between 580,000 and 640,000 ounces of gold this year.

The high quality of the mine, production capacity and the prospect for geographical diversification have appealed to the state-owned Chinese suitors, said three of the sources, who requested anonymity because the matter is private. All spoke over the past week.

Barrick, the world’s biggest gold miner, has not launched a formal sales process for Veladero, and there is no certainty that the talks will result in a transaction, the sources said.

A potential sale of a 50 percent stake could fetch Barrick more than $1 billion, two of the sources said.

Barrick, Shandong and Zijin declined to comment.

Barrick’s shares rose about 2.6 percent in early trade on higher gold prices, then extended gains after the Reuters report. They climbed as much as 6.7 percent, hitting their highest in more than three weeks and closing up 2.2 percent at C$22.57 in Toronto.

“It’s a sensible thing to reduce risk, and bringing in a deep-pocketed partner can help,” said John Stephenson, president of Stephenson & Co Capital Management, who acknowledged that it is very difficult to make a joint venture work “in the best of times”.

“In a tighter operating environment with lower commodity prices, it’s important to keep a focus on costs. I think this is a positive move for Barrick,” he added.

Last month, operations at Veladero were shut down for more than two weeks after a cyanide spill at the high-altitude mine. This was the second cyanide spill at the mine in a year.

Environmental issues

The deal would be the latest instance of Chinese companies investing in Latin America’s resource-rich commodities sector, partly to help meet domestic demand. Chinese investors have poured billions into Latin American acquisitions in recent years, buying into copper and iron ore miners, oil and gas concessions and power grids.

Barrick would like the buyer of the Veladero stake also to make an investment in its Pascua-Lama project in South America, two of the sources said.

The gold and silver project, which straddles the border of Argentina and Chile in the Andes Mountains, was put on hold in 2013 due to environmental issues, political opposition, labour unrest and development costs that ballooned to $8.5 billion.

The Canadian company wants help developing the mineral-rich area it controls, known as the El Indio belt, a 140-kilometer stretch of land home to Veladero and Pascua-Lama. Alturas, another large discovery owned by Barrick, is also on the El Indio belt.

Last year, Barrick and Zijin, one of China’s biggest gold producers, formed a strategic partnership, with Barrick selling a stake in its Papua New Guinean mine to the Chinese company. Zijin officials have visited Pascua-Lama several times, according to local media reports in 2014.

Barrick has been trimming noncore assets to reduce debt. It has a public process under way in Australia to sell its stake in Kalgoorlie, an Australian gold mining joint venture with Newmont Mining Corp .

Last December, Barrick completed sale of a 50 percent stake in another South American operation, the Zaldivar copper mine in Chile, to copper miner Antofagasta Plc for $1 billion.

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