The bristling hostility between two Canada-based gold diggers, Barrick and Goldcorp, over El Morro, a deposit in Chile, raises a number of issues of more than passing interest. The unusual tactics applied by Goldcorp to ostensibly gain control of El Morro are one thing; another highlight is the characterisation of the asset, for both groups, which increasingly rely for a living on non-gold metal sales. Five prior Total USD m 2009 2008 2007 2006 2005 years Operating cash flow 2,899 2,254 1,732 726 3,147 12,880 Capital expenditure -2,351 -1,749 -1,046 -1,087 -1,104 -2,558 -9,895 Other -64 -2,171 -1,122 -506 -76 -5 -3,944 Net 484 -1,666 -436 529 -454 584 -959 Free cash flow Operating cash flow 2,899 2,254 1,732 2,122 726 3,147 12,880 Capital expenditure -2,351 -1,749 -1,046 -1,087 -1,104 -2,558 -9,895 Free cash flow 548 505 686 1,035 -378 589 2,985 Debt raised -1,748 -1,114 720 -608 -120 -781 -3,651 Equity raised 3,950 74 142 74 92 43 4,375 Cash on hand 2,564 1,437 2,207 3,043 1,037 NA 2,564 Debt -6,335 -4,556 -3,148 -4,107 -1,801 NA -6,335 Net debt -3,771 -3,119 -941 -1,064 -764 NA -3,771 Dividends -369 -349 -261 -191 -118 -542 -1,830 Five prior USD m 2009 2008 2007 2006 2005 years Total Operating cash flow 1,270.2 651.0 763.7 355.5 4,372.2 Capital expenditure -1,356.4 -1,372.0 -871.0 -472.2 -277.5 -216.0 -4,565.1 Net investments -102.3 930.3 13.4 -1,802.4 56.7 3.8 -900.5 Net -188.5 424.3 -206.6 -1,510.9 244.9 143.3 -1,093.5 Free cash flow Operating cash flow 1,270.2 866.0 651.0 763.7 465.8 355.5 4,372.2 Capital expenditure -1,356.4 -1,372.0 -871.0 -472.2 -277.5 -216.0 -4,565.1 Free cash flow -86.2 -506.0 -220.0 291.5 188.3 139.5 -193.0 Debt repaid/(raised*) -872.0 639.0 -140.0 -845.0 4.8 -1,213.2 Equity raised 79.1 104.0 70.0 527.5 44.0 143.7 968.3 Cash on hand 874.6 262.0 511.0 526.3 562.2 NA 874.6 Debt* -735.7 -5.3 -1,065.0 -925.0 NA -735.7 Net cash/(debt) 138.9 256.7 -554.0 -398.7 562.2 NA 138.9 Dividends -131.7 -129.0 -127.0 -79.1 -155.0 -117.5 -739.3 * Includes convertibles Stock From From Value price high* low* USD bn USD 10.18 -29.2% 38.3% 7.466 USD 40.03 -13.4% 49.9% 29.364 USD 48.75 -17.9% 47.7% 9.293 ZAR 72.00 -38.7% 6.3% 4.157 AUD 3.06 -18.8% 27.0% 6.626 USD 38.28 -19.4% 30.4% 13.868 CNY 8.18 -33.4% 117.6% 12.626 USD 40.09 -16.5% 48.0% 39.462 AUD 33.52 -15.7% 21.3% 14.813 ZAR 90.13 -27.9% 8.5% 8.613 USD 18.15 -24.1% 33.3% 12.633 USD 51.20 -9.3% 44.4% 24.731 USD 32.91 -22.9% 86.6% 9.047 USD 82.18 -9.2% 139.2% 35.384 USD 110.09 -7.9% 29.6% 40.315 Tier I averages/total -21.2% 49.9% 228.083 Weighted averages -18.1% 52.1% * 12-month
In the hands of London-listed Xstrata, El Morro was classified as a copper-gold deposit; in the disputed hands of the two gold groups, it was magically converted overnight into a gold-first deposit. On 12 October 2009, Barrick announced that it agreed with Xstrata to acquire Xstrata's 70% interest in the El Morro project for USD 465m in cash. The asset is close to Barrick's Pascua Lama, now in build, and 75%-held Cerro Casale, which is ready for build.
From stage left, on 7 January 2010, Canada-listed New Gold, holding 30% of El Morro, said that is had exercised a right of first refusal on El Morro, a right triggered by Barrick's original offer. On 7 January 2010, also, Goldcorp magically agreed to loan USD 463m to New Gold to fund the acquisition of Xstrata's 70% interest. Goldcorp also loaned USD 50m "to a New Gold subsidiary which was paid to a different New Gold subsidiary in consideration of the internal assignment of the acquisition agreement with Xstrata".
That apparently left Goldcorp with 70% of El Morro, and New Gold with the balance. Not so, says Barrick, which "disputes that Xstrata or New Gold could properly sell the interest to Goldcorp and has filed an action in Ontario involving New Gold, Goldcorp and Xstrata in order to protect its rights under an October 2009 sale agreement with Xstrata". Barrick intends to "vigorously pursue" its claims and expects that the Ontario courts "will ultimately respect Barrick's rights notwithstanding the disputed Xstrata-Goldcorp transaction".
While it can be argued that, at least in the interests of transparency, Goldcorp could have chosen to kick off a "hostile counterbid" for El Morro, Xstrata equally could have put the stake up for open tender after clarifying rights with New Gold, to promote a certain outcome. Xstrata probably would have seen the price bid higher, an outcome that would have done its own shareholders no harm.
The matter is now in the courts; whatever the outcome, the dual-metal status of El Morro would accelerate the growing multi-metal status of Barrick and Goldcorp, also seen at certain other gold majors, such as Newmont. For gold companies, this is less like kissing your sister, and more like having an ugly sister and having no choice but to do the honours.
Gold diggers have developed a habit of using "other metal" sales, such as for copper, as nothing more than convenient weapons to reduce reported per-ounce costs of producing gold. But why would two gold majors battle over what ranks primarily as a copper deposit?
BARRICK'S COPPER MOVES
Barrick anticipates own copper production for 2010 of 340-365m pounds, which would produce revenue of more than USD 1bn at prevailing copper prices. Forward production is likely to expand with the USD 3bn build of Pascua Lama, on the Chile-Argentina border. Given a mine life of 25 years, expected average annual production is about 750,000-800,000 ounces of gold and 35m ounces of silver in the first full five years; copper production would be relatively modest, at about 30m pounds a year.
At Cerro Casale, in Chile, where Kinross owns 25%, feasibility study optimization work is complete. Pre-production capital expenditure is huge, at around USD 4.2bn (100% basis). Barrick's 75% share of average annual production is anticipated to be about 750,000-825,000 ounces of gold and 170-190m pounds of copper in the first full five years.
According to El Morro itself, production at full capacity, on a 100% basis, is likely to be in the order of about 330m pounds of copper a year, plus some 300,000 ounces of gold. Capital expenditure to build the mine is put at about USD 2.5bn. Based on prevailing metal prices, El Morro would rank firmly as a copper-gold mine.
If Barrick succeeds in obtaining 70% of El Morro, and completes build of Pascua Lama, Cerro Casale, and El Morro, its annualised copper production would approach 800m pounds. Barrick's share of capital expenditure for the three mines would be about USD 8bn.
GOLDCORP: HUNGRY TO SUPPORT EXTREME MARKET VALUATION
Goldcorp's big current build, costing billions of dollars, is at Peñasquito in Mexico; commercial production is anticipated around the third quarter of this year. At full production, and on life-of-mine data, the two polymetallic pits at Peñasquito will produce, as Goldcorp puts it, "both lead and zinc concentrates, with most of the gold and silver production coming from the lead concentrates.
Output is anticipated at annualised 400m pounds of zinc; lead numbers are hazy, but lead concentrates are expected to contain about 500,000 ounces of gold annually, and 31m ounces of silver.
Based on prevailing metal prices, zinc revenues would compute at about USD 400m, gold at USD 550m and silver at just less than gold. During 2009, other metal sales for Goldcorp accounted for USD 454m of total USD 2.7bn revenues, or about 17% of the total. Most of that came by way of Goldcorp's 37.5% stake in copper-gold miner Alumbrera, 50% owned by and operated by Xstrata. The remaining stake in Alumbrera is held by Yamana, which relies heavily on Alumbrera to put a shine on its active group activities, which are focused on gold.
Goldcorp has a lot to prove. It market value, at USD 29.4bn, is higher than Newmont's USD 24.7bn, and second, among classified gold miners, only to Barrick's USD 39.5bn. Goldcorp's 2009 revenues of USD 2.7bn, compared to Newmont's USD 7.7bn, or Barrick's USD 8.1bn, leave lots to prove on the valuation front.
Over the past 10 years, Goldcorp has produced precious little in the way of free cash flow, financing the payment of USD 739m in cash dividends by raising equity from investors in a total amount of USD 968m, and divesting various assets, including its stake in Silver Wheaton, which in 2008 raised cash of USD 1.5bn for Goldcorp, and in 2006, USD 189m. On 24 July 2007, Goldcorp agreed to sell Silver Wheaton 25% of Peñasquito's life of mine silver production, for upfront cash of USD 485m.
OLD PALS NOW FOES?
Goldcorp and Barrick are hardly strangers; on 15 March 2006, Barrick acquired 100% of Placer Dome for some USD 10bn in shares and cash. Goldcorp had previously agreed to acquire for USD 1.6bn certain Placer Dome assets from Barrick, including the Campbell (100%), Porcupine (51%) and Musselwhite (68%) gold mines in Canada, the La Coipa (50%) silver-gold mine in Chile, and 40% of Pueblo Viejo in the Dominican Republic, plus Placer Dome's interests in its Canadian exploration properties, including the Mount Milligan copper/gold deposit in British Columbia.
Pueblo Viejo, where Barrick is 60% owner, and operator, is busy with a USD 2.7bn build. The mine is scheduled for initial production in the fourth quarter of 2011. On a balance of probabilities, it could make sense to argue that Goldcorp is hungrier than Barrick for El Morro. As has been shown over the past few years, copper can do absolute wonders for a gold miner's cash flow quantum, and quality.
One possible challenge for Goldcorp is that its status as a gold major could be "diluted" by increasing revenues from base metals. That is accelerating sharply as Peñasquito ramps up to full production, and would be sharply underlined if El Morro is retained and built.
Tier I gold (and some copper) diggers
source:mineweb
Selasa, 16 Maret 2010
Market overview
Diposkan oleh Unknown di 23:48
Label: Commodities, Company, Market, News
