Barrick Gold sells 50% stake in Papua New Guinea to China’s Zijin

homes burning at Porgera

Homes burning at Porgera

‘Zijin’s role in the management of the Porgera Joint Venture is expected to grow over time as the company gains experience operating in Papua New Guinea’

Reuters

Barrick Gold Corp said on Tuesday it has forged a strategic tie-up with Zijin Mining Group Co and agreed to sell the Chinese miner a stake in a mine in Papua New Guinea as a first step toward further collaboration.

Toronto-based Barrick, under the stewardship of Executive Chair John Thornton, has since 2013 vowed closer ties with the Chinese, as it attempts to reduce its debt load and cut capital expenditure risks around the development of large new projects.

Thornton, who took over the reins at Barrick from Peter Munk in 2014, spent years working in China after stepping down from a senior role at Goldman Sachs.

The tie-up with Zijin may take some of the heat off Barrick and Thornton, who since joining the board in 2012 has twice come under fire from investors for receiving large bonuses at a time when Barrick’s share price languished around all-time lows.

Zijin, on its part, is trying to expand its presence outside China and it recently bought 9.9% stakes in two Canadian miners – Ivanhoe Mines Ltd and Pretium Resources Inc . Earlier on Tuesday, it also agreed to buy a big stake in Ivanhoe’s Kamoa copper project in the Democratic Republic of Congo (DRC).

Barrick said it has signed a long-term strategic cooperation agreement with Zijin which outlines the intent of both companies to collaborate on future projects and joint investments.

“It will be interesting to see if the partnership with Zijin as that company tiptoes out into international mining, can create additional value,” said J.P. Morgan analyst John Bridges in a research note.

PORGERA STAKE SALE

Barrick, the world’s largest gold producer, said Tuesday it would sell 50% stake in its unit that manages the Porgera gold mine in Papua New Guinea to Zijin for $298 million in cash. The unit, Barrick Niugini, owns 95% in the Porgera mine and the Papua New Guinea government owns the rest.

The deal, a part of Barrick’s plan to reduce net debt by at least $3 billion by the end of the year, comes a day after the it sold its Cowal gold mine in Australia to Evolution Mining for $550 million.

Zijin and Barrick will jointly control Barrick Niugini after the sale, which is expected to be completed in the third quarter, the Canadian miner said on Tuesday.

Barrick shares were down 3% in early trading on Tuesday as gold prices slide.

New structure

Under the new structure, Barrick and Zijin will jointly control Barrick Niugini Limited (the manager of the Porgera Joint Venture), and BNL will have a joint Barrick-Zijin Board of Directors consisting of three Barrick nominees and three Zijin nominees. One party will nominate the Executive Managing Director, taking primary responsibility for operations of the mine, and the other party will nominate the Chairman of the Board of Directors and the Deputy Managing Director.

In order to ensure continuity of operations and demonstrate Barrick’s ongoing commitment to its stakeholders in Papua New Guinea, the current BNL management team will remain in place, with incumbent Executive General Manager, Greg Walker, nominated by Barrick as the first Executive Managing Director, while Zijin will nominate the first Chairman of the Board and Deputy Managing Director.

Zijin’s role in BNL’s management of the Porgera Joint Venture is expected to grow over time as the company gains experience operating in Papua New Guinea.

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Filed under Financial returns, Papua New Guinea

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