February 21, 2008 / 2:12 PM / 10 years ago

Barrick to buy Rio's Cortez stake for $1.7 billion

TORONTO (Reuters) - Barrick Gold Corp (ABX.TO) will pay $1.7 billion to buy out Rio Tinto’s (RIO.L) 40 percent stake in their Cortez joint venture in Nevada, acquiring ownership of the potential million-ounce-a-year gold-mining project, Barrick said on Thursday.

Barrick, the world’s top gold producer, announced the deal as it reported a 28 percent rise in fourth-quarter profit on the back of soaring gold prices.

The deal for Cortez comes as Rio (RIO.AX) looks to sell assets to whittle down the heavy debt it took on to buy aluminum producer Alcan. Rio owned the Cortez stake through its Kennecott Explorations unit.

Barrick will pay in cash and will see its reserves rise by 4.6 million ounces at a time when top producers have struggled to build up their production pipelines.

“We are very delighted to have that acquisition under our belts,” Barrick Chief Executive Greg Wilkins said on a conference call. “That’s something that I think people have tried unsuccessfully in the past to acquire.”

Cortez should produce between 950,000 ounces and 1 million ounces a year at initial cash costs of $280 to $290.

The joint venture consists of the Cortez mine and the Cortez Hills development project, and is about 60 miles (100 km) from Barrick’s Goldstrike property. Construction of Cortez Hills is expected to start later this year, and production should follow about 15 months after that.

Following a rush of takeovers in the past few years, Barrick has shifted to buying up smaller assets, including a 20 percent stake in the Porgera gold mine in Papua New Guinea, and a majority stake in the Cerro Casale project in Chile through its acquisition of Arizona Star.

HIGHER PROFIT, SHARES

Barrick shares were up C$1.03 at C$51.85 on the Toronto Stock Exchange.

The company earned $537 million, or 62 cents a share, in the fourth quarter, up from a year-before $418 million, or 48 cents per share. Analysts polled by Reuters had expected a profit of 54 cents a share before exceptional items.

For the year, Barrick earned $1.12 billion, or $1.29 a share. Excluding the costs of eliminating its operating hedge book in the first half of the year, profit was $1.73 billion.

Barrick, which has 27 operating mines, produced 8.06 million ounces in 2007 and said it expects to produce between 7.6 million and 8.1 million ounces of gold and between 380 and 400 million pounds of copper this year.

Gold production was 2.1 million ounces in the quarter at a cost of $375 an ounce, compared with 2.4 million ounces at $287 an ounce in the year-before period. Quarterly copper production edged higher to 101 million pounds.

HSBC analyst Victor Flores said he was a bit disappointed with the higher costs.

“I perhaps got a bit faked out by how well they controlled costs last year, and thought they could continue on that trend, but the reality is that costs are up across the board in this industry and it’s impacting everybody,” he said.

Realized gold prices were $799 an ounce, up from $468.

Gold reserves at the end of 2007 were 124.6 million ounces, while the company’s cash balance was $2.2 billion, it said.

Barrick raised construction costs estimates for its 60 percent owned Pueblo Viejo project in the Dominican Republic to $2.7 billion from an earlier range of $2.1 billion to $2.3 billion, due to an expected increase in throughput rates.

Barrick now sees its share of production at around 600,000 ounces a year, up from its previous estimate of 465,000 to 480,000 ounces.

All told, capital spending this year should be between $2.1 billion and $2.5 billion, Barrick said.

($1=$1.01 Canadian)

Additional reporting by Jonathan Spicer; Editing by Rob Wilson

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