Barrick Gold Corporation (ABX) announced that the Zambian Competition and Consumer Protection Commission (the CCPC) approved its proposed acquisition of Lumwana copper mine, Equinox Minerals Limited.
On the basis of the approval of the deal, Barrick, the world’s largest producer of copper, would allow The Zambia Consolidated Copper Mines Investment Holdings to retain its 2.2% stake in Equinox. The commission also stated that Barrick must also honor Lumwana’s existing agreements with local companies and suppliers along with a commitment to prevent job losses.
The Board granted final conditional authorization on the premise that the acquisition did not raise any competition concerns because Barrick had no known presence in Zambia and, therefore, it was unlikely to substantially lessen competition in the mining sector .
In April 2011, Barrick entered into a support agreement with Equinox in order to acquire, through an all-cash offer, all of the issued and outstanding common shares of Equinox for C$8.15 per share, or a total of approximately C$7.3 billion.
The acquisition of Equinox would add a high quality, long-life asset to the company’s portfolio and is consistent with the strategy of increasing gold and copper reserves through exploration and acquisitions.
Moreover, the transaction is expected to be accretive to cash flow and earnings on a per share basis. It does not dilute Barrick shareholders’ gold exposure per share; on the contrary, it enhances copper exposure and leverage per share in a strong copper price environment.
In addition to the Zaldivar mine and the Cerro Casale project in Chile, this acquisition would position Barrick with significant production growth potential in two of the most prolific copper-producing regions of the world.
Recently, Barrick reported record results for the first quarter of 2011, driven by higher gold sales volumes and higher prices for both gold and copper. The first quarter reported a net income of $1.0 billion or $1.00 per share.
Adjusted net income was up 32% year over year to $1.0 billion or $1.01 per share compared with $763 million or $0.78 per share in the prior-year quarter, in line with the Zacks Consensus Estimate of $1.01.
In the first quarter of 2011, total revenue of $3.1 billion was higher than $2.6 billion in the prior-year quarter, but below the Zacks Consensus Estimate of $3.2 billion. In the reported quarter, gold production was 1.96 million ounces at a total cash cost of $437 per ounce or net cash cost of $308 per ounce, ahead of budget, primarily due to strong performances from Cortez, Goldstrike and Veladeron.
Copper production was 75 million pounds at a total cash cost of $1.25 per pound in first-quarter 2011.
Barrick faces stiff competition from AngloGold Ashanti Ltd. (AU) and Newmont Mining Corp. (NEM).
We maintain our Neutral recommendation on Barrick. Currently, it holds a Zacks #3 Rank (Hold) on the stock.
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