Canadian mining company Barrick Gold Corporation (ABX) announced that it has sold its 70% interest in the Pinson Mine, located in Humboldt County, Nevada, to Atna Resources Ltd. for $15 million and 15 million common shares of Atna valued at about C$11.4 million.
The equity portion of the deal gives Barrick a roughly 12.8% stake in Atna. In addition, Atna granted Barrick a royalty of 10% of net profits that triggers once the initial 120,000 ounces of gold are produced by the Pinson Mine.
Barrick and Atna each have also received certain property interests and agreed to process ore from the mine at Barrick’s facilities. Barrick intends to hold the Atna shares for investment purposes and may acquire more in the future.
Last month, Barrick released its second quarter 2011 results. The company posted record second-quarter 2011 results driven by higher gold sales volumes and higher prices for both gold and copper. The second quarter reported a net income of $1.2 billion or $1.16 per share.
Adjusted net income was up 36% year over year to $1.1 billion or $1.12 per share compared with $824 million or 84 cents per share in the prior-year quarter, above the Zacks Consensus Estimate of $1.10.
In the second quarter of 2010, total revenue rose 31% year over year to $3.43 billion, above the Zacks Consensus Estimate of $3.3 billion.
In the reported quarter, gold production was 1.98 million ounces at a total cash cost of $445 per ounce and net cash cost was $338 per ounce. In second-quarter 2011, copper production was 93 million pounds at a total cash cost of $1.56 per pound.
Barrick completed the acquisition of Equinox Minerals in July 2011 and is in the process of integrating the Lumwana mine and Jabal Sayid project into the Australia Pacific regional business unit. This transaction has added two quality copper mines to the portfolio and improves copper leverage while maintaining exposure to gold.
The company is on track to achieve its full-year 2011 operating guidance of 7.6-8.0 million ounces at a total cash cost of $450-$480 per ounce and significantly lower expected net cash cost of $290-$320 per ounce compared with the previous guidance of $340-$380 per ounce, positioning Barrick as one of the lowest cost senior gold producers.
Following Barrick’s acquisition of Equinox Minerals, the company expects to produce 455-475 million pounds of copper in 2011 at a total cash cost of $1.55-$1.70 per pound.
Lumwana has excellent potential for both brownfield and greenfield resource growth. Barrick expects to spend over $50 million in 2011 as part of an 18-month exploration program to increase the measured and indicated resource as part of the expansion study, which is expected to be completed in the second half of 2012. As a result, the company’s total exploration budget for 2011 will increase to $370-$390 million, of which approximately 40% will be capitalized.
Barrick has targeted growth in production to 9 million ounces of gold within the next five years. Total cash costs are expected to benefit from its large, low cost projects, primarily Pueblo Viejo and Pascua-Lama, as these mines come on stream.
At full capacity, these two mines are expected to contribute about 1.4-1.5 million ounces of average annual production over the first full five years of operation and are expected to lower Barrick’s overall total cash costs by about 20%. At current metal prices, these two projects are anticipated to generate a combined average annual EBITDA of about $2.8 billion for Barrick over the same period.
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.
