Barrick Gold Corporation (ABX), the largest gold mining company in the world, has entered into an agreement with Xstrata Copper Chile S.A., a wholly owned subsidiary of Xstrata Plc, to acquire Xstrata’s 70% interest in the El Morro project for $465 million in cash. Another Canadian miner, New Gold Inc. (NGD) owns the remaining 30% interest in El Morro.

The El Morro gold project is located in the Atacama Region in Chile. The project has total measured and indicated resources of about 8.3 million ounces of gold and about 6.3 billion pounds of copper. The acquisition will add another large, high quality gold-copper resource to Barrick’s portfolio.

In Chile, Barrick already controls a project, which is entering construction, called Pascua-Lama. It also has a 50% stake in another mine, the Cerro Casale project. El Morro is located near the Pascua-Lama and Cerro Casale projects. Xstrata has already spent about $70 million on a feasibility study, which Barrick is acquiring directly from Xstrata as part of this transaction.

New Gold holds a right of first refusal to purchase Xstrata’s 70% interest in El Morro and has until Jan. 11, 2010, to exercise the right. Barrick’s agreement to purchase Xstrata’s interest in El Morro is subject to the expiration or waiver of the New Gold’s right of first refusal. The transaction is expected to close prior to Jan. 30, 2010.

Going forward, Barrick Gold is hoping to benefit from three owned projects in the pipeline − Cortez Hills, Buzwagi and Pueblo Viejo. Barrick is also paying off its hedges to benefit from the rising gold prices.

However, lower realized prices and higher cash costs are expected to continue to weigh on near-term earnings. The company also expects lower production for full year 2009. Additionally, we are concerned about the slowdown in the global economy, especially in India , which absorbs about 50% of world gold production.

We maintain our Neutral recommendation on the stock.
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