Barrick Gold Corporation (ABX) has agreed to sell its Yilgarn South assets (Yilgarn South), comprising the Granny Smith, Lawlers and Darlot mines, in Western Australia to Gold Fields Limited (GFI) for about $300 million. The deal is expected to close on Oct 1.
The agreement is subject to closing conditions, including clearance by Australia's Foreign Investment Review Board, consent of the Western Australian Minister for Mines for the transfer of the property tenements, and the assignment of certain supply contracts.
The deal offers Gold Fields an option to deliver up to half of the consideration in its own shares to Barrick. Pricing of the shares will be based on the five day volume weighted average price, prior to, but not including closing. The acquisition will provide Gold Fields with an additional 452,000 ounces of production from the mines.
Barrick, which is among the major players in the gold mining industry along with Goldcorp Inc. (GG) and Newmont Mining Corporation (NEM) plans to use the proceeds for general corporate purposes including debt repayment.
The move testifies Barrick’s strategy of focusing on aggressive cost cutting and low costs assets and doing away with the non-profitable ones in order to improve its free cash flow profile. The company also slashed its dividend by 75% in the most recent quarter in the wake of falling gold prices.
Barrick’s Pascua-Lama mine in the Andes, which is the highest gold mine in the world, has also been going through a rough patch. Construction at the mine has been delayed due to the falling gold prices, rising costs and challenging market conditions. Barrick announced that Copiapo Court of Appeals have issued a ruling that the company must build a water management system at the Pascua-Lama project before restarting construction activities in Chile.
Barrick also recorded a hefty after-tax impairment charge of $8.7 billion in the second quarter of 2013 due to falling gold prices. Lower metal prices weighed on its bottom line. Adjusted earnings (excluding one-time items) fell to 66 cents per share in the quarter from 82 cents per share in the year-ago quarter, but was ahead of the Zacks Consensus Estimate of 56 cents.
Barrick has maintained its gold production forecast for 2013 at 7-7.4 million. The company also backed its full year all-in sustaining cost guidance at $900-$975 per ounce.
Barrick currently retains a Zacks Rank #3 (Hold).
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