The three-cornered deal announced on Tuesday by Barrick Gold Corp., Goldcorp Inc. and Kinross Gold Corp. is better than the market thinks it is.
While investors’ reaction was immediately and uniformly negative – Goldcorp stock plummeted and Barrick and Kinross shares both lost ground – the shuffle of assets seems like an eminently sensible transaction.
The agreement, which centres on the Cerro Casale gold and copper project in northern Chile, gives each of the companies something it values highly: cash for Kinross, new reserve potential for Goldcorp and a low-cost way to move forward a shelved project for Barrick. It also allows Goldcorp and Barrick to share the risk of developing a swath of Chile’s Maricunga gold belt, while letting the two companies spread expenses among a number of nearby projects.
In short, it’s an incremental, guarded path to development that stands in contrast to the roll-the-dice strategy that was common during the commodity frenzy of a decade ago. It signals that major gold producers are edging back into expansion mode but are hedging their bets while doing so.
Both the ambitious scope of the deal and its relative caution speak to an environment in which it’s becoming tougher and more expensive to find new mines of all types. Richard Schodde, managing director of MinEx Consulting in Australia, estimates the mining industry’s cost per discovery has tripled in inflation-adjusted terms over the past decade.
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