Friday, February 22, 2013

Barrick Targets Nevada

Dr. Brian Meikle, (the late) Bob Smith and Peter Munk
overlooking the Betze-Post at Goldstrike
Barrick Targets Nevada

Liezel HillCommodities Industry Reporter at Bloomberg

"Barrick Gold Corp. is betting growth will come from Nevada, where the world’s largest producer scored its first big success three decades ago, after more than $9 billion in writedowns and cost overruns in the past two years on projects from Zambia to the Andes.

Chief Executive Officer Jamie Sokalsky said yesterday the Toronto-based company doubled the estimated resources at the Goldrush deposit in Nevada last year, even as it sells assets and cuts spending elsewhere to revive shares that slumped 24 percent. Barrick is also pushing ahead with Pascua-Lama, a gold and silver mine on the Chile-Argentina border it expects to open next year.

“The priorities for the company, once we finish Pascua-Lama  really are focused on Nevada,” Sokalsky said yesterday on the company’s earnings call. “We have one of the most exciting exploration finds in recent memory, the Goldrush discovery, to ultimately add to this Nevada production in the future.”

Sokalsky’s mantra yesterday was steady and safe. The CEO, who took the job June 6, said the company has no plans to build more new mines and is looking to sell lower-return assets including its energy unit and the 50 percent it owns in a nickel project in Tanzania.

Shareholders reacted positively to Sokalsky’s moves to do “anything that will increase shareholder value” yesterday, lifting the stock 2.3 percent in Toronto.

‘Looking for Safety’

“Investors are definitely looking for safety,” Adam Graf, a New York-based analyst at Dahlman Rose & Co., said yesterday in a telephone interview. Nevada is “the only place that they’ve been able to execute successfully if you think back to the last several years.”

Fifteen analysts recommend buying Barrick’s shares, while Graf is among 13 analysts that have a hold rating, according to data compiled by Bloomberg.

Barrick has declined 6.8 percent this year, compared with the 10 percent decline in the 30-company Philadelphia Stock Exchange Gold and Silver Index. The S&P/Toronto Stock Exchange Composite Index is up 2.3 percent.

The shares rose yesterday after the company reported adjusted fourth-quarter earnings that beat analysts’ estimates and Sokalsky said the company has received interest from “serious buyers” for its assets.

Flagship Asset

Barrick is optimistic the sales process for its energy unit will be successful and the company has held talks with potential buyers for its 50 percent stake in the Kabanga nickel project, Sokalsky said in an interview. Xstrata Plc owns the rest of Kabanga.

Barrick’s two biggest mines in Nevada are Goldstrike, which became the company’s flagship asset after it was acquired in 1986, and the Cortez operations. Nevada accounted for more than 40 percent of Barrick’s production last year and represents about a third of its total 2012 reserves, the company said yesterday.

Barrick mentioned the state 17 times yesterday on the earnings call, compared with just once a year ago.

“In an environment where you see so much concern about geopolitical risk around the world and resource nationalism, I think sometimes people lose sight of the fact that we have these huge core assets in Nevada,” Sokalsky said in the interview. “That’s a real competitive advantage for us.”

Barrick Gold (TSX: ABX | NYSE: ABX) Weekly: 2008 - Present with Fibonacci Technical's

Focused Abroad

Analysts and investors have been more focused abroad in recent years, as the company spent C$7.3 billion ($7.29 billion) to acquire Equinox Minerals Ltd., owner of a Zambian copper mine, and Barrick poured billions of dollars into two Latin American projects.

While Pueblo Viejo, Barrick’s joint venture with Goldcorp Inc. in the Dominican Republic, started production in August last year, the company delayed the expected start date for Pascua-Lama by about a year and raised the cost forecast for the mine twice in 2012. Barrick yesterday maintained its latest cost range of $8 billion to $8.5 billion for the mine.

It makes sense that the company would look to Nevada for its future growth, after operational and political difficulties elsewhere, said George Topping, an analyst at Stifel Nicolaus & Co. in Toronto.

“That’s a focus that investors want,” Topping said in a phone interview. “If you compare the difference: let’s go and build Pascua-Lama on the very top of the Andes straddling two countries that don’t really like each other, or let’s build it in Nevada where it hardly ever snows.”

Impairment Charges

Barrick reported a surprise fourth-quarter net loss after taking a $3 billion writedown on its Lumwana copper mine, which was acquired in the Equinox deal. Barrick is the latest mining company to take a multibillion-dollar impairment charge as producers grapple with rising costs and reassess expensive deals.

Kinross Gold Corp., the third-largest Canadian gold producer, said Feb. 13 it took a $3.09 billion writedown on its Tasiast mine in Mauritania. The company took a $2.49 million writedown on the same project a year earlier.

Kinross, which acquired Tasiast when it bought Red Back Mining Inc. for about C$8 billion in 2010, also rose yesterday after it reported earnings excluding one-time items that beat analysts’ estimates. The shares gained 5.4 percent in Toronto, the most since Nov. 8.

“The market is perceiving that Barrick and Kinross have taken their medicine,” David West, a Vancouver-based analyst at Salman Partners Inc., said yesterday by phone. “They are trying to move in the right direction, they are trying to increase their margins, they are trying to look in-house and grow organically.”

By focusing on Nevada, West said, Barrick is “getting back to the basics.”"

--- Liezel HillCommodities Industry Reporter at Bloomberg
Editors:  Simon Casey: | David Scanlan:

Johnston-Sequoia Commentary:

" Nobody said it was easy - No one ever said it would be this hard - I'm going back to the start."
--- Chris Martin:  Coldplay - The Scientist

The market certainly has not been kind to the world's largest gold producer over the past two years - cost overruns, nine billion dollars in write-downs & project delays have resulted in a 43% decline in share price for the industry giant since April 20th, 2011.  It would appear for the moment that Barrick  has chosen to push the reset button and refocus on the area of the world that brought them to where they are today - Nevada.

“In an environment where you see so much concern about geopolitical risk around the world and resource nationalism, I think sometimes people lose sight of the fact that we have these huge core assets in Nevada - That’s a real competitive advantage for us.

--- Jamie Sokalsky, Chief Executive Officer - Barrick Gold

Factors to consider:

1) What are Barrick's most interesting assets in Nevada?

Legacy Discovery:

Goldstrike: Carlin Trend, Nevada:  

"The Goldstrike property, located in the Carlin trend in Nevada, contains a diverse group of Carlin-type deposits, including some of the largest and highest grade examples known. The largest deposit, Betze-Post, has a gold endowment of approximately 40 million ounces (1,244 metric tons [t]) of gold, and the Meikle deposit, which contains 7 million ounces (198t) of gold, has an average grade of 0.72 troy ounces per short ton (opt) or 24.7 g/t of gold. Goldstrike is part of the larger Blue Star-Goldstrike subdistrict, which has an areal extent of 5.3 by 1.2 miles (8.5 by 2 km) and a total gold endowment of 63 million ounces (1,960 t). The first discovery of gold at Goldstrike was in 1962. Subsequent exploration culminated in the discovery in 1986 of large high-grade orebodies beneath smaller, lower grade orebodies. Exploration over a 40-year period has relied on the evolution in understanding of geology and ore controls, supported by the application of geochemical and geophysical exploration techniques...

... In January 1987, American Barrick Resources acquired the Goldstrike property from the Western States - Pancana joint venture for a total cost of $62 million. Reserves at the Post deposit at this time were 11,366 million short tons (10.314 Mt) of oxide ore at a grade of 0.055 opt (1.9 g/t) gold, totaling 0.63 million ounces (19.6 t) of gold. An aggressive deep drilling program outlined the large, high-grade Deep Post orebody, which was subsequently found to continue onto the adjacent property owned by Newmont Mining. Exploration drilling in 1987 to 1988 led to the discovery of a number of other deposits similar to Deep Post hosted in the Popovich Formation. These included Betze and Screamer, which together with Deep Post, comprise the Betze-Post orebody."

--- Keith Bettles: Exploration and Geology, 1962 to 2002, at The Goldstrike Property, Carlin Trend, Nevada

Barrick's Betze-Post Open Pit mine at Goldstrike

In one of the more ironic tales in mining history - the market had actually criticized Barrick for the Western States-Pancana transaction, claiming that at $62,000,000 Barrick had "over paid" for the 630,000 ounces at Goldstrike.  As it turns out Goldstrike itself had a total endowment of well over 60,000,000 ounces of gold - making it the most well endowed project in the Western Hemisphere. 

Mature Discovery:

Cortez: Lander County, Nevada

" The Cortez mine is located 100 kilometers southwest of Elko, Nevada in Lander County. The Cortez property covers approximately 2,800 square kilometers on one of the world’s most highly prospective mineral trends...

... With 2011 production of 1.42 million ounces at total cash costs of $245 per ounce, Cortez is one of the world’s largest and lowest cost gold mines, and the property also has excellent upside exploration potential. Production in 2012 is anticipated to be 1.20-1.25 million ounces at total cash costs of $300-$350 per ounce, reflecting a higher proportion of underground ounces and lower open pit grades as part of planned mine sequencing. Proven and probable mineral reserves at Cortez as of December 31, 2011 are 14.5 million ounces of gold."

--- Barrick Gold Operations: Cortez
Evolving Trend: Incubator Discovery:

Spring Valley: Pershing County, Nevada

"The Spring Valley Gold Project located in Pershing County, Nevada. Spring Valley is a joint venture between Barrick Gold Corp. and Midway Gold Corp., where Barrick has the right to earn 60% interest in the project by completing work expenditures totaling US $30 million before December 31, 2013.

Spring Valley hosts a NI 43-101 resource of 2,160,000 ounces of in the Measured + Indicated catagories and 1,971,000 ounces inferred.  This resource estimate was announced May 2nd, 2011 and was a 225% increase over the previous resource estimate completed just before the joint venture was finalized.

Spring Valley (Photo taken from "the saddle" at Terraco Gold's Moonlight Project)

Midway has done a phenomenal job of growing this resource from 434,000 ounces in April of 2006 to 993,000 ounces in January 2008 to 1,835,000 ounces in March of 2009 to the current (combined MI & I) resource of 4,100,000 ounces in of gold at Spring Valley (announced May 2011).  Midway CEO's Brian McAlister, Alan Branham and now Ken Brunk have done what so many nano-cap resource company executives are unable to do - grow a resource to a size where a major producer will seek to acquire the asset to replenish their reserves.

Midway Gold (TSX: MDW | NYSE.A: MDW ) Weekly: 2008 - Present with Fibonacci Technical's

Spring Valley Royalties:

Terraco Gold Royalty Option on the Spring Valley Project***

Terraco's net smelter returns ("NSR") royalty coverage includes the option to acquire a 2.5% NSR royalty (by December 2016) on claims covering the majority of the Spring Valley deposit and an additional direct ownership and option for a 1% NSR royalty covering the remaining portion of the Spring Valley deposit."

Terraco Gold NSR Royalty options on Spring Valley (Click to enlarge)

Terraco Gold Corp. (TSX.V: TEN | US: TCEGF) has positioned itself tremendously well in this evolving district with a 2.5% & 1.0% NSR royalty options on the Barrick Gold - Midway Gold Spring Valley Project and 100% ownership of the 35 sq km (Terraco's Moonlight Project) that adjoins the north side of this evolving Nevada discovery.

Terraco Gold (TSX: TEN | US.P: TCEGF) Weekly: 2008 - Present with Fibonacci Technical's

2) Where will New Discoveries come from in Nevada?

Innovative exploration techniques in gold exploration have resulted in the discoveries of Goldstrike, the Ken Snyder "Midas" Mine etc.  May I suggest that contemporary techniques will lead to the next major discovery in Nevada as well.  Please take the time to watch the 8 minute video below when you have a moment.

3) What is really happening with gold?

While attempting to finish this piece over the past couple of evenings I've had an unprecedented number of e-mails and phone calls, all asking the same question - "What's happening with gold"? My intention is not to take away from the importance of Barrick refocusing on Nevada - it's merely to quickly comment on what I perceive to be transpiring at the moment.

Spot Gold (Weekly): 2008 - Present with Fibonacci Technical's

Please note specifically from the chart above the Relative Strength Index (RSI - is a momentum oscillator that measures the speed and change of price movements) - The last time we had Spot Gold oversold to this level was August 8th, 2008 (which hit a weekly low of $777).  Please now note the price action immediately following that oversold signal in gold (August 8th, 2008 to October 22nd, 2008) gold "coiled" and hit an interim low of $683.00, then proceeded to touch $777 once again (on October 22nd) - before ultimately taking a staggering run up into September 2nd, 2011 topping out at $1,919.50.

I would suggest (from my perspective) at this moment in history we're witnessing the very beginnings of a concentration of capital wave in gold - Meaning that Large Institutions, Hedge Funds, Family Office, Private Equity, Corporations,  Pension Funds, Governments, Central Banks - then of course retail investors will move to accumulate gold in one way shape or form.  This would take the gold price to levels that (by today's interpretation and standards) most individuals in the investment community would never subscribe to.  That is the characteristics of a concentration of capital though - they're an anomaly and they do not conform to reason.

I am an advisor of Terraco Gold Corp. & own shares in the company.  As always, please do your own due diligence.

1 comment:

  1. Matt: I have again seen a master weaver of story lines and common threads at work. There is nothing like a set back or two (Barrick) to get Management's attention to get to solid ground, known terrain and the basics..

    Great compilation.

    Thxs again Tom Drolet