Bloomberg News

Barrick Starts Energy Unit Sale Process

February 01, 2013

Barrick Gold May Sell Energy Unit as It Reviews Some Assets

A view of Barrick Gold Corp.'s Cortez Hills deposit in Nevada. Assets that don’t meet the company’s requirements for returns and cash flow will be “deferred, shelved or divested,” said Jamie Sokalsky, chief executive officer of Barrick. Source: Barrick Gold Corp. via Bloomberg

Barrick Gold Corp. (ABX) is considering the sale of the company’s Barrick Energy unit as the world’s largest gold producer looks to offload underperforming assets.

The company, based in Toronto, has started a sales process for the oil and gas unit, Andy Lloyd, a Barrick spokesman, said yesterday in an e-mail.

Chief Executive Officer Jamie Sokalsky, who took the job in June, is reviewing Barrick’s operations after a jump in the estimated cost of Pascua-Lama, a multibillion-dollar gold mine on the Argentina-Chile border. Assets that don’t meet requirements for returns and cash flow will be “deferred, shelved or divested,” he said in Toronto on Jan. 29.

Barrick said Jan. 8 it ended talks on the sale of its African unit to China National Gold Group Corp. without reaching an agreement. Sokalsky said at the time Barrick had received approaches from companies interested in some of its other assets.

The company may still seek to sell its majority stake in African Barrick Gold Plc (ABG) as well as mines in Australia, said George Topping, an analyst at Stifel Nicolaus & Co. in Toronto.

“They need to slim down and focus on getting the most out of their best assets,” he said in a phone interview today. “Getting rid of the energy is just simplifying the business.”.

Energy Hedging

Barrick is reviewing the operating plan for its Lumwana copper mine in Zambia, acquired through its C$7.3 billion takeover of Equinox Minerals Ltd. in 2011. The mine’s performance has been “unacceptable,” Sokalsky said Jan. 29.

Barrick rose 1.1 percent to C$32.10 in Toronto. The shares have dropped 35 percent in the past year, compared with a 2 percent gain in the S&P/Toronto Stock Exchange Composite Index.

Barrick Energy had revenue of $177 million in 2011 and assets valued at $1.1 billion, Barrick said in filings in February 2012. The unit, originally known as Cadence Energy Inc., was acquired for C$410 million ($410 million) in 2008.

Barrick hedges fuel costs through Barrick Energy’s production, as well as using financial contracts, Lloyd said.

“The net contribution we receive from Barrick Energy has been diminished as a result of the spread between the Edmonton Par price that Barrick Energy receives and WTI,” he said. “The divestment of Barrick Energy is not expected to have a material impact on Barrick’s cash costs based on the current spread.”

Valhalla Assets

Benchmark Canadian crude currently trades at a discount of about $31.50 to West Texas Intermediate because of scant capacity to move oil from Alberta.

Whitecap Resources Inc. (WCP), based in Calgary, may be a potential bidder for Barrick’s Valhalla assets in Alberta, Tim Murray, an analyst at Desjardins Securities Inc., said in an e- mail. Barrick and Whitecap each own 50 percent of the Valhalla assets.

Whitecap would be interested in Barrick’s stake in the assets “for the right price,” CEO Grant Fagerheim said in an e-mail yesterday.

Barrick Energy’s various assets may have different natural buyers, said Don Rawson, an analyst at AltaCorp Capital Inc. in Calgary.

“Barrick may need to weigh finding the best price for the pieces versus selling it whole,” he said.

To contact the reporters on this story: Liezel Hill in Toronto at lhill30@bloomberg.net; Aoyon Ashraf in Toronto at aashraf7@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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