Beleaguered gold giant Barrick Gold Corp. (TSE:ABX) (NYSE:ABX) announced late Tuesday the impending sale of its subsidiary Barrick Energy in a series of deals worth a total of $455 million.
The deals include the sale of assets to Venturion Oil for $59 million and an agreement, announced last month with Whitecap Resources (TSE:WCP), for another group of assets for $174 million. Calgary major Canadian Natural Resources Ltd. (TSE:CNQ) has also agreed to pay $173 million for a gross overriding royalty on certain lands valued at about $50 million for Barrick Energy and its remaining assets.
Investors bracing themselves ahead of the gold producer’s release of quarterly figures next week could be in for another nasty shock, as the sale – about $405-million of which is to be cash -- means the world’s once leading gold producer will be recognizing a loss of $500 million in connection with the deal. The loss relates to the price paid for the business itself ($400 million some 5 years ago) as well as to the cost of capital invested since then. The Toronto-headquartered miner said about $90-million of the $500-million loss would be a goodwill charge.
The sale comes as Barrick reacts to an unbroken string of trouble, much of which has affected other miners, particularly those producing gold, as precious metals prices drop and cost increases erode margins.
The impairment charge of $500 million in connection with the sale of the energy businesses comes on top of the previously announced impairment charge of $4.5 billion to $5.5 billion the mining major will be taking in the second quarter due to plummeting metal prices and the company’s never-ending catalogue of ills at its Pascua-Lama project.
The Pascua-Lama project, which straddles the border between Chile and Argentina high in the Andes, has been the subject of numerous write downs, work-stoppages and legal wrangles culminating in a most recently court-ordered halt imposed on construction of the massive mine site due to various violations of the environmental permit. Barrick is obliged to build new water management systems before construction on the site will be permitted to resume, putting the date of first production for the mine back as far as mid-2016, two years beyond the date initially forecast.
The mid-July announcement that first production from the mine had been pushed back so far past the schedule previously proclaimed culminated in decade-low share prices for the gold giant. The company has also cautioned that the long-term assumptions on the price of precious metals, which Barrick uses to determine various metrics, may be re-assessed, subject to prices remaining at their new lower levels.
The sale announced late Tuesday ties in with the miner’s promise to sell non-core assets.
“As part of its disciplined capital allocation framework, Barrick is actively pursuing opportunities to optimize its portfolio, including through opportunities to divest certain non-core assets," a company statement released with the announcement read in part.
The sale is expected to boost liquidity, ease debt-pressure and allow the giant to turn its attentions to gold more fully.
Other assets thought to be likely to go on the block include African Barrick Gold PLC, in which the giant holds a 74 per cent share, the Kabanga nickel project in Tanzania, of which Barrick owns 50 per cent, and the Jabil Sayid copper project in Saudi Arabia.
The company said the energy deals are expected to close by July 31, subject to some conditions.
Shares in the company were trading well down on the Toronto Stock Exchange the day after the announcement, losing $1.02 off its prior close to hit $17.08 as of 1:57pm EST, a drop of more than 5 per cent.