Goldcorp Inc. and Barrick Gold Corporation recently signed an agreement to consolidate Caspiche and Cerro Casale gold projects in a 50-50 joint venture. The deal will allow both companies to leverage potential synergies within the Maricunga Gold Belt, based in Atacama Region in northern Chile.

 

Presently, Kinross Gold Corporation (KGC Quick QuoteKGC - Free Report) owns 25% interest in Cerro Casale and 100% in Quebrada Seca exploration project. It has agreed to sell these stakes to Goldcorp.

 

Per the terms of the agreement, Goldcorp will acquire the said interest of Kinross in Cerro Casale and Quebrada Seca gold projects in transactions which will be effected through multiple steps. The transaction will require Goldcorp to pay $260 million initially in cash, along with granting of 1.25% royalty interest on 25% of gross revenues from the metals sold at Quebrada Seca and Cerro Casale, with Kinross foregoing the initial $10 million.  

 

Goldcorp will also make a contingent payment of $40 million, which is payable after a construction decision is taken at Cerro Casale. The deal also involves an assumption of $20 million as obligation to Barrick which is payable on commercial production at Cerro Casale.

 

The transaction also includes purchase by Goldcorp of an additional 25% interest in Cerro Casale from Barrick for a deferred payment obligation of $260 million, granting of a 1.25% royalty interest on 25% of gross revenues from payable metal from Cerro Casale and Quebrada Seca and a contingent payment of $40 million. Goldcorp will also transfer its 50% interest in Quebrada Seca to Barrick, for no additional consideration, following which there will be joint contribution by Barrick and Goldcorp of 100% of Quebrada Seca to the proposed joint venture.

 

Goldcorp has also inked a deal to acquire Exeter Resource Corporation along with the fully owned Caspiche Project for around $185 million (on fully diluted basis) in shares. The project is located in the Maricunga Gold Belt, adjacent to Cerro Casale. Under this arrangement, 12 cents of Goldcorp’s common shares will be exchanged for each common share of Exeter.

 

Once the deal is closed, Goldcorp will include the Caspiche Project to the 50-50 joint venture in Cerro Casale. The joint venture will help Goldcorp to reduce around $85 million or 50% of acquisition cost from the $260 million deferred payment obligation under the agreement.

 

Goldcorp will spend $60 million within first two years of the deal’s closure. The company will also spend an additional $80 million in each successive two-year period. The process will continue until the obligation of deferred payment is fulfilled. Under the agreement, if Goldcorp does not to abide by these terms it will have to make direct payments to Barrick, which will be equal to 50% of any shortfall.  

 

Goldcorp outperformed the Zacks categorized Mining-Gold industry over the past six months. Within the said timeframe, the company’s shares gained around 1.1%, compared with roughly 1.2% loss recorded by the industry.

 

According to the President and CEO of Goldcorp, David Garofalo, the joint venture has the potential to consolidate infrastructure capabilities and provide synergies in the form of reduced capital and operational costs. It will also reduce the environmental footprint of the company and increased returns. Both Barrick and Goldcorp will be able to combine financial and technical capabilities with these projects, increase net asset value per share and deliver value to shareholders and partners. 

 

Goldcorp’s growth is driven by its vast array of exploration and developmental projects. It aims to provide superior returns to shareholders. The company reported net earnings of 12 cents per share in the last reported quarter, which exceeded the Zacks Consensus Estimate of 9 cents. 

 

Goldcorp currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the basic materials space is Ternium S.A. (TX Quick QuoteTX - Free Report) , sporting a Zacks Rank #1 (Strong Buy). It has an expected long-term earnings growth of 18.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

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A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>Goldcorp Inc. and Barrick Gold Corporation recently signed an agreement to consolidate Caspiche and Cerro Casale gold projects in a 50-50 joint venture. The deal will allow both companies to leverage potential synergies within the Maricunga Gold Belt, based in Atacama Region in northern Chile.