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Barrick and Goldcorp await court ruling on ownership of lucrative Chilean mine

Chile’s El Morro copper-and-gold deposit could hold more than three times the amount of gold that Goldcorp produced last year.

BARRICK GOLD/BARRICK GOLD

The world's two biggest gold producers are bracing for a court ruling in their long fight for control of a key mine in South America as the industry battles for a dwindling number of attractive new properties.

Barrick Gold Corp. of Toronto claims that Goldcorp Inc. of Vancouver illegally obtained control of the project through violations of agreements among the mine's shareholders, while Goldcorp said it acted fairly. At stake is Chile's El Morro copper-and-gold deposit, which could hold more than three times the amount of gold that Goldcorp produced last year.

Final legal arguments were submitted to the Ontario Superior Court of Justice in Toronto in early February, and a ruling is expected "any day," Charles Jeannes, president and chief executive officer of Goldcorp, said in an interview in Toronto on Tuesday.

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The company, the world's No. 2 gold producer by market value behind Barrick, didn't include planned output from El Morro in its five-year forecasts, he said. That means investors probably won't be disappointed if Goldcorp loses the case, while a ruling in favour of the company could boost the stock, he said.

"If we win, I think there's an upside in our valuation... because most investors haven't given us full value" for Goldcorp's stake in the mine.

In the case of a loss, "I think the market would see that we have time [to find other reserves]" Mr. Jeannes said.

Andy Lloyd, a spokesman for Toronto-based Barrick, said the company had nothing to add beyond its statement of claim, filed in January, 2010.

Goldcorp acquired 70 per cent of El Morro through an intermediary. In January, 2010, New Gold Inc. owned 30 per cent of the mine and agreed to buy the remainder from Xstrata PLC of Switzerland for $463-million (U.S.), and then to sell the stake to Goldcorp for that amount plus $50-million in cash. Goldcorp also advanced the funds for New Gold's purchase from Xstrata.

Barrick says the transactions violated its own agreement with Xstrata in October 2009 to buy the El Morro holding from the Swiss company. New Gold inappropriately exercised an option to buy Xstrata's stake, according to Barrick.

Adding to the complexity of the situation, Barrick and Goldcorp are partners in other projects and the executive chairman of New Gold, Randall Oliphant, is a former CEO of Barrick.

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Goldcorp has budgeted about $180-million in spending on El Morro this year, Mr. Jeannes said. The company anticipates a total investment of $3.9-billion, and expects the mine to start producing copper and gold in 2017 and to keep running for 17 years.

George Topping, a stock analyst at Stifel Nicolaus in Toronto, estimates El Morro represents 45¢ in Goldcorp's share price, which closed Tuesday in Toronto at $44.86 (Canadian).

Losing the court case "would knock the price down maybe a per cent or two, but not more, and it would come back fairly quickly," Mr. Topping said. In Barrick's case, losing "wouldn't have much of an impact."

Paliare Roland Rosenberg Rothstein LLP is representing Barrick, and Osler, Hoskin & Harcourt LLP is representing Goldcorp.

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About the Author
Investment Reporter

Nicolas Johnson has covered global finance, markets and investing since 1998. He joined The Globe and Mail in 2011. He has worked as a reporter and editor with Bloomberg News in Paris and Tokyo, and also worked briefly in emerging-market debt at Société Générale. More

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