TORONTO Barrick Gold Corp's near billion-dollar deal with Shandong Gold Mining Co Ltd represents a rich premium for the Canadian miner, while making good on a long-promised plan to forge deep, long-lasting partnerships with China.
The sale of a 50-percent stake in Veladero, one of Barrick's top five gold mines, for $960 million is its biggest partnership deal with a Chinese miner, eclipsing a $298 million joint venture in 2015 with Zijin Mining Group Co Ltd for a mine in Papua New Guinea.
The price tag, about 15 percent to 30 percent above some analysts' net asset valuations, is a feather in Chairman John Thornton's cap, a former Goldman Sachs Group Inc banker who has pledged closer ties with China since his 2014 appointment.
"Thornton is doing the right thing. He's put a billion dollars in our pocket and he has got the Chinese as partners. What more can you ask for?" said billionaire investor Seymour Schulich.
"I like Thornton's style. He is well connected in China. The deals are finally starting to happen."
Thornton, who lacks a mining background, spent years working in China after stepping down from a senior role at Goldman. He built a broad network of government and business connections in the country, where he taught at Tsinghua University's business school, a top institution whose alumni include presidents and premiers.
Since a first meeting last April, Barrick and state-owned Shandong invested "thousands of hours" to get acquainted and form a partnership that Thornton expects to grow, he said in a statement.
"Today is the realization of a China dream," he said.
Toronto-based Barrick, which has sold a string of assets in recent years to cut a bloated debt load as commodity markets slumped, has been actively seeking joint venture partners to reduce risk and capital outlays while boosting expertise.
But Thornton's challenges are far from over.
The deal comes as Barrick, the world's largest gold miner, grapples with last week's pipe rupture at Veladero, the third incident at the mine in 18 months involving cyanide-bearing solution.
Barrick's No. 2 executive, President Kelvin Dushnisky, is in Argentina this week meeting with regulators, which on Wednesday rejected a work plan presented by Barrick.
Analysts and investors say the deal's real prize is a plan to jointly study development of the long-stalled, massive Pascua-Lama project and neighboring gold-rich deposits in the El Indio Belt.
Straddling the border of Argentina and Chile, Pascua-Lama was put on hold in 2013 due to environmental issues, political opposition, labor unrest and development costs that ballooned to $8.5 billion.
"The bigger part of the deal today is possibly having a partner lined up for Pascua-Lama and being able to do that development, and maybe even having a broader reach," said Dan Denbow, senior portfolio manager at San Antonio-based USAA Investments, which holds some 700,000 Barrick shares.
Barrick will use sale proceeds to cut debt, which it plans to reduce by more than a third to $5 billion by 2018. It will also invest in project development, a shift from previous years when deal proceeds were earmarked for debt reduction.
The companies will also study ways to extend Veladero's mine life, which currently ends in 2024, said Barrick spokesman Andy Lloyd.
"It's a huge positive. If they can monetize Pascua-Lama, it would be tremendous," said Schulich. "Thornton wants to get cash flow, and this is just an opening step with the Chinese."
(With additional reporting by John Tilak in Toronto and Nicole Mordant in Vancouver; Editing by Denny Thomas and Lisa Shumaker)