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How the Chilean Joint Venture Fits into Barrick Gold’s Strategy

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Retaining optionality

Barrick Gold’s (ABX) president Kelvin Dushnisky said in a March 28, 2017, press release, “This agreement will allow us to direct capital elsewhere in our portfolio, while ensuring shareholders retain exposure to the optionality associated with one of the largest undeveloped gold and copper deposits in the world.”

Barrick already has joint ventures with Goldcorp (GG) at its Pueblo Viejo mine in the Dominican Republic.

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Operating lean

Barrick Gold has been on a restructuring drive for the past couple of years. In 2015, it announced the sale of 50.0% of its Zaldivar mine to Antofagasta (ANFGF) for ~$1.0 billion in cash. Zaldivar is a copper mine in Chile. Barrick’s management wants to focus on gold assets in safe jurisdictions only. For more on Barrick’s asset monetization, please read Barrick Gold in 2Q15: The Benefits of Asset Monetization.

Barrick’s other peers, including Newmont Mining (NEM) and Kinross Gold (KGC), have also been on restructuring drives since metal prices have remained volatile for the past few years.

Developing challenging projects

The Chilean joint venture could be a good way to combine strategies, thus reducing capex (capital expenditure) and bringing big projects online in a volatile metal price environment. In the past, many miners have had to stall projects such as Barrick Gold’s Pascua-Lama project due to regulatory issues with environmental impacts and capital overruns. Combining strategies is instrumental in reducing the environmental footprint and costs, both of which are very important in a volatile commodity price environment.

You can get access to the gold sector by investing in the VanEck Vectors Gold Miners ETF (GDX), which invests in intermediate and senior gold producers. Goldcorp makes up 7.6% of GDX’s holdings. The SPDR Gold Shares (GLD) tracks spot gold prices.

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