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Barrick bills China clout, mining expertise as key to Veladero deal

Barrick Gold Corp.'s nearly US$1 billion deal to sell 50% of its Veladero gold mine to Chinese state-owned Shandong Gold Mining Co. Ltd. is more than a simple divestment, argued spokesman Andy Lloyd in an interview with S&P Global Market Intelligence on April 6.

For Barrick, it is part of a strategic pivot to cozy up to China and its growing global influence.

"I think it's the wrong way to look at it: to take a short term view and say, 'Oh. Well, they sold half of Veladero (to Shandong Gold),'" Lloyd said.

Barrick Executive Chairman John Thornton "views the rise of China as the most significant geopolitical event of our generation," Lloyd said. "And China's rise on the world stage will ultimately be a dominating presence in this century ... and that has wide implications across all kinds of sectors."

Simply put, Barrick sees being closer to China as giving it an edge.

"Companies that have established a deep and trust-based relationship with Chinese companies, we feel that will undoubtedly yield competitive advantages," the executive noted.

What competitive advantages more specifically?

Answering that question, Lloyd pointed to greater access to capital, mining expertise and more broadly the power of having China behind you especially in riskier jurisdictions. He clarified that he was not necessarily referring to Argentina.

Mining expertise, money and spreading risk

Lloyd stressed Shandong's underground mining experience, which he suggested people don't appreciate.

"I think people underestimate the technical expertise that many Chinese companies have very rapidly developed," Lloyd said. "There's sort of a bias to think that somehow Western companies have the answers. But in fact Shandong has some very innovative approaches."

Shandong's underground experience was attractive to Barrick as it seeks a partner to advance its Pascua Lama project. The deal on Veladero includes a nonbinding agreement to consider joint development of the project and to look at other deposits together in the El Indio belt, which Barrick dominates.

Pascua Lama, which straddles the Chile-Argentina border just west of Veladero, has faced development difficulties as an open-pit project in Chile. Barrick has changed its approach to the mega project, now looking at it as an underground mine rather than a massive open pit that would start on the Argentina side of the deposit, at least at first.

Lloyd expects Shandong could bring some ideas to the table about how to optimize Pascua Lama's design.

In terms of access to capital and lowering risk, Lloyd said the partnership with Shandong could bolster Barrick growth.

"We can do far more with Shandong than we would be able to do on our own," Lloyd said.

He pointed beyond Pascua Lama to other projects also in the El Indio belt, a region that hosts numerous sizable gold deposits in South America, as well as other countries where China is increasingly influential.

"You have the company as a partner," Lloyd said. "But in a broader sense you also have the Chinese state as a partner."

S&P Global Market Intelligence is owned by S&P Global Inc.