TD Note on this mornings news in relation to Barrick losing the PGN mine
Barrick Gold Corp.
(GOLD-N, ABX-T) US$26.74 | C$37.65
Porgera SML Extension Denied
Event
This morning, Barrick announced the Papua New Guinea (PNG) government's nonextension
of its Special Mining Lease for the Porgera gold mine.
Impact: NEGATIVE
¦ The Porgera Joint Venture is an open pit and underground gold mine located
in the Enga Province, PNG, about 600km north-west of Port Moresby. Barrick
and Zijin Mining Group each own 47.5% of the operation (through the JV company
Barrick Nuigini Ltd. (BNL)); the remaining 5% interest is held by Mineral Resources
Enga. We are currently forecasting Barrick's share of production for 2020 at
~258kozs (~5% of attributable 2020 production) and cash operating costs of ~
$790/oz. Our NPV5% for Barrick's interest is $637mm, or $0.36/sh (2% of TD's
"mining/project" NAV).
¦ Barrick noted that it its view "the Government’s decision not to extend
its Special Mining Lease was tantamount to nationalisation without due
process and in violation of the Government’s legal obligations to BNL".
Barrick indicated that it is willing to pursue discussions with the PNG government;
however, it will also pursue all legal avenues to challenge the government’s
decision and to recover any damages that it may suffer as a result of the decision.
Barrick also said it had no interest in discussing transitional arrangements for
the management of the mine, as proposed by the government. BNL’s right to the
renewal was confirmed by the PNG National Court in August 2019.
¦ We note that the current Prime Minister of PNG, James Marape, was elected
in 2019 to a four-year term. Barrick stated in its news release that the Porgera
landowners, overwhelmingly support the extension of BNL’s lease.
¦ If we were to remove attributable Porgera production from our model from
this point forward, our 2020 and 2021 EPS estimate would decline by ~5.9%
and ~6.1% to $0.80 and $1.11, respectively (from $0.85 and $1.19). Our 2020
and 2021 EBITDA estimate would decline by ~3.4% and ~4.6% to $5.07bln and
$5.62bln, respectively (from $5.25bln and $5.89bln). Finally, our 2020 and 2021
FCF estimate would decline by ~4.2% and ~3.9% to $3.00bln and $3.66bln (or
$1.69/sh. and $2.06/sh.), respectively (from $3.13bln and $3.81bln).
