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Barrick tackles energy costs
Now that Barrick Gold has pulled off what it describes as an “innovative response to energy cost challenges facing the mining industry,” the question being asked is whether others will follow suit.
The world’s top gold producer won a bidding contest for Cadence Energy, formerly Kereco Energy, after Daylight Resources Trust abandoned its attempt to acquire the junior oil and gas producer.
Barrick has offered C$410 million cash at C$6.75 per share, while Daylight offered 0.47 of a trust unit or C$5.32 in cash for each Cadence share in a deal valued at about C$300 million.
Daylight and Cadence each have production in the Sturgeon Lake light oil pool in northern Alberta, with Cadence owning and operating the gathering facilities they share.
Cadence Chief Executive Officer Grant Fagerheim said he would not be surprised if Barrick now bids for Daylight’s adjacent assets, but said he is not aware of any such discussions.
Move to offset energy needs Cadence’s production of 3,600 barrels of oil equivalent per day (70 percent high-netback light oil and natural gas liquids), with proved plus probable reserves at 18.2 million barrels, will offset about 25 percent of Barrick’s energy needs, allowing it to hedge that consumption at $20 per barrel.
Analysts say the deal is the first clear move in the mining industry to reduce its exposure to high oil prices by taking control of the problem, although some have expressed concern about the ability of a mining company to manage an oil producer.
Barrick had previously taken other steps to control rising costs by investing $40 million in wind farms in Chile and signing a $200 million agreement with Yokohama Rubber to secure supply of oversized truck tires, whose prices have soared worldwide.
But so far other mining companies are keeping their intentions under wraps. Goldcorp, the world’s second largest gold miner, said only that it is always on the lookout for ways to manage its costs.
—Gary Park
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