CANADIAN MINING PERSPECTIVES: Barrick adding black gold to gold

Everyone who drives a car or heats a home is complaining about the record high prices for oil. Manufacturers are co...
Everyone who drives a car or heats a home is complaining about the record high prices for oil. Manufacturers are complaining about the high cost of transporting raw materials and finished goods. And the rising price of oil and natural gas is pushing up prices in the grocery store, at the lumber yard, and for air travel. Nearly everyone agrees that higher energy prices will hurt every aspect of industrialized life.

The price of light, sweet crude reached a record over US$140/bbl earlier this month. Since then the price has retreated a bit to the US$130-135 range. In 2007 crude oil prices averaged $64.20 per barrel.

What analysts don't seem to agree on is why the price of crude oil has risen so high. Some say there must be countries hoarding supplies. Others say demand is too high. Still others say the supplies must be increased.

While analysts argue, BARRICK GOLD is taking steps to control the cost of energy inputs at its operations. Toronto-based Barrick has made an all-cash offer of $6 per share to acquire CADENCE ENERGY of Calgary. The deal is worth $354 million.

Cadence, formerly known as Kereco Energy, is a junior oil and gas company whose business focus is in northern Alberta and northeast British Columbia. In calendar year 2007, it averaged 8,820 barrels of oil equivalent per day (boe/day). The company drilled 22 successful oil wells and 12 natural gas wells last year.

"We are confronting the energy cost challenges facing our industry through this long term economic hedge of about one-quarter of our direct oil consumption and a significant portion of our direct natural gas consumption," said Jamie Sokalsky, executive VP, president and CFO. "This unique approach is enabled by the proposed acquisition of quality, long life reserves of approximately 18.2 million barrels of oil equivalent at an acquisition cost of approximately $20 per boe."

Barrick says the acquisition of Cadence is only part of its long-term strategy. The company has also invested in its own natural gas-fired power plant in Nevada and a US$70-million, 36 MW wind farm in Chile.

Don't think that because Barrick is branching out a bit into the energy sector that it will forget its gold roots. The company's vision of being the world's "best" gold company continues to guide its decisions. By owning some of its energy supply, the company will control production costs. Keeping the production cost per ounce as low as possible will allow Barrick to make a profit on each ounce sold. And isn't that what is "best" for every gold miner?


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