TORONTO (miningweekly.com) – With gold prices at record levels, and large, undeveloped deposits increasingly hard to come by, competition is heating up between producers of the yellow metal.

On Thursday, Canada's Goldcorp announced it plans to acquire Xstrata's 70% interest in the El Morro copper/gold project in Chile through an agreement with midtier miner New Gold, the company that owns the other 30%.

If all goes to plan, construction on the mine will begin this year and first production is scheduled for 2015, Goldcorp CEO Chuck Jeannes told Mining Weekly Online on Thursday.

Goldcorp has set itself up to snatch the asset from larger rival Barrick Gold, which agreed last year to buy Xstrata's 70% for $465-million.

New Gold, led by former Barrick CEO Randall Oliphant, has a right of first refusal on the stake, which it will exercise before selling the 70% interest to Goldcorp.

Goldcorp will advance $463-million to New Gold to fund the exercise of the right of first refusal by a New Gold subsidiary and then acquire the subsidiary, paying another $50-million in cash to New Gold.

Goldcorp has also agreed to carry a full 100% of New Gold's share of funding for the mine, up from the 70% (of its 30% stake) included in the current shareholders agreement.

Barrick spokesperson Vince Borg said the miner had held talks with New Gold but could not agree to the terms sought by the smaller company.

"We participated in New Gold's process but weren't prepared to do the kind of deal that they struck with Goldcorp," he said in an interview.

Borg said Barrick, which had hoped to create synergies between El Morro and its other large projects in the region, will check with Xstrata whether the right of first refusal was properly exercised "and then go from there".

The gold miner will continue to look for acquisitions, but Borg stressed that it will remain disciplined in assessing transactions.

"We don't want to overpay, or get into a situation that doesn't make sense for the longer term," he said. “Carried interests add a burden to a project.”

TICKS ALL THE BOXES

The El Morro project contains 6,7-million ounces of gold and 5,7-billion pounds of copper reserves, plus 2,2-million ounces of gold and and one-billion pounds of copper resources in the measured and indicated categories.

“We are trying to build a company with cornerstone assets that are large, high-quality, long-life assets in good politically stable jurisdictions,” Jeannes said.

“And this project ticks all of those boxes.”

In its deal with New Gold, Goldcorp has committed to start construction on the project within 60 days of receiving of all the necessary approvals and permits.

“We were happy to do that because that is certainly our intent, we want to aggressively advance this project,” Jeannes said.

“And it was important to New Gold, because under the prior ownership they didn't really have a sense of when it would be developed.”

Jeannes said Goldcorp plans to move its project team from the large new Penasquito mine in Mexico, which is now nearing completion, to El Morro.

The company is confident it can fund the construction of the $2,5-billion mine internally, with existing liquidity and cash flow, he said.

“I think it's a good deal, in that Goldcorp is going through New Gold, so New Gold is clearly on board here, and it's a good deal for New Gold, because Xstrata does not have a history of actually building mines,” said Adam Graf, a New York-based analyst with Dahlman Rose & Co.

“It's a big, long-lived asset and it's openpit, in a relatively safe part of the world, Chile. So from Goldcorp's perspective, it's good to be able to get a hold of this thing, and to do it in a friendly way,” he said in an interview.

It has been a busy couple of months for Goldcorp, which is also fresh off what appears to be a victorious bidding war for another Canadian company, Canplats Resources, for which it battled a joint venture owned by Newmont Mining and LSE-listed Fresnillo.

Jeannes said a year ago he planned to increase production 50%, to 3,5-million ounces, by 2014, setting the company apart from many of its rivals in the industry, which are battling to maintain current production levels, never mind increasing output.

ALL'S FAIR

Goldcorp is Canada's second-biggest gold miner by sales and the second largest in the world by value, after Toronto-based Barrick.

The two Canadian firms are also joint-venture partners on the Pueblo Viejo gold project in the Dominican Republic, as well as some assets in Nevada.

Borg said he does not expect the El Morro transaction will strain the relationship between the two companies.

"I don't think so. We're competitors, we're peers...it's a small world, the gold-mining world," he said.

But Dahlman Rose & Co's Graf suggested there could still be some tensions.

“I don't think it's a big blow for Barrick. But I think they are probably a little disappointed, and frankly perhaps even a little surprised that Goldcorp is ending up with this,” he said.

“It could be a bit of a strain on the relationship."

Shares in Goldcorp slid 0,65% on Thursday, to C$43,10 apiece by 12:26 in Toronto. New Gold was up 6%, at C$4,26 a share and Barrick shares declined 1,5%, to C$42,51 apiece.

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