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Barrick files motion to block Goldcorp's attempt to buy 70% in El Morro Project from New Gold

By Dorothy Kosich,

Former Barrick CEO Randall Oliphant's triumph over his former company in sale of the El Morro project ownership may prove short-lived as an angry Barrick filed a motion with the Ontario Superior Court of Justice to block the US$465 million deal between New Gold and Goldcorp.

Oliphant is now the chairman of New Gold, while Goldcorp is Barrick's joint venture partner on the US$2.7 billion Pueblo Viejo project in the Dominican Republic. Pueblo Viejo has proven and probable reserves of 20.4Moz gold, 117Moz silver and 424Mlb copper.

On October 11, 2009, Xstrata Copper, which owns 70% of the El Morro Mining Project, and Barrick entered into a US$465 million sale agreement for the world's top gold company to purchase the Xstrata interest in the El Morro copper-gold project in Chile.

In documents filed with the Ontario Superior Court in Toronto, Barrick said El Morro is located near the company's massive Pascua-Lama gold and silver project that spans two nations. Barrick said El Morro "offers the potential to Barrick of unique cost-sharing and future operating synergies."

Xstrata's joint venture partner in El Morro, New Gold, had the right of first refusal to purchase the majority interest in the project. Meanwhile, Barrick presented a $300 million all-cash offer to New Gold for its 30% interest in El Morro.

However New Gold decided to make a deal with Goldcorp. Under the arrangement, Goldcorp agreed to lend $463 million in New Gold to allow the junior company to buy Xstrata's 70% stake. New Gold planned to then transfer that stake to Goldcorp in exchange for an additional $50 million payment to New Gold, which wanted to retain its 30% interest in El Morro.

The project's most recent feasibility study estimated it will cost at least $2.5 billion to build El Morro. Goldcorp had also agreed to finance New Gold's share of the project costs, which could rise to as much as $3 billion.

However, Barrick insists that New Gold failed to properly and legally exercise the right of first refusal on El Morrow by January 11, 2010, "As a result, New Gold's Right of First Refusal has now expired," the company asserted in its Statement of Claim filed with the court.

Barrick claims New Gold "improperly provided Goldcorp with extensive confidential documentation and information concerning the El Morro Mining Project. Neither Goldcorp nor New Gold has a right to use such information either directly or indirectly for the purpose of the acquisition of the Xstrata Interest by Goldcorp. Nor does Goldcorp have the right to retain the confidential documentation and information in has received from New Gold."

Meanwhile, Barrick contends Xstrata Copper has breached its obligations to Barrick when Xstrata said it doesn't intend to close the sale agreement with Barrick. Instead, Xstrata intends to transfer its interest to New Gold pursuant to New Gold's exercise of the Right of First Refusal.

In its claim before the court, Barrick asked the court to declare that New Gold's Right of First Refusal has expired, and can no longer be exercised. Barrick also asked the court to find the New Gold/Goldcorp Agreement is unlawful and ineffective.

Barrick also asks that restitution be made.

Goldcorp responded late Wednesday that it is reviewing Barrick's claim with its legal counsel.

In a statement, the company said, "Goldcorp has acted in good faith and is confident that it has acted lawfully and appropriately in all aspects of this transaction and intends to vigorously defend itself against the claim.

Disclosure: The author holds no positions in the company