Feb. 21 (Bloomberg) -- Barrick Gold Corp., the world's largest gold producer, agreed to buy the remaining 40 percent of its Cortez joint venture from Rio Tinto Plc for $1.7 billion in cash to add lower-cost production of the precious metal.

The transaction would give Barrick full control of the Cortez Hills property in Nevada and add 4.6 million ounces of proven and probable reserves to the company's holdings, Toronto- based Barrick said today in a statement.

"We're doubling down in Nevada,'' Barrick Chief Executive Officer Greg Wilkins said on a call with analysts. ``It's going to be a very important asset for us going forward.''

Gold has more than tripled in price during a seven-year rally, prompting producers to increase exploration, develop new deposits and acquire others to bolster output and reserves. Bullion has surged 39 percent in the past year and reached a record $958.40 an ounce today as inflation rose at the fastest pace since 1990.

Barrick rose 30 cents to C$51.12 at 4:10 p.m. in Toronto Stock Exchange trading. The shares have climbed 37 percent in the past year.

Cortez Hills is expected to produce 950,000 ounces to 1 million ounces of gold a year at an estimated cash cost of $280 to $290 an ounce in the first five years of production, the company said. Barrick's average cash cost for all of its mines in the three months ended Dec. 31 was $375 an ounce, the company said in its earnings announcement today.

More Upside

"The purchase price for Cortez looks dilutive for net present value,'' David Haughton, a gold analyst at BMO Capital Markets in Toronto, said in an e-mail. ``Perhaps Barrick sees more upside than the Street.''

The company expects 2008 gold production of about 7.6 million to 8.1 million ounces, compared with 8.06 million ounces last year. The lower production forecast for this year is the result mainly of reduced output in North America, Wilkins said.

"Cortez Hills in the future will help plug that gap,'' he said. ``We're very excited about getting 100 percent of this.''

Permitting for the property's development is expected to be completed in the second half of 2008, and output will begin within 15 months after that, the company said.

The planned acquisition is Barrick's fourth in the past year. In October, the company agreed to pay Arizona Star Resource Corp. about C$773 million ($766.5 million) to gain control of the Cerro Casale gold project in Chile.

Highlands Purchase

In December, the company paid Highlands Pacific Ltd. $141.5 million for the Kainantu gold mine in Papua New Guinea, adding to the $250 million it agreed to pay Emperor Mines Ltd. in April for the 20 percent stake it didn't already own in the Porgera mine in the same country.

"Barrick purchasing the remaining 40 percent interest in the Cortez joint venture seems steep and erodes the balance sheet somewhat,'' Andrew Pullar, who helps manage $900 million in mining shares at Baker Steel Capital Managers LLP in London, said in an e-mailed response to questions.

Barrick had net debt of $900 million at the end of December and $2.2 billion in cash, Chief Financial Officer Jamie Sokalsky said on the call with analysts. The company also has a credit line of $1.5 billion that it hasn't used, Sokalsky said.

"This gives us the ability to fund the acquisition of 40 percent of Cortez from our internal cash resources and existing lines of credit at attractive rates,'' Sokalsky said.

The acquisitions have added to the company's own development projects. Of budgeted capital expenditures of $2.1 billion to $2.5 billion this year, as much as $1.7 billion will be spent on digging new mines.

Barrick has 27 mines in eight countries, including the U.S., Chile, Australia, Peru and Tanzania. It is developing or exploring an additional 11 properties, including the Donlin Creek deposit in Alaska, Pueblo Viejo in the Dominican Republic, Cerro Casale in Chile and Pascua Lama, which straddles the border between Chile and Argentina.

To contact the reporter on this story: Stewart Bailey in New York at This e-mail address is being protected from spambots, you need JavaScript enabled to view it ; Rob Delaney in Toronto at This e-mail address is being protected from spambots, you need JavaScript enabled to view it .