Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The Silver Doctors worry that Barrick Gold’s Pascua Lama gold and silver mine might still not get built due to problems with glaciers in the region.
If that’s the case, the company will have to find some accommodation with Silver Wheaton who is owed a lot of silver from the project:
I also believe there is bad news coming out of Pascua Lama. Again, this represents 25% of Barrick’s gold reserves and if Pascua Lama is not allowed to go commercial, it would be disastrous for Barrick’s stock price, balance sheet and contractual obligation to supply Silver Wheaton 170-200 million ounces of silver.
If Pascua Lama is unable to mine gold and silver without threatening the glaciers in both Argentina and Chile, Barrick will have to go into the futures markets and purchase silver to deliver to Silver Wheaton at its contractual price of $3.90 an ounce.
Image of San Juan glacier from Silver Doctors
2 Comments
Guest
1st – Barricks problems right now revolve around title problems on the Chile side of Pascua Lama.
2nd – The agreement between Silver Wheaton and Barrick clearly states Silver Wheaton get their money back if ABX can’t complete the completion guarantee.
Sept 8, 2009 Silver Wheaton PR:
“To acquire 25% of the life of mine silver production from Barrick’sPascua-Lama project, as well as 100% of the silver production from its LagunasNorte, Pierina and Veladero mines until the end of 2013, Silver Wheaton willmake total upfront cash payments of US$625 million over three years, of whichUS$212.5 million is payable on closing and three further payments of US$137.5million are due on the first, second and third anniversaries. Silver Wheatonwill also make ongoing payments of the lesser of US$3.90 (subject to a onepercent annual adjustment starting in the fourth year after the achievement ofspecific operating targets) and the prevailing market price, for each ounce ofsilver delivered under the agreement. Silver Wheaton will not share in anyongoing capital or exploration expenditures at the various mines. Barrick has provided Silver Wheaton with a completion guarantee,requiring them to complete Pascua-Lama to at least 75% of design capacity byDecember 31, 2015. During 2014 and 2015, Silver Wheaton will be entitled tothe silver production from the currently producing mines to the extent of anyproduction shortfall at Pascua-Lama, until Barrick satisfies the completionguarantee. If Barrick fails to satisfy the requirements of the completionguarantee, the agreement may be terminated by Silver Wheaton. In such anevent, Silver Wheaton would be entitled to the return of the upfront cashconsideration of US$625 million less a credit for silver delivered up to thedate of that event. Barrick has granted Silver Wheaton a five year right of first refusal onany further metal stream sales in connection with Pascua-Lama, where more than50% of the value is from silver. The transaction is expected to close September 22, 2009. Silver Wheaton’sfinancial advisor is Genuity Capital Markets and its legal counsel is CasselsBrock & Blackwell LLP.”
Cityapartment
While environmental issues are certainly a part of the story at Pascua-Lama, the bigger story by far, and the one Barrick is working overtime to keep quiet, is the OWNERSHIP of Pascua, the Chilean side of Pascua Lama. Barrick’s subsidiary Minera Nevada SpA has been in a longstanding, ongoing legal battle. Recently, when demanded by the courts to show ownership documents for the Amarillos and Tesoros claims, the claims which Pascua Lama is based on, Minera Nevada could not and finally admitted they do not actually own said claims.
This is the main reason why Barrick has not put Pascua into production having owned it for 18 years, while fast-tracking multiple other mines both in Chile and worldwide in the meantime. It’s also they reason they bought Equinox; they knew there copper production from Pascua was in serious jeopardy.