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Pascua-Lama has been shut since 2013. (Image courtesy of Barrick Gold)
Canada’s Barrick Gold (TSX, NYSE:ABX), which recently regained its status as the world’s most valuable producer of the precious metal, has began a “drastic revision” of its mothballed Pascua-Lama project in South America.
According to Chilean news outlet El Pulso (in Spanish), the company’s President Kelvin Dushnisky revealed that management is re-evaluating plans for the gold, silver and copper mine straddling the border of Chile and Argentina, adding that Barrick does not rule out a possible partnership to bring the project to completion.
Analysts believe China’s Zijin may help turn Barrick’s greatest problem child, Pascua Lama, into a success by spreading the financial and political risk.
The giant project in the Andes has been shuttered since 2013, when a Chilean court ordered the company to halt construction over environmental concerns. Later that year, Barrick shelved the project citing massive cost overruns and nose-diving bullion prices.
“We are looking at how to lower the costs, perhaps by digging a smaller pit, or aiming at higher grades (…) we are very open to consider different options, but we’d only restart the project when the market is right,” Dushnisky said.
Analysts are now speculating that Barrick’s partner in Papua New Guinea, China-owned Zijin Mining Group, could be the one to help turn Pascua-Lama into a success by spreading the financial and political risk.
Dushnisky made it clear that the company has not given up on Pascua-Lama, said to hold one of the world’s largest gold and silver resources with more than 15 million ounces of proven and probable gold reserves and 675 million ounces of silver contained within the gold reserves as of Dec. 31, 2013.
Reduced investment
This year, Barrick plans to invest between $80 to $100 million in the project, well below the $188 million it spent in 2015, thanks to a temporary closure plan approved by Chile and Argentina later last year.
However, Dushnisky warned that the execution of such plan could be affected by legal actions and the weather, which in turn would increase the associated costs.
That is a thought the company is certainly not entertaining at the moment. On the contrary, Barrick has been trying hard to improve its balance sheet after gold prices dropped in 2015 again for the third straight year. The miner has sold assets, formed partnerships and used proceeds toward reducing debt.
Last month, the Toronto-based firm said it intends to cut debt by a further $2 billion this year, with the goal of eventually bringing it below $5 billion.
At the same time, it wants to reduce its all-in sustaining costs (AISC), a key metric that gauges how much a gold producer must spend to produce the precious metal over a mine’s life cycle, from exploration to closing.
5 Comments
John Summers
The lawsuit C1912-2001 is preventing Barrick from mining Pascua, its been 15 years, time to report on it mining.com.
Hector Estrada
Pascua Lama was a fine example of an organisation with HR having too much power. It was an example of one of the largest, highest, toughest projects in the world to build with an owners team that was staffed with the cheapest inexperienced management team HR could find. In the case of the Argentine side with 20% of the owners team required, because they made more money working for contractors. Lets hope if they try it again do it correctly, or the result will be the same, only this time they might not get financing again. Sadly Pascua Lama is just one such example.
Carlos A. Espinoza
Another dimension that companies involved in this project is to honor the approved environmental plans. People is now more aware of the environmental impact mining activity may have on their lives and so are the states agencies. This is even more evident in countries like Perú and Bolivia where exists a deep cultural respect for the mother-god (Pachamama).Being honest with the surrounding communities is another key variable to get the proper social license to operate. In the case of Pascua Lama, the initial proposal was that the city of Vallenar would be the logistic center (supply and people) which did not occurr because the city of La Serena was the final selection. This city is located in another region and offer better community infraestructure making more attractive for people to live ) and reducing the potential salary in case you live in Vallenar city). These are the type of issues that cretae barriers to get the social license. This is just one topic.
Goldfinger
I am wondering if the Chinese are going to pay their share of the legal costs, when the claim against Barrick for falsifying reporting on the project finally gets settled. Maybe they could keep that for a surprise after they sign the deal. It might add a couple of billion to the cost of finishing the job but whats a couple of billion between friends.
Mark
The extreme expense of this project is yet another example of the sort of difficulties miners face in bringing new supply to market. Pascua-Lama is what, a 1M gold ounce equivalent per year mine, and it probably will cost $15B to bring into production. So if that’s any indication, that it costs $15B to bring 1M ounces/year into production, Barrick’s 6M ounce per year production should be “worth” $90B replacement-cost wise. Not including reserves. To think that you can buy Barrick for an enterprise value of approximately $30B today makes it quite the bargain and implies that the gold price has dramatically higher to go before any new mines will be economic.