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Barrick Gold was expected to raise its estimate of the cost of completing the project. Instead, it decided to halt construction. Image courtesy of Greenpeace.
Canadian Barrick Gold Corp. (TSX, NYSE:ABX) said Thursday it is temporarily suspending all construction activity at its controversial $8.5 billion Pascua-Lama project straddling the Chile-Argentina border.
Delivering its Q3 results, the debt-laden gold miner said the decision allows the firm to protect capital and cut its spending guidance for 2014 by $1 billion. But the move also casts a doubt on the future of the project, a critical one for Barrick, as it holds gold reserves of nearly 18 million ounces.
“We have determined that the prudent course —at this stage— is to suspend the project, but naturally we will maintain our option to resume construction and finish the project when improvements to its current challenges have been attained,” chief executive Jamie Sokalsky said in a statement.
“We see Barrick’s decision to suspend operations until they have full access to the Pascua- Lama site as a fiscally prudent approach, which under the current circumstances, should enhance the project’s capital efficiency and improve the project’s economics going forward,” said Randy Smallwood, Silver Wheaton’s (TSX, NYSE:SLW) President and Chief Executive Officer.
The Vancouver-based fellow Canadian firm said it has amended its silver purchase agreement with Barrick and now it is “entitled to silver production from three of Barrick’s currently producing mines, Lagunas Norte, Pierina, and Veladero mines to the extent of any production shortfall at Pascua-Lama,” until the end of 2016.
Since the world’s No. 1 gold miner began building Pascua Lama, it has faced one roadblock after another, the latest being a threat of a strike from its Chilean workers.
The company has been exploring cash-raising options, ranging from a strategic equity investment to a sale of part of its copper division to cut debt. On that line, it announced it has targeted another $500 million in annual savings by developing a “flatter operating model.”
“Significant cost and operational improvements achieved this year, including previously announced reductions of $2 billion from budgeted 2013 capital and costs, have translated into another quarter of strong results,” Sokalsky said.
Barrick, which has been selling non-core assets, still has a significant long-term debt of almost $15 billion. To address that issue, the miner warned that “further asset sales and issuances of debt or equity securities in the public markets or to private investors” could be undertaken for “liquidity enhancement and/or in connection with establishing a strategic partnership.”
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4 Comments
Gary
I am pleased that the Chilean workers will now be to move onto other mining projects where I am sure they will get much higher wages
Gary
My point exactly
Abe
Having worked for Barrick on the process plant in Argentina for two years, I feel sorry for the local personnel in San Juan Argentina and the surrounding communities who needed this project to better their well being.
Carlos
I am surprised that there is not a single mention to all the environmental problems this project has had since its inception. The last “roadblock” (as is defined in the article) came from the Supreme Court in Chile (Sept. 25, 2013) confirming the resolution of a lower court that forced Barrick to stop Pascua-Lama activities until several environmental damages were remediated, abated and avoided. In stead, Barrick has decided to temporarily stop the multi-billion project and avoid the humongous costs that would represent developing a fully environmentaly friendly mining project. I must add that this emblematic project is not only important to Barrick, but also to Argentina and Chile, as it is the first transboundry mining project in Latin America.