Boyd, Roosen, Quartermain: It takes grit, invention, luck to make the big time
Mining industry legends discuss the backstories on their multibillion-dollar successes.
Barrick Gold (NYSE, TSX: ABX) shares retreated 1% in reaction on Thursday to news that the company had settled a dispute with the Dominican Republic over its Pueblo Viejo mine.
Barrick said after eight months of negotiations during which time DR customs officials halted shipments from the mine on two occasions it has agreed in principle to amend its special lease agreement.
The company announced the economic benefit to the DR government of the changes over the 25-year life of the mine is approximately $1.5 billion and include a 50-50 split of cash flows from 2013 to 2016, a change to how the net profit interest (NPI) is calculated, a reduction in depreciation rates and the implementation of a graduated minimum tax based on metals prices.
The corporate income tax rate of 25%, a net smelter royalty of 3.2% and the net profits tax of 28.75% remains unchanged under the new deal.
The mine entered commercial production in January, but not long after the country’s legislature said it would review and possibly change the contract with the Toronto-based company, in a bid to make the terms “more favourable”.
Pueblo Viejo , which is 60% owned by operator Barrick and 40% by fellow Canadian Goldcorp (TSX: G), (NYSE: GG), was built for $3.7 billion and holds 15 million ounces of reserves, making it one of the biggest gold mines in the world.
It is expected to contribute an average of 625,000-675,000 ounces of gold per year to Barrick in its first full five years of production at all-in sustaining costs of $500-$600 per ounce.
Goldcorp was down 1.5% on Wednesday and Barrick shed 2.5% at $20.96 in mid-afternoon trade on Thursday, following an 8% bounce yesterday.
The stock has been the hardest hit in a beaten down gold sector following the dramatic slide in the gold price last month.
But the world number one gold miner’s troubles started earlier in April, even before the drop in the gold price when work at its Pascua Lama mine in Chile was halted by a court order over environmental concerns.
Construction of the mine straddling the border with Argentina, Barrick’s largest and most controversial project ever, is expected to cost as much as $8.5 billion from initial projections of $3 billion. First production was expected mid-2014, but that deadline now seems unlikely.
The Toronto-based company has recovered somewhat after hitting 20-year lows in April, but is still down nearly 40% year to date and is now worth just under $21 billion on the Toronto big board.
That’s down from a peak of almost $55 billion in September 2011.
