Barrick Gold Pascua Lama: The world’s largest gold producer, Barrick Gold Corporation (USA) (NYSE:ABX) participated in the Denver Gold Forum on Tuesday earlier this week. At the conference, the firm stated it would have never undertaken the Pascua-Lama project had it known about the regulatory and financial obstacles that stood in the way of completion.
Pascua-Lama is located along the Argentine-Chilean border and boasts some of the largest gold and silver reserves in the world. The completed mine is expected to produce around 850,000 ounces of gold and over 35 million ounces of silver annually, during the first five years of production. With a lifetime of 25 years, this would mean a huge increase in output for Barrick. However, as CEO Jamie Sokalsky pointed out during the Forum, “The current economics of this project aren’t as robust as it would need to be to greenlight a new project”.
Although some would like to see this project removed from the pipeline, the firm has gone through so much trouble, that it wants to see it complete. Nevertheless, mounting costs have resulted in an impairment charge of $5 billion last quarter. Also, the construction timetable has been extended over a longer period of time, in order to reduce capital expenditure. This will save Barrick at least $1.5 billion this year and the next. However, further delays during that earlier stage means higher costs with no returns.
On the upside, Barrick was proud to announce that its cost-cutting initiatives are paying off. The company highlighted the slashing of cash costs by $100 per ounce, down to roughly $800, entailing one of the lowest cost averages in the industry. The Cortez mine in Nevada, one of the largest and lowest-cost gold mines in the world, boasted an impressive all-in cash cost of only $392 per ounce.
Despite the cost reductions, Barrick stated that it is still trying to sell off non-core projects. Some of its Australian operations have already been handed off to Gold Fields Limited (ADR) (NYSE:GFI), and the African Barrick Gold subsidiary is to be sold sometime during the next 12 to 18 months. At last, the Pascua-Lama project will continue being pushed, although it might never see completion. Political issues in Chile are forcing Barrick to invest large sums of money that may not even pay off. However, the firm has put too much effort and money into the project to simply let it go.
Check back here for more updates on the Barrick Gold Pascua Lama project.
Disclosure: Pablo Erbar holds no position in any stocks mentioned
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