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Barrick Gold Corporation (USA) (ABX), AngloGold Ashanti Limited (ADR) (AU) – Gold: Beyond Best Intentions

Remember, people will judge you by your actions, not your intentions. You may have a heart of gold — but so does a hard-boiled egg.

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For gold mining companies, things can often be a little unsettling with the swings in the commodity’s price and the challenges of operating in diverse jurisdictions. Best intentions are sometimes pushed to the wayside as the realities of the mining business intrude on the finest laid plans. What challenges are today’s leading gold mining companies facing?

Barrick Gold Corporation (USA) (NYSE:ABX)

Legal challenges

Barrick Gold Corporation (USA) (NYSE:ABX) has their Pascua-Lama project situated on the Chile/Argentina border. This project, with an expected mine life of 25 years, has the potential to be a significant revenue producer for the Company. Pascua-Lama is one of the world’s largest gold and silver resources. It has close to 18 million ounces of proven and probable gold reserves and 676 million ounces of silver contained within the gold reserves.

Barrick Gold Corporation (USA) (NYSE:ABX) is facing an environmental challenge concerning Pascua Lama. According to a report (July 19, 2013; Cecilia Jamasmie), “An indigenous group that has led the legal battle against Barrick Gold’s $8.5 billion Pascua Lama project in Chile, is planning to request the country’s Supreme Court to review Monday’s lower court decision, as they claim it is insufficient to prevent further environment pollution.

On Monday, July 15, a Chilean court ruled that Barrick Gold Corporation (USA) (NYSE:ABX) has to construct infrastructure to prevent contamination of the water supply for indigenous communities along a section of the aforementioned Chile/Argentina border. Investors should note the increased expenses companies incur and the mining time lost as they face legal challenges to their proposed operations. Barrick Gold Corporation (USA) (NYSE:ABX) will build this infrastructure; however, this will delay the mine’s operation probably into late 2015.

Continuing rising costs

The challenge mining companies’ face is the costs inherent in producing the gold they wish to bring to market. The industry is very labor intensive and it can be multiple years before a company sees any return on their considerable investments in labor, land, exploration, permits, plant & machinery, various assessments and more.

Consider Newmont Mining Corp (NYSE:NEM); last year (June 2012) they made staff cuts at their Colorado operations. The reason for this action at the time?

According to Mr. Gary Goldberg, President and CEO, he said then, “Ongoing price volatility and steadily rising costs create intense pressure for Newmont Mining Corp (NYSE:NEM) to continuously improve its efficiency and effectiveness.”

In 2013, mining entities still face steadily rising costs. Yamana Gold Inc. (USA) (NYSE:AUY), Yamana Gold Inc. (USA) (NYSE:AUY), for Q1 2013 had by-product cash costs of $383 per gold equivalent ounces (GEO) ($292 per GEO in Q1 of 2012). Co-product cash costs were $587 per GEO ($518 per GEO for Q1 of 2012).

For Q1 2013 Newmont Mining Corp (NYSE:NEM) had gold and copper costs applicable to sales (CAS) of $758 per ounce and $2.19 per pound. This represents an increase of 22% and 11%, respectively, from the 2012 quarter.

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