More woes for Barrick Gold as Pascua Lama suspendedPublished by MAC on 2013-11-09
Source: Mining.com, Reuters (2013-11-08)
Barrick finally admitted it is suspending all construction activity at its Pascua Lama project, straddling the Chile-Argentina border. "The prudent course is to suspend the project, but naturally we will maintain our option" chief executive Jamie Sokalsky said [http://www.mining.com/barrick-has-had-enough-stops-construction-of-pascua-lama-mulls-stake-sale-89887]. Six months ago, company officials assured that work will continue on Argentina, even though construction has been stopped on the Chilean side [http://www.foxnews.com/world/2013/04/30/barrick-says-argentine-construction-pascua-lama-mine-continues-after-suspension/].
In June this year a group of shareholders filed a class action against Barrick in the US for “making false and misleading statements” about Pascua-Lama. At least nine law-firms have taken on the case [http://protestbarrick.net/article.php?id=920]. The costs of the project have risen from around US$3 billion throughout 2010 to US$8 billion by mid-2012. Some analysts say the real cost is above US$10 billion now, making it the most expensive gold mine ever built.
The Chilean workers at the suspended project voted to strike last week. [http://www.reuters.com/article/2013/10/30/chile-barrick-strike-idUSL1N0IK1FM20131030]. On 17 October 2013, OLCA Director, Lucio Cuenca, made a critical presentation to the Legislative Investigative Commission of the Pascua Lama project at the Chilean Congress. "The worst environmental impacts have been on the glaciers" he stated. [http://camara.cl/prensa/noticias_detalle.aspx?prmid=81045]
The golden decade
Barrick is the world’s largest gold producer, with 24 mines around the world and plans to produce more than 7 million ounces in 2013 from a portfolio that includes some of the world’s premier gold assets. But a decline in the gold price has forced the company to clean up balance sheets and cut costs. In September Barrick announced a deal to sell three of its mines in Australia. "This isn't about going from 24 to five or six, but somewhere in between" chief executive Jamie Sokalsky told Reuters [http://www.reuters.com/article/2013/09/24/us-mining-denver-barrick-idUSBRE98N17320130924]. The company says it also plans to eliminate a number of its regional managers and switch to overseeing operations from head office. [http://www.mining.com/barrick-gold-shows-its-regional-managers-the-door-65344/]
Gold rallied from US$250 in 1999 to an all-time high of US$1,921 an ounce in September 2011. The “golden decade” created the illusion that it would keep rising forever. But it have fallen more than 20% so far this year. All major gold miners have taken heavy write-downs lately, and Barrick as the world's number one gold producer has written off close to US$13 billion this year. This is equal to the total impairments of the five next biggest players (GoldCorp US$1.9 billion, Newmont US$1.8 billion, AngloGold Ashanti US$2.6 billion, Kinross US$2.2 billion and Newcrest US$5-6 billion). [http://www.mining.com/top-ten-write-downs-of-the-summer-51155/] A recent PwC report shows that four of the five big miners that lost most market capitalization value in 2012 were in gold. [http://www.pwc.com/ca/en/mining/index.jhtml]
Yet Barrick has nearly US$14 billion of borrowings, more than any other gold miner. The company has the most to lose with actual gold price volatility. [http://www.mining.com/barrick-keeps-hurting-about-13-billion-written-off-this-year-46640/] Their stock declined 45 percent in Toronto this year and actually some company critics say is at the same level it was at in the early-90’s. An investor who bought US$10,000 worth of Barrick Gold’s shares three years ago would have less than US$4,000 remaining today. [http://www.midasletter.com/2013/10/barrick-golds-agony-non-stop-pascua-lama-porgera-lake-cowal/]
Barrick's Peter Munk's birthday not the happiest one
8 November 2013
One of Canada's most important entrepreneurs, Barrick Gold's founder and chairman Peter Munk is turning 86 today, at a time of major challenges that both the mining industry and his endeavour turned-world's largest gold company are being forced to face.
A refugee from the Nazis in 1940s Hungary, and a trained electrical engineer, he made Toronto his home, becoming a well-known philanthropist in Canada and an influential businessman. But as his career draws to a close, he has been facing increasing criticism from Barrick shareholders, who are demanding a boardroom renewal.
After months of declining gold prices, a second-quarter loss of $8.6 billion and project writedowns of over $13 billion so far in 2013, Barrick's stock is trading around the $19 mark, making it one of the worst performers in the sector this year. The company has slashed its dividend by 75% and has vowed to cut costs by selling non-core assets and reducing its workforce.
Being the most debt-heavy company in the gold sector has meant for Barrick to be among those that have lost the most due to volatile bullion prices.
"The company has never been known for managing its cash or resources well or, for that matter, being investor friendly," writes Steve McDonald, bond strategist for The Oxford Club.
"It has a history of being too aggressive in its growth efforts and having too many underperforming assets that are too spread out," he adds.
But in an open letter to The Globe and Mail last September, Munk responded to his critics:
Barrick's Peter Munk's birthday not the happiest one"I have always placed a great deal of importance on my relationships with Barrick's many shareholders, and was gratified that some 83 per cent of all the shareholder votes cast at Barrick's most recent annual meeting were in favour of my re-election as a director," he wrote.
Under Munk's direction, Barrick has become one of the most successful companies in Canada, and one of the world's largest and most profitable gold producers. In its 30 years of life, the company has established operations in five continents, employing over 25,000 people.
Barrick's latest performance, however, seems to have tarnished the company's positive record, giving critics reasons to ask for Munk and other high officers' heads.
Ironically, a sour end like that would be something that Barrick's chairman would somehow expect, and perhaps even wish. As he said 17 years ago in his authorized biography The Making of a Modern Tycoon: "If you want to dream big, expect big problems (...) Big dreams challenge the fates."
Barrick has had enough: stops construction of Pascua-Lama, mulls stake sale
31 October 2013
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."
Access full results here.
Workers at suspended Pascua Lama mine set to strike
31 October 2013
SANTIAGO - The majority of Chilean union workers at Barrick Gold Corp's suspended Pascua-Lama gold mine have voted to strike, which they say could delay the reactivation of the controversial project, according to a union statement on Wednesday.
Both the country's Supreme Court and environmental regulator SMA have halted the complex, which straddles the Chilean and Argentine border, until new infrastructure is built to prevent the mine from polluting nearby water supplies.
Roughly 60 percent of the 300-worker union involved in the construction of the infrastructure has voted in favor of the labor stoppage after rejecting the miner's contract proposal on grounds its benefits were insufficient, the union said.
The last round of voting will wrap up on Wednesday night. A potential strike would materialize between this Friday and next Friday.
The union said that Toronto-based Barrick has "pressured union workers to ... train contract workers, who would replace them during a potential strike, threatening workers with retaliation if they refuse to provide the training."
"However, up to now union workers have refused to train the contract workers," the union added. The union also says Barrick has treated them unfairly and it denounces a recent wave of lay-offs.
Chilean law states that companies can, under certain circumstances, hire replacement workers to fill the gap left by strikers.
Barrick told Reuters it "hopes to resolve our negotiation process in the best way for all sides."
It was not immediately possible to get a comment from Barrick on how a potential strike could affect construction or whether it could delay the project.
Another Chilean Woe For Barrick
The looming strike is another Chilean headache for Barrick, which is likely to raise the cost estimate for Pascua-Lama for the third time in less than two years when it reports results on Thursday.
Last May, Chile's regulator told Reuters that it would be one to two years at the earliest before Pascua-Lama would be reactivated, given the time it will take to build the water management system.
Barrick has stopped construction on the roughly $8.5 billion mine and submitted a plan for water management infrastructure to the SMA. The miner said in June that Pascua-Lama, on which it has already spent around $5.4 billion, had been delayed until mid-2016.
The project was frozen at the request of a local indigenous community, who says water polluted by construction processes has run off into the Estrecho River, which indigenous and other communities in the valley need for agriculture and personal use.
The complaint said excessively high concentrations of arsenic, aluminum, copper and other elements have been found in the water near Pascua-Lama, which is one of the most unpopular mining ventures in Chile.
Barrick denies it polluted the river.
Several other mining and energy investments have faced stiff opposition in Chile, where increasingly empowered communities are seeking stricter environmental standards and improved wealth distribution.
Chile's robustly growing economy is heavily dependent on mining, with roughly 60 percent of export revenue stemming from copper.
Barrick Gold shelves development of Pascua-Lama
31 October 2013
Barrick Gold Corp said on Thursday it will halt development of its Pascua-Lama mine in South America indefinitely - a surprise reversal on a project that has already cost the world's largest gold miner more than $5 billion.
Pascua-Lama, which the company had been counting on to provide a large share of its future gold production, has been plagued by political opposition, permitting issues, labor unrest, cost overruns and a sharp drop in bullion prices.
Here is a timeline of key developments at Pascua-Lama over the past 16 years:
September 1996 - Barrick, stepping up Argentine prospecting, considers a developing gold mine straddling Argentina's border with Chile, high in the Andes Mountains. One of Barrick's chief targets is the Lama prospect, inside Argentina, just across the border from its Pascua project in Chile.
December 2000 - Barrick says it will delay the start of full-scale construction on the Pascua-Lama project due to depressed gold and silver prices. The capital cost of the project is pegged at $1.2 billion. Previously, Barrick had said it expected Pascua-Lama to contribute a full-year's production of 800,000 ounces of gold in 2003.
July 2004 - Barrick says it is proceeding with the development of Pascua-Lama despite uncertainty about a planned new mining tax in Chile. It says it will be seeking permits and finalizing fiscal and tax matters over the next 18 months and then begin a three-year construction schedule. The mine is expected to cost between $1.4 billion and $1.5 billion to build.
June 2006 - Chilean environmental authorities approve the Pascua-Lama project despite the opposition of environmental groups concerned about water pollution. The mine's capital cost is still pegged at $1.5 billion.
December 2006 - Pascua-Lama gets environmental approval from Argentina.
May 2009 - Barrick gives the long-awaited final green light to Pascua-Lama after Chile and Argentina settle a dispute over how the project will be taxed. The company estimates construction costs at $2.8 billion to $3.0 billion.
July 2011 - Barrick raises its forecast for capital expenditures at Pascua-Lama by about 40 percent to between $4.7 billion and $5 billion. The company blames rising costs on higher labor, material and energy costs.
July 2012 - Barrick says the cost of building Pascua-Lama will be much higher than expected, 50 to 60 percent above the top end of its earlier estimate. The new price tag could be between $7.5 billion and $8.0 billion, but a full review is not yet complete. Barrick blames the higher costs on the decision to manage construction in-house rather than hiring an outside contractor, a move that had been meant to keep costs down.
November 2012 - Barrick nudges back the production date for Pascua-Lama to the second half of 2014 from its previous target of mid 2014, and increases its cost estimate to between $8 billion and $8.5 billion from an earlier estimate of $7.5 billion to $8 billion due to construction delays and higher labor and project-management costs.
April 2013 - Barrick halts construction at Pascua-Lama after a local court orders development be suspended while it weighs indigenous communities' claims that the project was destroying nearby glaciers and harming their water supply.
May 2013 - Chilean authorities order Barrick to halt construction at Pascua-Lama and fine the company $16 million, citing serious environmental violations.
July 2013 - A Chilean appeals court suspends the construction of Pascua-Lama until Barrick builds infrastructure to prevent water pollution, and orders the mine's environmental permit be reviewed.
October 2013 - Analysts and shareholders expect Barrick will likely raise the cost estimate for Pascua-Lama, possibly to between $9 billion or $10 billion, when it reports third-quarter results. But there are also market concerns that the total capital cost estimate could be well in excess of $10 billion. Instead Barrick says it will halt development indefinitely.