Soaring costs delay Barrick-Gold Andes mining project delayed a full year
Barrick Gold, the world’s biggest gold miner, says its capital costs to develop a giant mine high in the Andes could reach 8 billion dollars and has delayed production until 2014.
“I take no pleasure in delivering some of today’s news,” said Jamie Sokalsky, the former chief financial officer who became CEO after Aaron Regent was suddenly fired last month.
“I don’t know of a high-performing company where there haven’t been situations that didn’t go according to plan.”
That, along with the current economic climate, has also prompted Barrick to do a sweeping review of all its projects to determine which ones are worth pursuing.
It has pulled back on planned investments at some, and shelved two mines for now, Donlin Gold in Alaska and Cerro Casale in Chile, although it will continue with required permits to keep options open.
Much of Barrick’s problems are blamed on rising capital expenditures at the much-anticipated Pascua-Lama gold mine, on the border of Chile and Argentina, which would be the world’s highest-altitude mine. Construction delays are reported for the camps, tunnel and processing plant.
Barrick now estimates a 50% to 60% increase in capital costs from the previously announced estimate of 4.7 billion to 5 billion dollars. About 3 billion has been spent to date.
Production is now pushed back to mid-2014, down from the original forecast of 2013, but annual production targets for the Pascua-Lama mine’s first five full years are unchanged at 800,000 to 850,000 ounces of gold, and 35 million ounces of silver.
Sokalsky said Barrick underestimated the complexity of the Pascua-Lama project, including taking on construction management on its own, instead of going to an outside contractor.
Other factors include challenges of altitude, extreme weather, cross-border issues as well as high inflation in Argentina, and to a lesser degree Chile.
Rising labour costs and lower productivity have had a significant impact with Sokalsky estimating labour costs have jumped 54% on a per hour basis in Argentina this year. Barrick is now looking at signing fixed-fee agreements for certain projects, which should avoid inflationary pressure.
“There is no doubt that Pascua-Lama is going to be one of the world’s great gold and silver mines,” he said.