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Soaring costs delay Barrick-Gold Andes mining project delayed a full year

Monday, July 30th 2012 - 07:04 UTC
Full article 21 comments
The Argentine-Chilean Pascua-Lama project will now demand 8 billion dollars  The Argentine-Chilean Pascua-Lama project will now demand 8 billion dollars

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.

Top Comments

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  • GeoffWard2

    I guess that Barrick want to carry on business in Chile and Argentina in dollars. Pesification will kill off a lot more industries than this.
    Still, the gold will always be there - in both Chile and Argentina - until companies are re-engaged to extract it.
    Next time it might be wise to set up two independent mines, one in each country.

    Jul 30th, 2012 - 11:14 am 0
  • Pirat-Hunter

    With the help of our national Bank and san juans unemployed I would be digging for gold and paying taxes on profits already. I am sure barrick has already mined gold in Argentina, they are just testing to see if the Argentine government is aware.

    Jul 30th, 2012 - 01:04 pm 0
  • Yuleno

    The Kolla people will find their fight for their rights more difficult now.The need for gold is so crucial in everyone's sad lives.Its such a pretty metal,isn't it

    Jul 30th, 2012 - 01:43 pm 0
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