Barrick Mine Cost May Surge 25% to $5 Billion, Citigroup Says

June 12 (Bloomberg) -- The cost to develop Barrick Gold Corp. and NovaGold Resources Inc.'s Donlin Creek mine may surge 25 percent to about $5 billion amid ``rampant'' inflation, Citigroup Inc. said.

``We remain concerned that construction capital expenditure/risks, leave little value for the developers,'' analyst John Hill said in a note to clients distributed today. The mine in western Alaska may start production in 2015, a year later than Citigroup previously estimated, Hill said.

Like their competitors, Barrick and NovaGold are contending with soaring costs for labor, fuel and equipment. NovaGold's initial $2.5 billion capital-cost estimate for Donlin in 2006 was eclipsed by Barrick's $4 billion November forecast.

The companies, which each own half of Donlin, expect to complete a feasibility study early next year, with construction beginning after a permitting process that may take as long as three years. The mine will process 50,000 metric tons of ore a day for as long as three decades and produce 1 million to 1.5 million ounces of gold annually, NovaGold said last week. Donlin contains an estimated 31.7 million ounces of gold.

NovaGold dropped 15 cents, or 1.9 percent, to C$7.86 at 4:10 p.m. in Toronto Stock Exchange trading. The shares have fallen 61 percent since Nov. 23, the trading session before the company said it suspended work on its Galore Creek project in Canada because development costs more than doubled to $5 billion. Barrick fell C$1.11, or 2.7 percent, to C$39.39, bringing its decline this year to 5.7 percent.

Pueblo Viejo Comparison

Citigroup based cost projections for Donlin partly on Barrick's estimate for the Pueblo Viejo mine in the Dominican Republic, Hill said. Barrick forecast it will cost $3.7 billion to build that mine, 23 percent more than previously estimated in 2007, Hill said.

At $5 billion, Donlin would be the most expensive planned gold mine, based on the capital cost per ounce of annual production, Hill said.

Citigroup's capital estimate may be wrong, NovaGold Chief Executive Officer Rick Van Nieuwenhuyse said in a telephone interview from Vancouver, where the company is based.

``I do not believe that's what the feasibility number will be,'' said Van Nieuwenhuyse, who declined to provide an updated capital estimate.

Barrick and NovaGold ``are advancing one of the largest mines in the world and I have no idea why that is such ho-hum news for Citigroup.''

NovaGold is in discussions with potential strategic partners that may help fund the development of Donlin and Galore, once the feasibility studies for both are complete, Van Nieuwenhuyse said.

To contact the reporter on this story: Stewart Bailey in New York at sbailey7@bloomberg.net.

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net.