Barrick Assesses Impact of Chile Resolution on Andes Mine

Barrick Gold Corp. (ABX), the world’s largest producer of the metal, is studying details of a Chilean resolution that imposed a fine and ordered work to safeguard water supplies at its $8.5 billion Pascua-Lama mining project.

Construction work at the site on the border with Argentina can’t resume until measures have been taken to prevent contamination, Chilean environmental agency SMA said in a statement on its website today.

Barrick is “fully committed” to complying with the resolution, the company said in a statement. The shares fell 2.1 percent after trading resumed following an earlier halt.

Construction on the Chilean side of the mine was stopped by a Chilean court last month. Chief Executive Officer Jamie Sokalsky told the Bloomberg Canada Economic Summit on May 21 that Toronto-based Barrick won’t continue making significant investments if there’s uncertainty about the project’s future. He said Barrick has already invested $5 billion in the mine.

“I think Barrick should seriously consider canceling the project,” Pawel Rajszel, a Toronto-based analyst at Veritas Investment Research Corp. who has a buy rating on the stock, said today by phone. “If they do cancel the project then they will be saving themselves about $2 billion per year over the next two years and they will suddenly start generating free cash flow right away.”

The 8 billion-peso ($16.4 million) fine, the maximum that SMA can hand down, can be reduced by 25 percent if paid within five days, the agency said.

Output Delay

“It’s a lengthy resolution, Andy Lloyd, a spokesman for Barrick, said by phone. ‘‘We need to review it in full but we would expect to provide an update shortly.’’

Today’s ruling comes a month after a court accepted an injunction filed by indigenous communities concerned by damage to glaciers in the Andes mountains. Barrick said April 10 that construction activities in Argentina, where most of the mine’s critical infrastructure including the processing plant is located, weren’t affected.

Pascua-Lama is expected to produce 800,000 to 850,000 ounces of gold annually in its first five years of production. That’s equivalent to about 11 percent of the company’s forecast output this year. Barrick raised the cost estimate for the project twice last year and said output would be delayed by more than a year, until the second half of 2014.

Silver Wheaton

The company said last month it was considering options including suspending the project. Barrick has made mistakes at Pascua-Lama, including the way it managed environmental controls, Sokalsky said May 21.

The shares dropped to C$19.69 in Toronto. Vancouver-based Silver Wheaton Corp. (SLW), which has an agreement to buy 25 percent of the silver produced at Pascua-Lama, was also halted earlier today pending Barrick’s announcement. The stock later resumed trading and closed 0.6 percent higher at C$12.99.

A $16 million fine appears to have an ‘‘immaterial” affect on valuations when contrasted with Pascua-Lama’s current $8.5 billion price tag, Adam Graf, a New York-based analyst at analyst at Cowen Securities LLC, said in a note today.

The environmental improvements needed to comply with Chilean regulations will cost the company about $100 million, Santiago-based daily Diario Financiero reported May 8.

Barrick said last month it was in the early stage of studying an alternative development plan to start producing from a smaller pit in Argentina.

To contact the reporters on this story: Liezel Hill in Toronto at lhill30@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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