Barrick Gold Corp. (ABX) will temporarily suspend construction at its $8.5 billion Pascua-Lama mine on the Argentina-Chile border as the world’s largest producer of the metal tries to conserve cash after prices slumped.
Work on the project, located more than 12,000 feet (3,657 meters) up in the Andes mountains, was already partially halted amid a water dispute. All activity except that needed for environmental protection and regulatory compliance will cease, Barrick said today in a statement. It said a restart depends on future costs, gold prices and the regulatory and legal outlook.
Barrick has come under pressure after gold prices fell 21 percent this year and its debt increased. The Toronto-based company, led by Chief Executive Officer Jamie Sokalsky, has explored cash-raising options ranging from a strategic equity investment to a sale of a stake in its copper business, people with knowledge of the matter said yesterday.
The company also has considered the sale of an equity stake or an interest in Pascua-Lama to state-backed Chinese investors, the people said. Barrick has struggled with the mine, its sole mine-construction project, amid ballooning costs, delays and environmental challenges. It took a $5.1 billion writedown on the asset in the second quarter. Pascua-Lama was originally expected to cost no more than $3 billion when construction was approved in 2009.
“We don’t believe that the suspension of Pascua will come as a complete surprise,” Greg Barnes, a Toronto-based analyst at TD Securities Inc. who recommends buying Barrick shares, said in a note today. The move “may be a relief given the strain that the project has been placing on the company.”
Barrick dropped along with the price of gold, declining 3.7 percent to $19.75 at 10:26 a.m. in New York. The stock has fallen 44 percent this year. Gold slid 1.7 percent to $1,326.10 an ounce on the Comex in New York.
The suspension at Pascua-Lama will cut capital spending in 2014 by as much as $1 billion and improve near-term cash flows “significantly,” Sokalsky said in the statement.
Barrick said it will keep looking for ways to improve returns on the project, including partnerships or the sale of royalties and shares of future income. The company will update cost estimates and plans for the remaining development work.
Construction on the Chilean side of Pascua-Lama was halted in April after a court injunction was filed by indigenous communities concerned about potential water-supply contamination. A regulator ordered improvements to environmental measures before work could restart. Barrick said in June it expected first production in mid-2016, rather than a previous target of the second half of 2014.
Even before today’s announcement, Sokalsky has sought to lower costs by reducing production at some mines and selling assets. Barrick took $8.7 billion of writedowns in the second quarter and cut its dividend.
Barrick said today it’s targeting $500 million of additional annual savings from measures including an organizational restructuring, which involves cutting 1,850 jobs.
Long-term debt was $14.6 billion at the end of the third quarter, up from $12.1 billion at the end of 2012. It said in a separate statement that options to improve liquidity include drawing down $4 billion available on a credit facility, further asset sales, and selling debt or equity either in the public markets or to private investors, a course of action that may include the creation of a strategic partnership.
In April, some of Barrick’s biggest Canadian investors criticized its executive pay as excessive after the company revealed that Co-chairman John Thornton received an $11.9 million signing bonus. In response, Barrick said it will alter its compensation policies and add new directors. It said today there will be departures from the board.
Third-quarter net income fell to 17 cents a share from 65 cents a year earlier, Barrick said today. Earnings excluding tax adjustments and foreign-exchange losses were 58 cents, topping the 50-cent average of 20 estimates compiled by Bloomberg.
Sales declined to 12 percent $2.99 billion, beating the $2.91 billion average estimate.
Gold production rose to 1.85 million ounces from 1.78 million ounces, beating the 1.8 million-ounce average of 10 estimates compiled by Bloomberg. The adjusted operating cost to produce an ounce of gold was $573, better than the $606 average projection.
Gold averaged $1,328 an ounce on the Comex in New York in the third quarter, 20 percent less than a year earlier.
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