Barrick Gold Corp., the world’s largest gold miner by sales, fell the most in more than five months after a Chilean court ordered work halted at its Pascua-Lama project in the Andes.
Barrick fell 8.6 percent to C$24.81, the most since Nov. 1, 2012, at the close in Toronto, where the company is based, after the Copiapo Appeals court accepted an injunction filed by indigenous communities.
“There’s a lot of ambiguity here, it’s important but nobody knows just how important this is and what kind of delay it might mean,” David West, an analyst at Salman Partners Inc. in Vancouver, said today by phone. “At this point for the type of reward that you are going to get out of Barrick I think investors that are leaving the shares today are just saying it’s not worth the risk.”
Barrick raised the cost estimate for Pascua-Lama, on the border between Chile and Argentina, twice last year to as much as $8.5 billion and said first output would be delayed by more than a year, to the second half of 2014. The mine was forecast to cost no more than $3 billion when the company approved its development in 2009.
Barrick hasn’t received notice from the court and couldn’t comment on the measure, Rodrigo Jimenez, a Santiago-based spokesman, said in an e-mail today. Shares in the company have fallen 27 percent this year as gold futures in New York declined 8.8 percent after 12 straight annual gains.
Barrick faces as much as $10.2 million in fines in connection with the mine, which Chile’s environmental regulator said in March has failed to comply with environmental rules. The appeals court decision was first reported by local radio station Radio Cooperativa.
Located 4,500 meters (14,700 feet) above sea level in the Andes Mountains and spanning the border between Chile and Argentina, Pascua-Lama was approved only after Barrick agreed to mitigate feared impacts on glaciers, the principal source of water for the agriculture-dependent Huasco Valley.
“Construction activities in Argentina, where the majority of Pascua-Lama’s critical infrastructure is located, including the process plant and tailings storage facility, are not affected,” Barrick said in a statement today.
The mine is expected to produce an average of 800,000 to 850,000 ounces a year of gold in the first five full years of operations, Barrick Chief Executive Officer Jamie Sokalsky said Feb. 14. The project represents about 17 percent of Barrick’s consolidated net asset value using a 5 percent discount rate, Greg Barnes, a Toronto-based analyst at TD Securities Inc. said in a note today.
The Chilean injunction “doesn’t affect the Argentine side, which is where most of the construction is going on,” said George Topping, a Toronto-based analyst at Stifel Nicolaus & Co., in a phone interview. “But to my mind it is still a high-risk project to be investing $8.5 billion in.”
Barrick already suspended some work to strip the surface above the mine last year, because of dust thrown up by strong winds. The company is working to mitigate dust and improve ventilation before resuming so-called pre-stripping activities, Senior Executive Vice President Kelvin Dushnisky said Feb. 14.
Barrick is also facing difficulties over its newest mine, the Pueblo Viejo operation in the Dominican Republic, which started production in August last year. The government’s contract for the mine’s development is unacceptable and must be revised to provide more benefit to the country, President Danilo Medina said Feb. 27.
Customs delayed a gold shipment from Pueblo Viejo, the biggest foreign investment in the Dominican Republic, for four days last month before it was released, Barrick said March 18. Negotiations to resolve the dispute will not extend beyond April, Dominican Today said today, citing Presidency Administrative Minister José Ramón Peralta.
Barrick owns 60 percent of Pueblo Viejo and Vancouver-based Goldcorp Inc., which has surpassed Barrick as the biggest gold miner by market value, holds the other 40 percent.