Stung by booming capital costs at mines around the world, Canada's top gold miners are assuring investors they have the issue in hand.
Fresh from a visit to South America, Barrick Gold Corp. chief executive officer Jaime Sokalsky told the Denver Gold Forum on Tuesday his company has prepared a plan to bring the massive Pascua-Lama project in the Andes into production in line with a new budget and timeline.
J. Paul Rollinson, the newly appointed CEO at No. 3 Canadian gold miner Kinross Gold Corp., told the Denver audience his company has identified $200-million (U.S.) in capital reductions to implement before year-end.
Miners say booming capital costs are among the biggest challenges facing the industry as prices for everything from steel and energy to manpower escalate around the world, especially at mines in emerging-economy geographies.
Pascua-Lama, a project set at the height of the Andes mountains between Chile and Argentina, promises to become one of the world's largest gold mines when it is completed in mid-2014, but it has faced mounting challenges since Barrick began targeting production.
The price tag for the mine is now as high as $8-billion, up from $3-billion in 2009.
Capital cost increases were attributed to a series of issues, including lower-than-expected contractor productivity, engineering and planning gaps, cost escalation and schedule extension.
"We are reviewing the engineering and the planning and have prepared a hundred-day plan to get us back on track," Mr. Sokalsky told the annual gathering of gold industry's top brass some three months after Barrick's board sacked former CEO Aaron Regent and a month later announced a 60 per cent cost over-run at the mine.
"We'll update you with our third quarter results as to where we are, but we are working very hard to make sure that we build this project on this budget and on the time schedule," he said, fresh off a site visit to Pascua-Lama a few weeks ago.
Pascua-Lama is still far from being built, but it is already heralded by some as a feat of engineering at altitude as well as an exercise in diplomacy, requiring agreements between host countries Chile and Argentina in areas ranging from the environment to trade and commerce.
Kinross chief Mr. Rollinson, who took over from Tye Burt after his boss was let go on Aug. 1, was equally adamant, telling the Denver audience his team has developed a road map identifying the areas with the greatest potential to increase value.
Kinross has been in a cost-cutting campaign since the first quarter, when changing project parameters forced it to take a $2.49-billion writedown on the Tasiast gold mine in Mauritania, which it acquired under the $7.1-billion acquisition of Red Back Mining Inc. in 2010.
"We have already found $200-million in capital reductions to implement before year end, and we will continue to work for other possible reductions as we continue our 2013 budget process," Mr. Rollinson said.
Among others elements, Mr. Rollinson said Kinross was looking at mine plan optimization and supply chain management to cut costs, noting greater efficiencies in North America than at its mines in South America and West Africa.
"To give an example, today we are on track to spend approximately half a billion dollars on explosives for the next five years at just three of our mines," he said. "By taking a more global view of this spend and other global contracts, we believe there is considerable potential to reduce our operating costs over the medium term."