Barrick Gold’s Pascua-Lama mine site in the Andes on the Chilean-Argentine border. Canadian gold mining executives are obsessed with the concept of bigness. The problem with bigness is that it translates into trouble when it’s extended to corporate development. Big projects are big gambles.
Chile's environmental regulator has halted development of Barrick Gold Corp.'s $8.5-billion (U.S.) Pascua-Lama mine, dealing a fresh blow to the embattled project that is key to the growth plans of the world's largest gold miner.
The Superintendencia del Medio Ambiente (SMA) cited "very serious violations" by Toronto-based Barrick and ordered the company to take "urgent measures" to complete a water management system to prevent contamination around the mine site. The regulator also fined Barrick $16-million.
"There were some reporting requirements that we hadn't fully complied with and there were aspects of the water management system which were not fully completed on time," Barrick spokesman Andy Lloyd said in an interview Friday. "Those were the types of things that the fine is for, but they didn't fine us for polluting."
Barrick acknowledged that certain components of the project deviated from construction plans. "The company is in the process of reviewing the SMA resolution in detail. Barrick is fully committed to complying with all aspects of the resolution and to operating at the highest environmental standards," a company statement added.
Friday's move by the Chilean regulator comes on top of a preliminary court injunction last month that suspended construction on the Chile side of the project, which straddles the Chile-Argentina border, owing to environmental concerns raised by indigenous communities. Last year Barrick sharply raised the estimated cost of Pascua-Lama to more than $8-billion and delayed development by a year.
The series of setbacks could prompt Barrick to take a hard look at the wisdom of proceeding with Pascua-Lama, at least in the short term, analysts said.
With gold prices slumping, Pascua-Lama is looking increasingly like a project that doesn't make economic sense, said George Topping, an analyst with Stifel Nicolaus Canada. "Barrick has a highly levered balance sheet … and it's probably going to have to spend another $3.5-billion on Pascua-Lama," Mr. Topping said. from Toronto.
Barrick reported debt of $14.8-billion as of March 31.
"What happens if gold prices fall further?" Mr. Topping continued. "The Chilean regulator's decision could represent a good opportunity for Barrick to delay the project to let it focus on the balance sheet for the time being. The gold-and-silver deposit will still be there in a couple of years, and the company could come back to it if it's put on ice."
Mr. Topping noted there are political risks in Argentina because the government there could decide that it wants a formula for greater tax revenue to flow into its own treasury. Work on the Pascua-Lama processing plant on the Argentine side continues, but until Barrick meets the Chilean environmental agency's demands to protect water supplies, the open-pit mine in Chile faces a future in limbo.
Vancouver-based Silver Wheaton Corp. in 2009 agreed with Barrick to acquire 25 per cent of the mine's silver production during the project's lifetime.
"We remain confident in Barrick's ability to develop Pascua-Lama into one of the world's great gold-silver mines," Silver Wheaton president Randy Smallwood said in a statement. "We remain confident in Barrick's commitment to this project, and look forward to seeing this issue resolved. Silver Wheaton looks forward to a long-term partnership with Barrick on Pascua-Lama."
The Pascua-Lama project in the Andes mountains reaches over the Chilean border into Argentina. There are an estimated 17.9 million ounces of proven and probable gold reserves, as well as 676 million ounces of silver in the deposit. The large project is a key piece of Barrick's plan to boost gold production in the years ahead.
Mr. Topping said that if Barrick were to defer $3.5-billion in construction costs, it would provide some much-needed breathing room, especially with the company seeking ways to address a potential financial squeeze should gold prices continue to slide.
Barrick did not say how long it expects to take to meet the SMA's requirements for water management.
With files from reporter Jacqueline Nelson in Toronto
Brent Jang