Costs rise again for Barrick’s Andes mine – by Pav Jordan (Globe and Mail – November 2, 2012)

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The Andean gold project that is key to driving future growth at Barrick Gold Corp. just got more expensive to build, and the company is still not done looking at costs.

The Toronto-based miner said the Pascua-Lama project, set in the mountains between Chile and Argentina, will now cost as much as $8.5-billion (U.S.) to develop. That’s higher than the shocking $8-billion price tag Barrick issued for the project in July, and more than double a $3-billion forecast when a construction decision was reached in 2009.

“You would expect that when they increased it by such a large amount a few months ago they would have been cautious so that they wouldn’t need to come back and disappoint us once again,” said George Topping, an analyst with Stifel Nicolaus who described the rise as “galling.”

Investors seemed to agree, driving the stock down more than 8 per cent on the Toronto Stock Exchange after Barrick announced the further cost overrun and said third-quarter profit fell by more than 50 per cent. Cash costs edged higher and the company sold less gold at lower prices. Shares of other gold miners also fell, dragged down by falling prices for the metal.

“It’s certainly taking a pounding and it’s not surprising given the news, although I would say that it seems an overreaction to me,” Mr. Topping said.

Barrick reported a profit of $618-million (U.S.) or 62 cents a share, compared with $1.37-billion or $1.37 a year earlier. Analysts had forecast earnings closer to $1 a share.

Pascua-Lama is one of Barrick’s chief growth engines, and the company has shelved some $3-billion in other planned capital expenditures as it concentrates on putting the mine into production by mid-2014. On Thursday, Barrick announced a further $1-billion in spending cuts from its sustaining and mine site expansion budget for 2013.

The company also said it would not give final production and total cash cost guidance for Pascua-Lama until its year-end 2012 results, meaning there may be more bad news to come. To be sure, Barrick CEO Jamie Sokalsky said Barrick’s confidence levels about the project had substantially increased since July.

“I want to reiterate that Pascua-Lama is our top priority … and we’re very focused on getting this project into production as quickly as possible,” said Mr. Sokalsky, who recently returned from a third trip to the project in five months.

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