Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
ROME — I think I have figured out Canadian gold mining executives. They assume that gold is not a mineral; it is a perishable commodity that will rot in the ground, like a potato, unless it is dug up immediately.
And not just immediately but in vast quantities. Canadian gold mining executives are obsessed with the concept of bigness. They want projects they can label “game changers,” ones capable of vaulting medium-sized firms into the big leagues, or thrust the biggies to the very top of the global heap. Bigness permeates their lives. They drive big cars, live in big houses. Some, like Barrick Gold Corp. boss Peter Munk, bob around the planet in the biggest of yachts.
The problem with bigness is that it translates into trouble when it’s extended to corporate development. Big projects are big gambles. They invariably come in far over budget, sometimes billions over budget, which gets shareholders rather annoyed. Big projects also attract lots of attention from environmental activists, politicians and aboriginal peoples. The result is expensive delays and bad publicity.
Canada’s gold mining sector is a mess, with share prices down by about half even though the gold price is down by only 20 per cent from its high of almost $1,800 (U.S.) an ounce last October. Executives are being tossed into the garbage like the remains of a steak lunch. Returns on equity are sinking into single-digit territory or, in Barrick’s case, turning negative. Problems at flagship projects are not going away – in some cases they’re intensifying – after years of fix-it efforts.
Barrick has become the poster child of the dangers of oversized projects (to the delight of Goldcorp Inc., whose own woes, such as a Chilean court decision that suspended approval of the environmental permit for its El Morro gold-copper project, have been buried by Barrick’s bad-news avalanche).
Mr. Munk acknowledged as much at Barrick’s annual meeting last month. “We shot ourselves in the foot because we could have stayed put in great financial position, not started Pascua-Lama, not started Pueblo Viejo,” he said, referring to the company’s monster projects in Chile and Dominican Republic.
Pascua-Lama is turning into an epic disaster. The gold-and-silver play straddles the Argentine-Chilean border in the Andes and is surrounded by glaciers, making it one of the most technically and politically challenging resource projects on the planet. But it would add a massive amount of production, allowing Barrick, the top gold producer, to avoid a slow-motion suicide by running down its existing reserves. Pascua-Lama was expected to produce 850,000 ounces a year, more than the entire output of a mid-tier company such as Vancouver’s Eldorado Gold, which produced 660,000 ounces last year and, until the gold price plunge, had a market value of $9-billion (U.S.).
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