Barrick faces new setback, more pressure – by Brent Jang (Globe and Mail – July 1, 2013)

The 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.

VANCOUVER — Barrick Gold Corp. has gained some breathing room with its decision to delay development of its Pascua-Lama project, but the company faces pressure to shrink its global mining operations amid tumbling metal prices.

Barrick says first production from the South American gold and silver venture will be postponed by more than 18 months, as the Canadian company forecasts taking a writedown of up to $5.5-billion (U.S.) on the project.

Toronto-based Barrick said it has opted to vastly scale back capital spending this year and in 2014 on the project, which is located in the Andes mountains and straddles the border between Chile and Argentina. While construction of the $8.5-billion project has suffered another setback, the venture remains strategically important to the world’s largest gold producer, analysts say.

“With all this talk about what Barrick could look like in the future, Pascua-Lama will be key to the company’s future operational performance, especially if Barrick wants to shed high-cost mines,” said Chris Thompson, a Vancouver-based mining analyst at Raymond James Ltd.

Even though Pascua-Lama has enormous upfront capital costs, Barrick is drawn to the prospective rewards. 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.

Amid declining gold and silver prices, Barrick said it plans to “resequence construction of the process plant and other facilities in Argentina in order to target first production by mid-2016” – a delay of more than 18 months. Barrick had been aiming for a launch in the second half of 2014, though analysts interpreted that to mean late 2014, at best.

With Barrick committed to the South American venture in the long term, analysts say the company will be in a position to run fewer mines worldwide, potentially jettisoning operations with high operating costs.

Hours before Barrick made its announcement late Friday, credit rating agency DBRS placed the gold producer’s debt under review, with negative implications.

In February, Barrick wrote down $3.8-billion of its 2011 investment in Equinox Minerals Ltd. Barrick had acquired Equinox for $7.5-billion, but the prized Lumwana copper mine in Zambia drained cash as extraction costs rose.

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