Analysis: Latest Barrick mine delay fans price tag fears – by Julie Gordon (Reuters U.S. – June 30, 2013)

TORONTO – (Reuters) – Barrick Gold Corp (ABX.TO) has slowed spending at its Pascua-Lama project in South America, delaying first output to 2016, but that may not be enough for the its shareholders, who worry that the final price tag may creep beyond what the mine is worth.

While the flagship development, which straddles the border of Chile and Argentina, is one of the richest untapped gold deposits in the world, the string of delays and budget overruns have been a nightmare for world’s top producer and its investors.

“They should walk from Pascua-Lama,” said John Ing, president of boutique investment and research firm Maison Placements, adding that the embattled miner also needs to divest non-core assets, cut exploration spending and slash hefty board salaries if it wants to turn its fortunes around.

Barrick said late on Friday that it would re-sequence construction of the controversial project to target first production by mid-2016, deferring some $1.5 billion to $1.8 billion of planned capital spending in 2013 and 2014. The company has not updated the market on capital costs, last projected to be up to $8.5 billion.

The delay was in-line with a scenario that Credit Suisse analyst Anita Soni outlined earlier this week, as the bank downgraded Barrick to ‘Neutral’ from ‘Outperform’.

Soni estimated that a mid-2016 start-up would boost capital costs by about 20 percent to $10 billion and could shock the market, which was anticipating first production in late 2015.

“In our view, a mid-2016 start-up for Pascua would be a negative surprise to the street,” she said in the Tuesday note.

That surprise could lead to another stock dive for Barrick, whose shares have already tumbled to their lowest point in more than 20 years, dragged down by Pascua-Lama, along with worrisome debt levels and the declining gold price.

But the alternative, walking away indefinitely, would not be an easy feat for the company. Once complete, the gold mine will be one of the cheapest in the world to operate, producing some 800,000 to 850,000 ounces a year at all-in sustaining costs of just $50 to $200 per ounce, in its first five full years.

And Barrick has already spent nearly $5 billion on the project, with mining and processing facilities partially built. The cost of shuttering the site would likely top $1 billion, according to analysts, and the company would also have to pay out Silver Wheaton (SLW.TO), which has rights to part of the mine’s silver output.

Still, with the new delay and the recent drop in the gold price – which fell 23 percent in the second quarter – Barrick expects to take a writedown of up to $5.5 billion on the value of Pascua-Lama, a tough pill to swallow for investors.

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