Barrick to Suspend Work on Pascua-Lama to Conserve Cash – by Liezel Hill (Bloomberg News – October 31, 2013)

Barrick Gold Corp. (ABX) will temporarily suspend construction at its $8.5 billion Pascua-Lama mine on the Argentina-Chile border as the world’s largest producer of the metal tries to conserve cash after prices slumped.

Work on the project, located more than 12,000 feet (3,657 meters) up in the Andes mountains, was already partially halted amid a water dispute. All activity except that needed for environmental protection and regulatory compliance will cease, Barrick said today in a statement. It said a restart depends on future costs, gold prices and the regulatory and legal outlook.

Barrick has come under pressure after gold prices fell 21 percent this year and its debt increased. The Toronto-based company, led by Chief Executive Officer Jamie Sokalsky, has explored cash-raising options ranging from a strategic equity investment to a sale of a stake in its copper business, people with knowledge of the matter said yesterday.

The company also has considered the sale of an equity stake or an interest in Pascua-Lama to state-backed Chinese investors, the people said. Barrick has struggled with the mine, its sole mine-construction project, amid ballooning costs, delays and environmental challenges.It took a $5.1 billion writedown on the asset in the second quarter. Pascua-Lama was originally expected to cost no more than $3 billion when construction was approved in 2009.

Cash Flows

“We don’t believe that the suspension of Pascua will come as a complete surprise,” Greg Barnes, a Toronto-based analyst at TD Securities Inc. who recommends buying Barrick shares, said in a note today. The move “may be a relief given the strain that the project has been placing on the company.”

Barrick dropped along with the price of gold, declining 3.7 percent to $19.75 at 10:26 a.m. in New York. The stock has fallen 44 percent this year. Gold slid 1.7 percent to $1,326.10 an ounce on the Comex in New York.

The suspension at Pascua-Lama will cut capital spending in 2014 by as much as $1 billion and improve near-term cash flows “significantly,” Sokalsky said in the statement.

Barrick said it will keep looking for ways to improve returns on the project, including partnerships or the sale of royalties and shares of future income. The company will update cost estimates and plans for the remaining development work.

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