Stock in Barrick Gold Corp (TSE:ABX) (NYSE:ABX) rebounded slightly on the TSX Monday, the first full trading session following Friday's announcement that construction on the gold giant’s border-straddling Pascua-Lama project was being halted by order of the Chilean government's environmental regulator, although the stock continues to trade at less than half the level of its 52 week high.
The suspension of construction was accompanied by a series of stinging rebukes to the giant from the Environmental Superintendency over the “serious” nature of the company’s “violations” and the imposition of an 8 billion peso (approximately $16 million) fine, the maximum amount available under Chilean law, on Nevada Mining Company SpA, the subsidiary of Barrick Gold that is developing the high altitude mine.
The ruling, which follows a four-month investigation, will bring construction work on the project to a halt until the company puts in place systems for containing contaminated water, as stipulated in earlier agreements.
This most recent installment in the protracted development of the Pascua-Lama site has some wondering if it might be time for the embattled gold producer to walk away.
President and chief executive officer of Maison Placements Canada Inc., John Ing, recommends the company put the beleaguered project on ice.
“I would encourage them to go slow on the project. Why pour good money on bad money?”
“If the courts are going to rule against [the mine], why should [Barrick] go ahead? Sure they’ve sunk in $4 billion, but I for one don’t think they have to build the most expensive gold mine in the world. The deposit itself isn’t going anywhere.
"Go slow, and that will give [Barrick] an extra $3 billion over the next year and a half, which they could use, given their debt load, rather than going ahead blindly over the cliff.”
At the embattled gold giant’s annual shareholders’ meeting earlier in the year, CEO Jamie Sokalsky hinted at the possibility of abandoning the delay and overrun-plagued project altogether if the company could not be certain of its legal and regulatory ground.
“We will not continue to spend capital if we do not have a strong indication of the required time frame to resolve these issues in short order,” said Sokalsky at the meeting in Toronto in late April, where both he and Barrick chairman and founder Peter Munk emphasized their dedication to saving funds in efforts to quell a shareholder revolt. “We are serious about disciplined capital allocation,” he said in his comments to the gathered investors. “That means we have to consider all options including the possibility of suspending the project.”
The order halting construction on the gold-silver project on Friday is only the most recent delay in the development of the trouble-plagued mine.
The project, which straddles Chile’s border with Argentina high on the spine of the Andes at 4,500 metres above sea level, has long been the subject of concerns relating to its proximity to glaciers and to the effects of inadequate water safety on downstream communities.
Construction work on the Chilean side of the border-straddling project had already been halted in April by a local appeals court as the result of an injunction filed by indigenous communities while the investigation was conducted.
While the company pointed out at the time that the stop-work order affected only the Chilean side of the property, that side is estimated to hold more than 70 per cent of the project’s reserves.
Even before these recent events the mine had been a focus of trouble, the site of massive cost overruns and other delays, including a February announcement of a $500 million cost increase, which brought the total estimated cost of the mine up to $8.5 billion. The various delays had pushed back the start date of operations more than half a year to late 2014 before Friday’s announcement.
Once completed, Pascua-Lama is set, according to Barrick, to be one of the largest and lowest-cost gold mines in the world, expected to produce between 800,000 to 850,000 ounces of gold and 35 million ounces of silver in its first full five years of production.
Barrick was trading slightly up on the TSX the week following the release of the news with stock in the company up slightly from an open of $19.89 to reach as high as $20.10 per share in intraday trading, a long way from its 52 week high of $44.75.