Construction at Pascua-Lama suspended by Barrick

October 31, 2013

Barrick Gold Corp. announced that it will suspend construction at the troubled Pascua-Lama Mine that straddles the border of Chile and Argentina.

Despite having already spent billions of dollars on the mine, Barrick said it the decision to restart will depend on improved project economics, the outlook for metal prices, and reduced uncertainty associated with legal and regulatory requirements.

Earlier this year, Chile's environmental regulator stopped construction its side of the border and imposed sanctions on the $8.5 billion mine, citing "serious violations" of its environmental permit. Barrick has already spent $5 billion on the project, CBC News reported.

Barrick, which also reported lower third-quarter earnings, hurt in part by a drop in the price of gold, said it would continue to explore options for Pascua-Lama, including royalty or other similar deals, or strategic partnerships.

"We have determined that the prudent course - at this stage - is to suspend the project, but naturally we will maintain our option to resume construction and finish the project when improvements to its current challenges have been attained," Chief Executive Jamie Sokalsky said in a statement.

Barrick had been expected to raise its estimate of the cost of completing the project - pegged last year at up to $8.5 billion. Some investors had urged the company to call off construction, Reuters reported.

Barrick had repeatedly emphasized how far it had already come on Pascua-Lama, spending $5.4 billion by the end of the second quarter. Capital spending on the project was $310 million in the third quarter.

But problems with permits had been expected to raise the mine's price tag.

The company, pushing to cut costs at the site, was also facing emerging labor unrest. Unionized workers on the Chilean side of the project voted to strike.

Barrick said it will continue activities needed to comply with regulatory requirements and protect the environment.

The move to mothball Pascua-Lama also affects Silver Wheaton Corp, which in 2009 bought 25 percent of the mine's silver production, paying Barrick cash in exchange for future silver sales at a discounted price.

Vancouver-based Silver Wheaton said in a separate statement on Tuesday that it sees Barrick's decision to suspend the project as fiscally prudent. It said it is now entitled to silver output from three of Barrick's currently producing mines - the Lagunas Norte, Pierina and Veladero mines - until the end of 2016 to make up for the production it is losing from Pascua-Lama.

Silver Wheaton has also agreed to extend a completion test deadline on Pascua-Lama until the end of 2017, from the end of 2016. The company, which is reviewing its production forecasts for 2017, said it still expects its silver output to top 33.5 million silver equivalent ounces this year.



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