Barrick suspends construction of Pascua-Lama mine
TORONTO (AP) -- The world's largest gold mining company is indefinitely suspending construction of its troubled gold mine straddling the Chile-Argentine border, part of a cost-cutting effort that also involves 10 other mining projects around the world.
Restarting the $8.5 billion Pascua-Lama mine will depend on a rebound in metals prices and assurances that Barrick Gold can make profits in an uncertain legal and regulatory environment, the company announced Thursday.
'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 challenge have been attained,' Barrick chief executive Jaime Sokalsky said in a statement.
Falling gold prices, rising costs and a sagging stock price weighed down by its Pascua-Lama project have plagued the Toronto-based company. Barrick said the suspension will reduce the company's 2014 capital costs by up to $1 billion. The company also said 10 other mines around the world were being scaled back, suspended or sold to focus on more profitable production, part of an overall effort to save $2 billion.
Barrick has already spent $5 billion on the project being built between glaciers at up to 17,000 feet (5,200 meters) above sea level. Earlier this year, Chile's environmental regulator stopped construction on its Pascua side of the project, and imposed sanctions citing 'serious violations' of its environmental permit.
No such violations were declared in Argentina despite a national law banning mining on or amid glaciers. In Argentina, mining is mostly regulated at the provincial level, and Barrick's operations represent a third of the local San Juan province's economy.
Barrick had hoped to begin production in early 2014, and previously warned shareholders that it might abandon the Chilean side altogether because of construction delays. The bi-national mine was initially expected to be producing gold and silver by the second half of 2014.
While Argentine officials were eager to keep building, most of the estimated 18 million ounces of gold and 676 million ounces of silver are buried on Chile's Pascua side. On Argentina's Lama side, officials have been trying to figure out how to preserve thousands of jobs. The company already scaled back its workforce from 11,000 to 6,000, partly due to the Chile ruling and also because the southern winter's weather makes outdoor construction impossible.
That work force is not expected to grow once the snows melt, and for now the jobs will be limited to maintaining what's already been built, a company official told The Associated Press.
Chile's Supreme Court confirmed last month the suspension of the mine until environmental commitments and all works to protect the water systems are adopted. Chile's Congress, meanwhile, is considering a glacier protection law that some advocates are modeling on the law Argentina adopted in 2010 but has yet to enforce, requiring a national inventory of glacial water sources and forbidding any industrial operations on or near them. Environmental activists are increasing pressure to comply with this law, creating legal uncertainty for investments in dozens of mining projects.
An indigenous community living below the mine accused Barrick of contaminating their water downstream. Scarce river water is vital to life in Chile's Atacama Desert, and the Diaguita Indians fear the Pascua-Lama mine is ruining their resource.
'Justice arrives slowly, but it gets there,' Diaguita leader Yovana Paredes told the AP. 'Maybe it's not the justice people were looking for, but it's divine justice. Hopefully Mother Earth will make it last forever because this company is not good for us.'
Mining projects are being scaled back or suspended across Argentina, which saw a 30 percent reduction in mining investments, from roughly $18 billion to $12 billion, in first-semester 2013 compared to the same period the year before, according to the nation's mining industry chamber.
Brazil's Vale ended Argentina's single biggest foreign investment in March after spending $2.5 billion, citing government interference, when it pulled out of the $10 billion Rio Colorado potash mine, railroad and port project. In July, Canada's Osisko Mining Corp. finally gave up on the Famatina gold mine, which it had tried to exploit after Barrick sold it off due in large part to environmental protests.
Sokalsky promised shareholders in April that Barrick was committed to focus on producing returns for investors. Barrick ousted former CEO and President Aaron Regent last year, citing its disappointing share price performance. The stock has plummeted from over $40 to around $20 since then.
Barrick remains committed long-term to San Juan province, where it plans to invest another $400 million next year and where the company's Veladero mine, just downhill from Pascua-Lama, still directly employs 3,000 people, said Guillermo Calo, the company's top executive in Argentina.
'The company announced a temporary reduction in Pascua-Lama's construction and not its cancellation, as was rumored,' Cano said in a statement. 'Market conditions are not favorable for the industry, with gold prices that have remained low during an extended period of time, which has generated a challenging environment for the sector. In this context, we need to evaluate how to make the investments that Pascua-Lama needs to complete its construction.'