The worlds largest gold producer is one step closer to moving forward on its controversial project that straddles Chile and Argentina. Barrick Gold Corp. (TSX: ABX) was advised yesterday that a tax agreement for the Pascua-Lama project, the first bi-national mining project in the world, had been reached between the two countries. The project has more than 17.8 million ounces of gold and 717.6 million ounces of silver. Barrick has endured controversy over Pascua-Lama since at least 2006 when a chain letter alleged that the project would require destroying glaciers, which Barrick has refuted. This link includes Barricks response to past criticisms of the project: Barrick on Pascua-Lama.
The bi-lateral tax agreement has been a hurdle to moving the project forward, but now Barrick has one of it main obstacles out of the way and expects to begin production in late-2012 or early 2013.
The news of the project comes just days after Barrick, and its partner on the Donlin Creek project, Nova Gold Resources Ltd. (TSX: NG), released a feasibility study on the Donlin Creek project in Alaska. The study gave us some new information on the capital costs related to the project, which were estimated at $4.48 billion, almost double previous estimates. During a conference call yesterday with analysts to discuss Q1/2009 results, Aaron Regent, Barrick CEO, said This is a project that has a lot of gold in it. And if we are in a world where the gold price is going to continue to rise, it does provide enormous option value for us. On that basis, I think has potentially some strategic, interesting strategic value for the company.
Barricks results for Q1/2009 were down over the same quarter last, but in-line with analyst expectations. Q1/2009 net income was $371 million, down from $514 million one year earlier. One reason for the drop was a significant jump in cash costs to $484/oz versus $395/oz, one year earlier. Escalating mine costs and a hedge on oil prices were to blame. Overall, though, Barricks new CEO said that the company in on track to meet operating guidance of between 7.2 and 7.6 million ounces, with a net cash cost of between $360 and $385 per ounce.
In other Barrick-related news, The Ethical Funds Company put out a press release yesterday saying it had secured support of almost 20% of Barricks shares for a shareholder proposal requesting the company to hire an independent party to assess performance against Barricks current Community Engagement and sustainable Development Guidelines. Bob Walker, a vice-president with Ethical Funds, said that while Barrick had good policies in place, it was falling behind competitors, such as Newmont and Goldcorp, which had independent reviews. As The Ethical Funds press release emphasizes, it is not alone in its concern about Barrick since the Norwegian Pension Fund divested its Barrick holdings this year, citing environmental concerns with its Porgera Mine in New Guinea.
Earlier this year, I wrote a story for CB on Barrick. Below is the link:
Gold: Ring in the new leader
Link to other CB article on Pascua-Lama: Moving Mountains