Chilean Court Suspends Work on Barrick’s Pascua-Lama Mine, Shares Hit 4 Year Low

Andrew Klips  |

Shares of Barrick Gold Corp. (ABX) have fallen Wednesday to their lowest levels since March 2009 after a Chilean court ordered construction to be halted on Barrick’s massive Pascua-Lama mine for environmental reasons. The project, which straddles the border between Chile and Argentina, was launched in 2009.

While most of the infrastructure is in Argentina, the majority of the huge, open-pit mine is in Chile, the area of concern for potential damage to the Estrecho River.

The court order stems from complaints filed with the Court of Appeals of Copiapo, Chile by indigenous communities claiming potential damage to their water supplies and pollution of glaciers. The project is under Barrick’s umbrella through its Chilean subsidiary, Compania Minera Nevada, the company that is named in the case along with a local regulatory agency.

Toronto, Canada-based Barrick has put a projected total on development of the mine at $8.5 billion, including a February announcement that bumped the total upwards by $500 million. The Pascua-Lama mine has been overrun with expenses; it originally was anticipated to cost about $3 billion to bring to production. When completed, it’s expected to be one of the biggest gold mines in the world.

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The company issued a release on the media reports, but said that it had not formally been notified of the court order to cease work at the mine. The statement also explained that the process plant and tailings storage facility and other construction activities in Argentina are not affected by any order.

The world’s largest gold producer has high hopes (literally, the mine is about 13,500 feet above sea level) for Pascua-Lama, expecting it to produce between 800,000 and 850,000 of ounces of gold per year, starting next year. Even at $1,500 per ounce, that equates to $1.275 billion annually.

Moreover, Barrick projected that it would be the lowest-cost mine in its portfolio.

Located 10 kilometers from its Veladero mine, Pascua-Lama has proven and probable reserves of 17.9 million ounces of gold, 676 million ounces of silver contained within the gold reserves and a mine life of 25 years, according to the Barrick website.

U.S.-listed shares of Barrick, the company also trades on the Toronto Stock Exchange under the same ticker symbol, have taken a pounding along with many other gold miners recently. Shares are down about 30 percent in 2013 and about 41 percent in the past 12 months. With the news of another delay at Pascua-Lama - and no real gauge as to how long an appeal process will take to restart construction – shares of ABX are down more than 6 percent again today around $25 each.

It’s the lowest price for shares of Barrick since it was six months into its recovery from the market collapse in 2008.

[Image via Barrick Gold]

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