Barrick Gold may raise Pascua-Lama costs once more

Tue Oct 29, 2013 3:02pm EDT
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By Allison Martell

TORONTO (Reuters) - Barrick Gold Corp (ABX.TO: Quote) will likely raise the cost estimate for its huge Pascua-Lama mine project in South America for the third time in less than two years when the world's top gold producer reports results on Thursday.

Much has changed since November, when Toronto-based Barrick pegged the cost of the gold and silver project at $8.5 billion, and markets are anxious to see the company's new capital cost estimate.

High in the Andes, on the border between Chile and Argentina, Pascua-Lama is Barrick's biggest and most important growth project. It's risky, but the potential is great: when and if the mine is completed, it is expected to have exceptionally low operating costs, which could pay dividends for years to come.

Since Barrick released its November estimate, regulators have halted construction on the Chilean side of the project, citing serious environmental violations. Barrick has agreed to build a new water management system to meet their concerns, and said in June it would defer some spending that had been scheduled for 2013 and 2014.

These changes are widely expected to raise the overall cost of the project, possibly by a billion dollars or more. Barrick said in June that it was "focused on minimizing" capital cost increases.

"That number could be massive," said Salman Partners analyst David West. "When you're talking about re-engineering a project, all bets are off. Nobody really knows."

But Chris Mancini, analyst at the Gabelli Gold Fund, said he does not think the cost of the new water system will be exorbitant. Gabelli holds some 2.9 million Barrick shares.

"My hope is that it's not much more than it was last time they updated," he said of the new capital cost estimate.   Continued...

Construction progresses at Barrick Gold's gold processing plant at the Pacua-Lama mine in Argentina, in this January 2, 2012 handout photo obtained by Reuters July 27, 2012. REUTERS/Barrick/Handout