Barrick Gold Slows Down Pascua-Lama Gold Project : May Take US$5 Billion Impairment Charge for Assets there
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Peter Munk’s Barrick Gold Corporation/Bloomberg
/ By Clive Minchom/
Peter Munk’s Barrick Gold Corporation (Barrick) on Friday provided an update on its new Pascua-Lama gold mining project, which straddles the Chilean and Argentina border, in a statement relating to construction scheduling, capital expenditures and impairment testing.
Slower Completion Schedule and Cut-back in 2013-2014 Capital Spending For the New Mine
After receiving heavy fines last month from the Chilean government Barrick has now submitted a plan, subject to review by Chilean regulatory authorities, to construct the project’s water management system in compliance with permit conditions for completion by the end of 2014, something expressly demanded by the Chilean government regulatory authorities. Subsequently Barrick reports it then expects to complete all remaining construction work in Chile, with a revised target date for processing ores from the Chilean side of the border by mid-2016.
In line with this timeframe, and in light of challenging metal market conditions and materially lower gold prices, the company stated its intention to slow-down construction of the process plant and other facilities. Barrick states this will result in a significant deferral of planned capital spending in 2013 and 2014 at Pascua-Lama in 2013 and 2014 by a total of $1.5-$1.8 billion compared to its previous plans (and of course an acceleration thereafter to catch-up).
Every year mining companies have to check their assumptions concerning future metal pricing and production plans, and the timing of bringing new projects on stream, to ensure their asset carrying values are meaningfully realistic. With recent substantial falls in the price of gold Barrick’s statement today also indicates that preliminary analysis by the company indicates an after-tax asset impairment charge in the range of “approximately US$4.5 – US$5.5 billion” may be necessary for the Pascua-Lama project which it will take in the second quarter just finishing. The company states it will complete the final results of its impairment assessment by the time it releases its second quarter 2013 results at the beginning of August.
As well as tangible assets lower metal prices often lead to the review of intangibles as well, especially goodwill, for possible impairment charges. Barrick is conducting a review of these as well it says in its statement. It does not provide a number, or a range but simply says these are “likely to be significant”.
Jamie Sokalsky , President and Chief Executive Officer of Barrick said, “When complete, Pascua-Lama will be one of the world’s great, low-cost gold mines, producing an average of 800, 000-850, 000 ounces of gold per year in its first full five years of production. In light of the challenging business environment we are facing today, and taking into consideration existing construction delays, the company is advancing the project in a prudent manner by extending the construction schedule over a longer period.”
He then added “This mine has significant and strategic value for Barrick shareholders and the project’s host jurisdictions of San Juan Province, Argentina and the Atacama Region of Chile. We continue to work closely with the governments of both countries to ensure Pascua-Lama is on the right path to deliver value for all of our stakeholders, including shareholders, host governments and local communities”
This mine is a long-term project of greatest importance for all those touched by it; for Barrick, for the governments of Chile and Argentina, for its employees there and, not least for the local residents whose lives will be affected by it and whose interests are now being protected with a much greater level of environmental protection. But in getting it right costs have obviously escalated and it is not quite clear just what the projected total cost now will be by the time it is finished. I am sure the company will be asked this question, indeed again and again, until it is actually all done and in production – presently some time in mid- 2016.
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