Just seven weeks into the job, Barrick Gold Corp’s new boss has already discovered, first hand, the challenges of developing and mining giant deposits in Latin America.
Barrick’s main project, the Veladero joint venture with Shandong Gold in Argentina, isn’t performing like a tier one asset, Mark Bristow said on Wednesday. In 2019, Veladero is expected to have the highest cost per ounce in Barrick’s portfolio. He also cited projects in the El Indio belt straddling the Argentina-Chile border, and Alturas in Chile, as high-cost efforts.
“Every one of those projects, if you bring them to account, they are very high capital,” Bristow said of the Latin America ventures during an interview from the sidelines of Barrick’s fourth-quarter analyst meeting in Toronto.
Bristow’s comments follow a recent trip to the region, and come a month after Barrick completed its acquisition of Randgold Resources. Bristow and executive chairman John Thornton have promised the world’s top gold producer will focus on high-quality assets with the aim of generating cash to boost shareholder value, although Bristow said earlier his approach will be a little different.
Barrick shares fell 3.9% in Toronto on Wednesday following the company’s release of quarterly results. Shares are down 7.7% since the beginning of the year.
Shandong purchased its half of the Veladero mine for $960mn in 2017 after doing “particularly detailed” due diligence, Bristow said. The day the deal was announced, though, authorities in Argentina threatened to rescind the license after the third cyanide solution leak in two years.
The mine was subsequently hit by a worker strike, and lower than expected production.
“Why would you sell half of it if it didn’t have challenges?” Bristow said, adding that Shandong was attracted to the deal because it offered them “a free option to look at Pascua-Lama.” Pascua-Lama Uncertainty remains around the Chilean side of the Pascua- Lama project after local authorities ordered the “total and definitive” closure of the site on their side of the border over environmental issues last year. “We’ve been working with them to say we should be really re-looking at this project, understanding its potential, and when would it be viable,” Bristow said.
Shandong will carry out its own independent evaluation looking at whether a project is viable on the Argentina side of the border, according to Barrick’s fourth-quarter report, which includes looking at synergies with Veladero.
Barrick said in January it was “absolutely” intending to invest more in El Indio, and to build out partnerships to develop the giant gold and copper deposits in Latin America.
But with the gold producer’s overall production costs are expected to be at least 7.9% higher this year than last, that may not be an easy sell.
The Toronto-based miner said it will be able to reduce overall costs going forward, but declined to give a time frame.
For now, Barrick’s top priority in the region is increasing efficiencies at Veladero in a year when output there is set to decline amid lower ore grades. The mine’s cost per ounce is expected to be $1,150 to $1,250 per ounce in 2019, compared with $610 to $650 at Pueblo Viejo in the Dominican Republic, according to the company’s forecasts.
Barrick will bring power from the Chilean side of the border to Veladero to cut costs, among other initiatives.
Ultimately, the company wants to drive Veladero back to tier one status, which it defines as having a reserve potential greater than 5mn ounces at a 15% investment rate return at the long term gold price.
Argentina’s economic situation is also a concern, Bristow said. A currency devaluation and changes to the country’s fiscal regime affected asset value and resulted in a $314mn tax impairment.
Barrick sought to sell the Lagunas Norte mine, which is nearing the end of its life, but the closure costs built into the price tag were too high for the miner to strike a good deal, according to Bristow. “I might still sell it but I need to get my head around it first,” he said. “I would rather put it on care and maintenance and do the job properly, and then bring it to account, than try to rush that job.”
On the other hand, he said he was pleasantly surprised by the exploration opportunities in Peru. Barrick had been preparing to exit the country “but I’m changing that,” he said, citing the current “much more mining friendly” government as one incentive.
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