Gold miner strikes major problems

SANTIAGO, Chile — A Chilean court’s halt to construction of Barrick Gold Corp.’s $8 billion, border-straddling mine on the high spine of the Andes is only the latest setback in Latin America for the world’s largest gold miner.

Barrick also faces growing environmental resistance in Argentina, which shares the Pascua-Lama mine project, and the Dominican Republic’s government wants to rework the royalty contract for its $4 billion Pueblo Viejo mine.

Barrick is the state’s largest gold miner, with seven mines in Northern Nevada that churned out more than
3.1 million ounces in 2012. That included 1.4 million ounces at Barrick’s Cortez operation, one of the world’s largest gold mines. Barrick produces more than half of the 5.5 million or so ounces in gold the state yields each year.

The Canadian company’s troubles reflect increased risks for the industry in Latin America, where authorities are taking a closer look at how mining is regulated and taxed. In country after country, the world’s biggest miners are facing new environmental standards, confronting changing tax and currency laws and defending long-term contracts they thought were written in stone.

“There are more concerns about standards of living and more concerns about environmental issues. At the same time, there’s pressure on governments to increase mining revenues, improve education, health and services,” said Risa Grais-Targow, Latin American analyst at Eurasia Group.

Wednesday’s ruling against Barrick sent shares of the Toronto-based company tumbling to a new four-year low. The stock recovered some Thursday, rising 27 cents, or 1.1 percent, to close at $24.73 a share.

The company said it’s following all applicable Argentine laws, but environmentalists say Pascua-Lama and Barrick’s nearby Veladero mine, which produced 611,000 ounces of gold last year, violate a ban on mining on or near glaciers.

Barrick said it is “too early to assess the impact, if any, on the overall capital budget and schedule” of Pascua-Lama. The site has 17.9 million ounces of proven gold reserves and would be one of the world’s biggest and lowest-cost mines if allowed to open.

Even before the court ruling, the project was off track. Its start date was delayed by more than six months to the second half of 2014, and the estimated start cost jumped from an original $3 billion to more than $8 billion last year.

Andy Kaplowitz, an analyst at Barclays Capital, said in a research note that “we will have to wait to see how this situation sorts itself out, but given that Barrick has already spent $4.2 billion on the project ... and construction is 40 percent complete, we think there is a strong incentive for the developer to press forward with only minimal delays.”

In the Dominican Republic, meanwhile, the soaring price of gold has the government wanting more from the Pueblo Viejo mine, which has 20 million ounces of gold reserves and silver, copper and zinc.

Barrick jointly owns the venture with Goldcorp Inc. of Vancouver, British Columbia. The companies reopened the mine last year after investing nearly
$4 billion, the largest direct foreign investment ever in the Dominican Republic, and estimate it will pay about $7 billion to the government.

But President Danilo Medina and Congress have yet to see any money. They want to rewrite the 25-year contract, which promises royalties only after the two companies recoup their investment and the venture’s profits exceed 10 percent.