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Barrick Battles Rage on 2 Fronts

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Underscoring the turmoil ripping through the world's biggest gold miner in the wake of a court order suspending its Chilean Pascua-Lama project, Barrick Gold (NYSE: ABX  ) reported that three top executives from its South America operations have resigned, including the president, Guillermo Calo, who was appointed to the position just last July.

Pascua-Lama is one of the world's largest gold and silver resources, with nearly 18 million ounces of proven and probable gold reserves, 676 million ounces of silver, and an expected mine life of 25 years. It was expected to produce an average of 800,000 to 850,000 ounces of gold and 35 million ounces of silver in its first five years of operation.

Earlier this month, the Chilean court agreed with the concerns of local indigenous tribes that Barrick is mining in pristine glacial regions and causing environmental damage. It ordered the project suspended until the miner addresses those concerns. The Reuters report of the executive resignations indicated that it was part of a larger effort by Barrick to shake up the project and meet the regulatory mandates necessary to get it back on track.

South America has become an unsettled region to mine in. Newmont Mining (NYSE: NEM  ) had its Peruvian Conga project brought to a short stop over environmental concerns, while Vale (NYSE: VALE  ) recently abandoned an Argentinean project because of the country's policies. Costs for Pascua-Lama have ballooned over the past decade and now stand at about $8.5 billion, putting it at risk of becoming an albatross around the miner's neck even before the court decision. Barrick even resorted to bringing in engineering specialist Fluor (NYSE: FLR  ) to expand the scope of its project management before the court order.

Barrick now says it is reviewing all options available to it, warning that if construction activities in Chile did not resume before the end of the year, it could suspend the project altogether.

Investors are also becoming restless with management, which sought to give its co-chairman, John Thornton, a massive $11.9 million "signing bonus." An equally massive 82% of those voting on the non-binding referendum at the annual shareholders' meeting the other day rejected the payout, even as they approved all the directors that stood for re-election.

Although management isn't required to follow the shareholder statement, it would probably be a wise move to placate investors until it can also mollify Chilean regulators. With falling gold prices eating into profits, Barrick can't afford to fight a war on two fronts.

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Related Tickers

9/30/2016 4:01 PM
ABX $17.72 Down -0.22 -1.23%
Barrick Gold CAPS Rating: ***
FLR $51.32 Up +0.63 +1.24%
Fluor CAPS Rating: ****
NEM $39.29 Up +0.24 +0.61%
Newmont Mining CAPS Rating: ***
VALE $5.50 Down -0.03 -0.54%
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