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Goldcorp Gives Slim Hope to Barrick Gold

Perhaps there's hope yet for Barrick Gold (NYSE: ABX  ) and its frozen Pascua Lama mine project high in the Chilean Andes. Brought to a halt because of indigenous people's concerns about environmental damage and pollution to water supplies due to digging in and around glacial regions, Barrick may see the project still has a glimmer of hope after Chile's Supreme Court restored Goldcorp's (NYSE: GG  ) environmental permit for its $4 billion El Morro copper project.

Goldcorp's Minera Alumbera project in Argentina. Source: Goldcorp

El Morro is Goldcorp's only major asset in Chile. With an estimated 8.4 million ounces of gold and 6.1 billion pounds of copper, it was brought up short in February 2012 when an appeals court ruled in favor of the Huascoaltinos indigenous community, which sought greater input into the project as well as a greater take of the resources mined. The community also feared the copper mine would harm livestock farming, restrict scarce water supplies, and infringe on sacred ancestral lands.

The Supreme Court upheld the ruling a few months later, affirming that Chile's environmental permitting authority had not adequately consulted with the Huascoaltinos prior to issuing the permit to Goldcorp. 

The miner, which owns 70% of El Morro, incurred Barrick's wrath in 2010 after stealing the project out from under its nose. Barrick had bid on the 70% stake owned at the time by Xstrata, but was thwarted when minority owner New Gold (NYSEMKT: NGD  ) rejected it as its right of first refusal. Goldcorp then came in with an alternative bid that was accepted, setting in motion a court battle that ultimately saw Barrick's claims against all the parties tossed last year.

Until the Supreme Court's ruling yesterday, though, it was something of a Pyrrhic victory for Goldcorp as the project has been essentially sitting idle. Bought when gold and copper prices were soaring, both metals have tumbled hard and the miner booked nearly $2 billion in asset impairments this summer, with further impairments, including El Morro, possibly to come.

Ratings agency Moody's has suggested Goldcorp and other gold miners move quickly to offset their sliding earnings quality in a bid to preserve their investment ratings in the face of falling metals prices. This couild "include reducing operating costs, deferring capital spending, and idling higher-cost mines." All told, Goldcorp has identified some $200 million worth of capital expenditures it can defer this year, reducing its budget to $2.6 billion.

Barrick, however, can cling to the small hope that since its rival has arranged to work with the indigenous peoples and convinced the courts to give it the green light to move forward, it can salvage the Chilean Pascua Lama project in a similar fashion. Of course, the two projects aren't exactly comparable as El Morro doesn't step on protected glacial rock, but bringing the local communities in could mitigate their concerns. Offering large slices of the pie always seems to help.

Yet as Goldcorp has proven it's not a quick path to travel, and Barrick Gold has a long, arduous road to travel. It can only hope the light it sees ahead is not the glimmer of fool's gold.

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Related Tickers

9/27/2016 12:57 PM
ABX $17.56 Down -0.36 -2.01%
Barrick Gold CAPS Rating: ***
GG $16.30 Down -0.13 -0.77%
Goldcorp CAPS Rating: ***
NGD $4.49 Down -0.03 -0.55%
New Gold CAPS Rating: ***