Barrick Gold Corporation Flip-Flopping on Pascua-Lama

Will Barrick's recent reversal pay off, or is this becoming a bottomless money pit for investors?

May 28, 2014 at 10:00AM

In an interview with Reuters, Chile's mining minister said that she has met with Barrick Gold Corp (NYSE:ABX) and that the company expressed its interest in restarting its controversial Pascua-Lama project. This would seem to be a major turnabout since during the company's recent first quarter results, Barrick stated that ramp-down was on schedule to be completed by mid-2014 .

During the fourth quarter of 2013, Barrick Gold had announced it was temporarily suspending operations at Pascua-Lama. The company said that any decision to restart development would depend on two things: improved economics and reduced uncertainty related to legal and regulatory requirements .

What has changed?
On the economics side, the only thing that appears to have changed is the price of gold. Barrick has not released any updated economics regarding Pascua-Lama, though it has stated that it wishes to pursue strategic partnerships or either royalty or streaming agreements in order to reduce financial risk. Barrick Gold signed a streaming agreement with Silver Wheaton (NYSE:SLW) in 2009 to provide 25% of silver production over the life of the mine in exchange for $625 million. With the project currently in limbo, however, it is hard to imagine Barrick Gold being able to make any other deals at this point in time.

On the legal side, things aren't looking too good either. Barrick Gold is not allowed to resume construction activities until it completes the water management system in accordance with the project's environmental permit, though the company is appealing that ruling in court. This is the result of a compliance failure of the water management system that violated the project's permit conditions. Even before this incident, the project was a flashpoint for protests and demonstrations in Chile as local residents and environmentalists contended that the project would poison local rivers and harm nearby glaciers.

Legal and environmental issues aside, it seems odd that Barrick Gold is in talks to restart Pascua-Lama when the company appears to be doing a good job of reducing costs. Restarting this capital-intensive project seems to fly in the face of all the hard work Barrick Gold has done and brings into question the leadership of the company. To date, Pascua-Lama has proven to be a bottomless pit that Barrick just keeps dropping more money into. The original budget for the project was pegged at $3.0 billion in 2009, but cost overruns due to delays and environmental issues have led to $5 billion already having been spent on the project. Total costs to complete the project are now estimated at up to $8.5 billion.

Given the amount of money already spent and the huge gold and silver resources at Pascua-Lama, it is understandable that Barrick wants to resume construction. The timing seems strange given the current low gold price, however. If Pascua-Lama makes it to production, Barrick is estimating that it will produce 800,000 to 850,000 ounces annually over the first five years . With over 15 million ounces of proven and probable gold reserves and 675 million ounces of silver reserves contained within Pascua-Lama, it is world-class deposit . However, with Barrick Gold already taking a $5.1 billion writedown on the project and with over $3 billion or more in capital expenditures still required, it doesn't seem to make sense for Barrick to proceed until gold prices rise.

Itchy trigger finger
With Barrick's recent failed attempt to merge with Newmont Mining (NYSE:NEM) still stinging, you get the sense that Barrick is desperate to do something just for the sake of doing something. Barrick reported excellent results in regards to cost-cutting for the first quarter, with all-in sustaining costs coming in at $833 an ounce; this is lower than the 2014 guidance of $920 to $980 an ounce. Barrick has divested approximately $1 billion of non-core assets since last July, and the company has reduced its stake in the high-cost African Barrick Gold Corp by 10% during the quarter.

With all this good work being done, it seems counterproductive for Barrick to restart Pascua-Lama at this time. With the current low gold prices, it might make more sense for Barrick to pursue an acquisition that may be undervalued as opposed to sinking more money into Pascua-Lama.

Foolish takeaway
With Barrick flip-flopping on Pascua-Lama, investors will want to keep a close on developments. The timing of these talks with the Chilean government seems peculiar and contradicts Barrick's earlier statements about not restarting the project unless economics improve. Investors will want to keep a close eye on any changes to cost estimates regarding Pascua-Lama. Further cost increases in the project could prove disastrous for the company and would likely erode investor confidence even further.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

Charles Sherwood has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers