The situation at the troubled Pascua Lama project is one of the reasons that the bank has downgraded Barrick to "neutral" from "outperform," analyst Anita Soni wrote in a note, adding that she was cutting her price target 44% to US$20/share.
If the company pushes ahead with Pascua Lama, in addition to the significant capex increase, Soni anticipates startup around mid-2016 at the earliest. The other possibility is a complete suspension of the project.
Barrick has said that Pascua Lama will not enter production in 2H14 as originally planned and that the delay "is expected to result in a related increase in capital cost." For the moment, however, the project's capital expenditure requirements officially remain at US$8bn-$8.5bn.
Construction of Pascua Lama is halted following orders from both Chile's environmental supervision agency (SMA) and a local appeals court due to problems with the required water management system in the first case and concerns over the melting of glaciers and water contamination in the second. Additionally, pre-stripping activities have been halted by Chile's geology and mining service (Sernageomin) since last October until the company can address issues raised by excessive dust.
The Barrick downgrade, however, was motivated by more than just the problems at the binational mining project. "Barrick is downgraded due to the confluence of a number of factors ... which in isolation would likely have been weathered, but in combination reduces the risk-reward profile for the company," Soni wrote, according to international press reports.
Part of the issue is the declining price of gold, Soni said. Credit Suisse has lowered its forecast for the metal to an average of US$1,452/oz in 2013 and US$1,390/oz in 2014 from US$1,580/oz and US$1,500/oz, respectively.
Other factors include Barrick's unfavorable debt position and the high risk of asset writedowns.
The suspension of construction on the Chilean side of Pascua Lama has led Barrick to come to an agreement with three of the project's unions for the dismissal of 400 workers, local paper El Mercurio reported.
Barrick was not immediately available for comment on the matter when contacted by BNamericas.
The company has also laid off thousands of subcontracted workers at the project, according to recent media reports.
The most recent Pascua Lama firings, which will be carried out over a two-week period, follow Barrick's announcement earlier this week that it was cutting up to 30% of its corporate office workforce "as part of ongoing efforts to streamline the organization and manage costs in a challenging business environment."
Pascua Lama is forecast to churn out 800,000-850,000oz/y of gold and 35Moz/y silver. The project has proven and probable reserves of 17.9Moz gold and 676Moz silver.
Barrick is the world's largest gold producer.