Barrick Gold disclosed Friday that it would take a $5.5 billion impairment charge on its Pascua-Lama project, located along the border of Chile and Argentina, fueling talks of the need to shelve the project.
The world’s leading gold producer will take the impairment hit with production at Pascua-Lama now slated for mid-2016.
What followed was a TD Securities report Tuesday stating that Pascua-Lama, coupled with the writedown risk of Barrick’s 2011 Equinox acquisition and its high-cost Buzwagi mine, could bring a total writedown of $10 billion.
Doug Pollitt of Pollitt & Co., an employee-owned brokerage firm, said weeks before the impairment charge that the “world class decision” would be to shelve Pascua-Lama.
“Pascua-Lama should have been towed out to sea and sunk a long time ago, proverbially speaking,” Pollitt said in a June 10 report. “Rarely has there been a project that, distilled to an essence, gives off the scent of an industry so drunk on cheap capital.
“This is all quite harsh, but that’s the mood these days,” he added.
Pollitt said that the project was ambitious from the start, citing extreme location as it’s straddled across an international border, extreme altitude, vast in scope with regulatory issues.
“And the technical aspects remain challenging,” Pollitt said. “A 43-101 states ‘the (project’s) ore is extremely complex and highly variable.’ Moreover, the rock is so acidic that dry grinding was once considered and there have been reports of a visitor’s coveralls being partially dissolved after a walk-through tour.”
There is also the governmental aspect, with the latest seeing the Chilean environmental watchdog suspending the project due to environmental concerns and slapping a multimillion dollar fine on the gold senior.
Pascua-Lama’s potential is well-known with nearly 18 million ounces of proven and probable gold reserves and 676 million ounces of silver contained within the gold reserves. It has an expected mine life of 25 years and is expected to produce an average of 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of operation at all-in sustaining and total cash costs of $50-$200 per ounce and negative $150 to $0 per ounce, respectively.
However, Pollitt doesn’t see the upside.
“Given the grade of the deposit, given the technical challenges of the project, given the various landmines between here and first pour, and comparing these characteristics to Barrick’s existing ops, all with proven operational characteristics in friendlier jurisdictions, it becomes clear that, in relation to the sweet part of its operational portfolio, Pascua at current prices is simply not an attractive project,” Pollitt summed up.