TORONTO (miningweekly.com) – The world’s largest gold miner, Barrick Gold, on Thursday said it had suspended construction at its $8.5-billion Pascua-Lama copper/gold mine straddling the Argentine/Chilean border, except for activities needed for environmental protection and to bring the project in line with regulatory compliance.

The NYSE- and TSX-listed firm said the decision to restart would depend on improved project economics such as go-forward costs, the outlook for metal prices, and reduced uncertainty associated with legal and other regulatory requirements.

The company would explore opportunities to improve the project's risk-adjusted returns, such as strategic partnerships and royalty, or other income-streaming agreements.

"We have determined that the prudent course – at this stage – is to suspend the project, but naturally we will maintain our option to resume construction and finish the project when improvements to its current challenges have been attained," CEO Jamie Sokalsky said.

At the end of the second quarter ended June 30, Barrick had already spent $5.4-billion on the project, and in the third quarter added $310-million to that total. It said it would in the meantime update and refine capital cost estimates and stage the project's remaining development into distinct phases, with specific work programmes, budgets and objectives.

This staged approach would also facilitate more efficient planning and execution, more effective capital deployment, and improved cost control.

Barrick had stopped construction on the mine and submitted a plan for water management infrastructure to the Chilean environmental regulator. The miner said in June that production from Pascua-Lama would be delayed until mid-2016.

The project first ran into trouble last year when a local indigenous community, aided by nongovernmental organisations, complained about water from the construction processes polluting the Estrecho river, which indigenous and other communities in the valley need for agriculture and personal use.

The complainants said excessively high concentrations of arsenic, aluminium, copper and other elements had been found in the water near Pascua-Lama, which had become one of the most unpopular mining ventures in Chile.

Barrick denied it polluted the river, but had agreed to build a new water management system.

After regulators stopped construction on the Chilean side of the project at the end of 2012, the company resolved to slow construction, and now, to mothball the project.

Barrick also has emerging labour unrest on the Chilean side to deal with, after unionised workers earlier this week resolved to strike from the end of the week.

These delays and additional infrastructure commitments were expected to further raise the project’s total cost.

During an analyst conference call, Sokalsky said management had not yet calculated a definitive new capital estimate for the mothballed project; however, he conceded that “the trend of capital expenditures was definitely moving up”.

The company expected to spend about $250-million to $300-million on Pascua-Lama during 2014.

METALS STREAMING AGREEMENT

Meanwhile, Vancouver-based precious metals streaming firm Silver Wheaton, which in 2009 bought 25% of the mine's silver output in return for $625-million in funding for the project’s construction, on Thursday said Barrick's decision to suspend operations until they had full access to the Pascua-Lama site was a “fiscally prudent” approach, which, under the current circumstances, should enhance the project's capital efficiency and improve the project's economics going forward.

Silver Wheaton said that under its original contract with Barrick, the company would be entitled to silver production from three of Barrick's currently producing mines - the Lagunas Norte, Pierina, and Veladero mines - to the extent of any production shortfall at Pascua-Lama, until Barrick had satisfied a completion test.

The original contract provided Silver Wheaton with a completion test, requiring Barrick to complete Pascua-Lama to at least 75% of design capacity by December 31, 2015. Silver Wheaton had amended the contract earlier this year, extending it by one year. It has now further extended it to December 31, 2017.

As part of the newly revised agreement, Silver Wheaton would now be entitled to another year of silver output from the three Barrick mines to cover any production shortfall at Pascua-Lama.

Silver Wheaton said it was currently reviewing its 2017 production forecast; however, it still expected to beat its 2013 guidance of 33.5-million silver-equivalent ounces.

Q3 EARNINGS

Barrick on Thursday said net earnings for the three months ended September 30 slid 73% to $172-million, or $0.17 a share, down from $649-million, or $0.65, a year earlier.

Adjusted earnings fell to $0.58 a share, from $0.88 a year earlier, beating average analyst expectations of $0.51 a share on revenue of $2.94-billion.

Revenue dropped 12% year-on-year to $2.99-billion, down from $3.4-billion.

The realised gold price in the quarter was $1 323/oz, and $3.30/lb for copper, which compared with spot prices of $1 326/oz of gold and $3.21/lb of copper.

Barrick reported all-in costs for the period of $1 184/oz, down 16% year-on-year, mainly reflecting the construction slow-down at Pascua-Lama and completing the Pueblo Viejo project, in the Dominican Republic.

Third-quarter gold output totalled 1.85-million ounces at adjusted operating costs of $573/oz and all-in-sustaining costs of $916/oz. Adjusting for the sale of the Yilgarn South mines, in Australia, the company’s full-year gold production was now expected to be at the low end of the original 7-million to 7.4-million ounce guidance range.

All-in sustaining costs were expected to be within the recently reduced guidance range of $900/oz and $975/oz and the company had lowered the top end of its adjusted operating cost guidance to between $575/oz and $600/oz.

Third-quarter copper output totalled 139-million pounds at cash costs of $1.69/lb and fully allocated costs of $2.15/lb.

The Lumwana copper mine, in Zambia, benefited from changes made to the mine plan in the second quarter and other business improvement initiatives to decrease costs and increase the cash flow. Owing to the mine's improved operating performance, Barrick had increased its full-year company-wide copper production guidance to between 520-million and 550-million pounds.

Barrick’s NYSE-listed shares traded down $0.71 a share at $19.79 apiece on Thursday morning.