Barrick burdened by bad day
Shares fall 10 per cent as investor confidence shaken by third cyanide spill at Argentine mine
SUNNY FREEMAN
Barrick Gold Corp.’s third cyanide spill in two years at its Argentine operation was among a number of environmental and social concerns that took centre stage at its annual general meeting Tuesday, the stock’s worst day in six months.
Barrick president Kelvin Dushnisky told shareholders that a cyanide pipeline rupture on March 28 at its Veladero mine posed no risk to people or the environment.
“However, this was the third incident at Veladero leach pad in the last 18 months and that is completely unacceptable,” Dushnisky said. “These incidents weaken our partnerships and the trust that underpin them.”
The company has slashed its production forecast and hiked costs at the mine, calling the spill a severe setback after previously maintaining the spill would not have a material impact on its results.
The world’s largest gold producer told shareholders it has presented Argentine authorities with a “comprehensive plan,” to improve operating systems at the mine, which will include skills training and investing in digital infrastructure.
Provincial authorities have told the company it must overhaul practices and temporarily suspended it from adding cyanide to its leach pad, pending a review of its proposed plan. Cyanide is used at mine sites to separate gold from the ore.
In addition, the National Minister of Environment of Argentina has filed a lawsuit in the Buenos Aires federal court over the incident and another has been filed by locals in provincial court. Both seek to suspend activities at the site or shut the mine down.
Operations at Veladero were also temporarily suspended last September after falling ice damaged a pipe that spilled ore soaked in cyanide. A year earlier, another cyanide spill prompted a judicial investigation, as well as a suspension of operations and fines for Barrick.
The most recent incident was a big hit to the company’s guidance for 2017.
Toronto-based Barrick now expects full-year production at Veladero to be between 630,000 and 730,000 ounces of gold at an all-in sustaining cost of between $890 US to $990 US per ounce. Production guidance was down 12 to 18 per cent from its original projection of between 770,000 and 830,000 ounces of gold at an all-in sustaining cost between $840 US to $940 US per ounce. The Veladero mine is the third largest contributor to the company’s output.
The cyanide spill is not the only development expected to hit Barrick’s revenues from the Veladero mine. It recently sold a 50 per cent stake in the project to Shandong Gold Mining Co. for $960 million US. Barrick’s share of production after the deal closes, expected July 1, will fall to between 430,000 to 480,000 ounces of gold as a result.
The company said it has begun initial work to make modifications at Veladero as the government reviews its plan. Its 2017 guidance assumed it will be able to resume normal operations by June.
That June date was set based on an “assessment of the time required to complete the proposed modifications to the leach pad,” the company said in a statement.
However, Barclays analysts noted that even the downgraded forecast for Veladero requires quick approval and execution for its proposal to correct the recurring heap leach issues.
Environmental damage at Veladero was not the only social concern raised at the company’s annual general meeting on Tuesday. Two indigenous women from remote communities near Barrick’s Porgera joint venture flew in from Papua New Guinea, alleging they were raped by mine security staff. They called on the company to meet with them directly and to offer remedies to the people they say have been abused by mine staff.
Another speaker raised concerns about the environmental impact of Barrick’s 60 per cent owned Pueblo Viejo mine in the Dominican Republic and asked Dushnisky to tour local communities with him.
The company’s shares turned out their worst one-day performance in six months on Tuesday, sliding 10.8 per cent to $22.91 on the Toronto Stock Exchange on a down day for its peers in the sector. Gold stocks have been hammered as investors take in betterthan-expected corporate results and geopolitical fears fade.