We commented here earlier on a couple of technical difficulties being suffered by Barrick Gold (NYSE:ABX) and its subsidiaries - notably at Bulyanhulu in Tanzania, and probably far more importantly at Veladero in Argentina's San Juan province - the company's third biggest gold producing mine. See: Barrick Gold: Facing Double Technical Blow We have now been made aware of additional information regarding the latter which suggests this could be more of a problem than originally thought and could put other Barrick potential developments in Argentina, and also possibly in Chile, in further doubt, as it could continued operations at Veladero itself, and create problems for other companies looking to develop projects in the region.
As is often the case with Latin American mining stories, our principal source for this information is sometimes irreverent blogsite Inca Kola News (IKN) which is not shy about publishing facts that the mining companies would rather were swept under the table and not publicized to a wider audience. Firstly I should add that IKN is not some anti-mining website, but one aimed at those investing in Latin American mining in general, and one that has proved remarkably successful in digging up both positive and negative stories about mining operations across Central and South America.
Regarding the Veladero spill, IKN comments that Barrick managers did not report the spill for six days - and, it says, only did so then because it heard that an employee was going to publicize it to the local community; Barrick is also accused of underplaying the chemical content of the leak neglecting to mention initially that it involved cyanide - the latter being a highly emotive chemical which has already been used as a prime reason for some Argentinean provinces banning any mining which uses cyanide in its processing operations.
IKN goes on to note that residents of the local town of Jachal have an extremely poor opinion of Barrick's corporate governance following an even more severe spill a year ago, and others in previous years, which did get to contaminate the local water supply, although Barrick underplayed the significance of that spill too. Thus, coupled with the latest incident, there have been local calls to close the mine altogether. Mining is contentious in Argentina anyway and the combination of open pit operations high in the Andes, and cyanide in the process solutions is a heady cocktail for the environmentalists and anti-mining NGOs.
So how long will Veladero operations be suspended? Probably for longer than the two weeks Barrick CEO, Kelvin Dushnisky has forecast only a day or so ago. The San Juan Provincial Mines Minister, Alberto Hensel, apparently stated that the mine would remain closed until Barrick came up with a plan to improve its working practices that would have to be signed off by both local judges and Governor Uñac - opening it up to additional bureaucratic delays. That same day Uñac said that operations at Veladero would not renew until he was "...certain that Barrick Gold went about its business with absolute respect for the environment and for the mining code".
Barrick is thus somewhat out of favor with the provincial authorities. Yes, economics will probably prevail and Veladero won't be shut down permanently, but that doesn't mean the authorities, angry with Barrick for its delay in reporting the spill, won't make life difficult in the interim.
There is also the question of Barrick's reported Pascua plans - to set up a small underground operation on a part of the Argentinean section of the huge Pascua Lama project, also in San Juan Province and geographically close to Veladero. Barrick has already spent a reported US$5 billion on the project before suspending it in 2013 due to cost overruns, low gold prices and environmental and regulatory issues on both the Chilean and Argentinean sides of the border. One suspects that the San Juan authorities will now scrutinize any proposed Pascua development with more than usual care, which could well lead to delays in any proposed development there too.
There is probably a lesson to be learned here. Barrick would probably have been better served in reporting the Veladero spill to the provincial authorities as soon as it occurred. Not having done so raises the specter of mining company arrogance, irresponsibility and potential cover-ups. If one of the world's largest, and richest, global mining companies is guilty of this it has to rebound adversely on any other smaller mining company, with less resources, looking to develop properties in Argentina in particular, but perhaps also across the whole of Latin America and elsewhere in the world.
As to what even temporary closure of Veladero will mean to the Barrick bottom line: The mine produces around $2 million worth of gold every day, so any prolonged closure will be extremely costly - and significantly raise unit costs assuming the company continues to pay its workforce in full - which it may do anyway to curry favor with the local community, although if the closure looks like being prolonged such a policy may fall by the wayside. The mine produced 602,000 gold ounces in 2015 - around 10% of Barrick's attributable global gold output - and was guided to produce originally between 630-690,000 ounces in 2016, although this has since been downgraded to between 580-640,000 ounces. Barrick's news release suggested that the spill would not affect overall gold production targets, but we suspect that was an assessment based on an estimated shutdown of a couple of weeks at the most which may prove optimistic given government involvement in determining when the mine can actually resume operations.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.