Barrick's Veladero Gold Mine May Be Back Up And Running End Of Week

| About: Barrick Gold (ABX)

Summary

Latest reports suggest that Barrick Gold's third largest gold mine, Veladero, may have its operational suspension lifted by the end of this week.

The mine's suspension by local authorities following a toxic solution spill will have cost it around $40 million in lost gold sales revenues.

Overall impact on Barrick's bottom line will be small, but the delay in reporting the spill will have damaged its relationships with Provincial authorities.

Contrary to our fears of a prolonged shutdown of Barrick Gold's (NYSE:ABX) third largest gold mine - Veladero in Argentina - it appears sanity has prevailed and the mine will be up and running again by the end of this week following what appears to have been a fairly minor chemical spill involving cyanide solution being applied to the heap leach pads. (See: Barrick's Third Largest Gold Mine Suspended 'Indefinitely')

So, if the latest reports are correct - there has been no confirmation from Barrick yet - the mine will only have been shut down for the best part of three weeks, although the political fallout may last considerably longer. The cost of the closure will have been around $40 million in lost revenues plus the costs associated with remediation and the installation, perhaps, of new monitoring equipment. The relationship with the San Juan government, because of the company's tardiness in reporting the incident, will not be helpful with the possible relatively initial small-scale development of the potentially far bigger nearby Pascua Lama project.

As we suggested in the previous article, financial pragmatism has reigned. Veladero is hugely important to the economies of San Juan Province and to Argentina as a whole so a prolonged closure, whatever the local feelings, would be financially damaging. It also bears out the Barrick position that the leakage was minor and was quickly rectified.

The latest Reuters report suggesting the end of the project suspension states that the San Juan province Mining Minister said that a team of police investigators would deliver a technical report within 48 hours to the judge who ordered the temporary suspension. "If all the repairs have been completed and the mining police give the OK... there will be no reason to sustain the injunction," said Judge Pablo Oritja, according to the provincial government's statement.

This has been interpreted as suggesting that mining will recommence at Veladero as soon as Friday this week. If this is indeed the case the impact on Barrick's Q3 earnings will be relatively limited and on its full-year results will be largely immaterial. The company's stock price therefore will remain closely tied to the gold price. It has had good success in cutting operating costs and reducing debt through asset sales, although this also has a downside in falling gold output as producing assets are divested (but mostly higher cost operations) and in sacrificing some of its flexibility in maintaining and growing future production through capital program reductions and falling exploration activity.

Almost coincidentally as far as timing is concerned, another significant Barrick operation, its Bulyanhulu mine in Tanzania run by 63.9%-owned subsidiary Acacia Mining (OTC: OTC:ABGLY), which had been having a technical problem forcing it to suspend mining temporarily for a couple of weeks, is now also back fully online again. Bulyanhulu is much smaller than Veladero, but still produces around 240,000 ounces of gold a year. So this week some good news for Barrick after a difficult start to the month

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