During the Denver Gold Forum, Kelvin Dushnisky, Barrick Gold Corporation’s (ABX, Financial) president, provided an update on Veladero mine in Argentina that was halted on Sept. 8 due to cyanide spilling out from a damaged pipe by a large block of ice that rolled down a valley slope.
Dushinsky said that the gold mine could resume operations in the next two weeks, depending on the reparation work through which the miner is trying to raise the height of the berm that surrounds the leach pad where gold is processed.
Source: http://wiki.biomine.skelleftea.se/wiki/
The solution containing cyanide leaked outside the processing area but did not reach any water diversion channels or watercourses, so the incident did not pose any threat to employees, communities or the environment.
Unfortunately, this type of Ă‚ incident is common in the area. As a matter of fact, the area had experienced three cyanide leaks in 2011-12 and another one in September 2015 for which Barrick was fined 145.7 million pesos ($9.82 million) last March by Argentina's San Juan province for mining code breaches that led to the spill. However, all the cyanide leaks never represented a potential risk to the environment and were always reported duly to the competent local authorities.
Barrick does not anticipate any material impact of the cyanide spill incident to Veladero's operating guidance. Gold production is expected to be 580,000 ounces to 640,000 ounces at all-in sustaining costs of $790 to $860 per ounce.
Investors hope that Barrick will resume production at Veladero as soon as possible, since the Argentinean mine is one of its five core mines together with Lagunas Norte in Peru, Pueblo Viejo in Dominican Republic, and Goldstrike and Cortez in the U.S.
From its core mines in the Americas, Barrick expects to produce approximately 70% of 2016 production at AISC of $650-700 per ounce and the world's biggest gold producer is determined to lower the overall AISC to the target of less than $700 per ounce by 2019.
Concerning Cortez, a 3.75% net value royalty that covers a significant area of the Nevadan gold mine has been acquired by Royal Gold Inc. (RGLD) from a private party seller and for a consideration of $70 million. The transaction includes the Crossroads deposit.
Barrick continues with its strategy to reduce debt, hoping to find cash from the divestment of noncore assets. One of these noncore assets is the Kalgoorlie super pit mine in Australia. From the sale of its 50% stake in the Australian mine, Barrick expects to fetch as much as $1 billion.
But even if the miner will not be able to divest the noncore assets, it will go on with its debt reduction target anyway with cash from operations and cash on hand. The Canadian gold producer has plenty of cash and equivalents ($2.4 billion as of second quarter 2016) that could be used to cut its overall debt to $5 billion in 2017, together with incoming free cash flow.
Barrick targets to reduce the debt by $2 billion by year-end, Dushnisky said at the Denver Gold Forum.
As of June 30, the total long-term debt amounted to approximately $8.8 billion, but it must be said that about 57% of it does not mature before 2033.
If Barrick sells its 50% stake in the Kalgoorlie super pit mine in Australia and its 64% stake in African unit Acacia Mining, the miner will lower costs further, considering that the mines in Australia and Africa contribute to the overall production of gold at an AISC that is approximately 14% and 25%, respectively, higher than the average item.
The lower AISC per ounce that Barrick expects to sustain at Kalgoorlie (350,000-365,000 ounces of gold at all-in sustaining costs of $670-$700 per ounce) is a clear sign that the company is going to divest its 50% stake in the asset located in Australia.
The company is also considering selling its 50% stake in Zaldivar, the copper mine in Chile, and the Lumwana copper mine in Zambia, even though their divestment is not a priority at least until the Canadian miner has not received an interesting proposal.
If the sale of its 64% stake in Acacia, 50% stake in Zaldivar and the Lumwana copper mine in Zambia become reality, it will improve the company’s risk profile and further strengthen the balance sheet.
The strengthening of the balance sheet through the divestment of high cost assets is a strategy that Barrick has successfully pursued since 2015, when the miner was able to reach the 23% reduction in total debt target with the sale of Bald Mountain and 50% of Round Mountain.
Disclosure: I have no positions in Barrick Gold Corporation.
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