On Sept. 15, the government of the province of San Juan, Argentina, temporarily suspended operations at the Veladero mine after a small quantity of a solution containing cyanide spilled out on Sept. 8. The reopening of Barrick Gold Corp.'s (ABX, Financial) operations are taking longer than expected.
As reported by Reuters, a judge decided that Barrick Gold's operations at Veladero mine cannot reopen until the Canadian miner has installed security cameras and sensors.
In my most recent article on Barrick, I wrote that investors didn’t need to be concerned about the decrease in production that Barrick might suffer if operations at Veladero do not return to normal as soon as possible, because the miner can easily offset this by increasing production at Goldstrike, Cortez and Turquoise Ridge, like the company did in 2015.
But the longer it takes before Barrick can resume operations at Veladero mine, the higher the risk that the Canadian miner will miss the opportunity of fully benefitting from rising gold prices, especially after that the Fed decided to keep interest rates unchanged and because Veladero is one of Barrick’s core mines.
We hope that the San Juan province, whose economy mainly depends on mining activities and significantly contributes to the Argentinean economy, will allow Barrick, the largest gold producer in the world, to reopen operations at Veladero as soon as possible.
Considering the contribution that a huge company like Barrick provides in the San Juan province in terms of employment and taxes paid every year, it is hard to believe that the local authorities will not authorize the Canadian miner to resume mining activities at Veladero as soon as possible. After all, it is also in the interest of a lot of families that live in the villages located in the vicinity of the mine, whose only sources of income are represented by Barrick’s salaries to workers employed at Veladero.
The miner employs approximately 1,206 workers and 1,716 contractors at Veladero.
Considering the miner’s participation to the Argentinean economy, Barrick contributed with a total of $810.9 million in 2015, shared as follows:
Source: Barrick's website
It is also hard to believe that there isn’t another judge available in the whole area of San Juan who can take over the case and replace the judge who, according to the state news agency Telam, left for a vacation right after the decision.
On Sept. 30, Barrick closed at $17.72 per share, down 22 cents (or -1.23%), with 11,204,228 on the New York Stock Exchange.
The Enterprise Value/EBITDA is 7.32 and the Price/Book (mrq) is 2.81.
Disclosure: I have no positions in Barrick Gold Corporation.
Start a free 7-day trial of Premium Membership to GuruFocus.
