Barrick Gold Corp. (ABX, Financial) informed the market through a news release published on its web site that because of “a rupture of a pipe carrying gold-bearing solution on the leach pad” on March 28 at Veladero mine in Argentina that was not detected by the monitoring system, the provincial government of San Juan “has temporarily restricted the addition of cyanide to the Veladero mine’s heap leach facility.”
According to Barrick’s news release, the miner is obliged to complete some corrective works and maintenance before the restrictions to the quantity of solution that can be added to the heap leach of the Veladero mine will be removed.
The picture below shows the heap leaching method where the concentrate is accumulated in a heap and the cyanide solution is spread over the surface from the heap to leach metal.
With this method, the wanted metals are solubilized as the leaching reagent sprayed over the heap passes through the pile. Then the drained solution that contains the wanted metal is sent to the next processing phase for metal recovery after it has collected in a basin.
The local authorities were immediately informed and the site was inspected after the incident that “did not pose any threat to the health of employees, communities or the environment,” added Barrick Gold, as “the safety of people and the environment remains” the company’s top priority.
The company also reports that “all solution was contained within the operating site and none reached any diversion channels or watercourses.”
Unfortunately, this type of incident is common in the area. As a matter of fact, the area had experienced three cyanide leaks in 2011-12, one in September 2015 for which Barrick was fined about $9.82 million in March 2016 by the San Juan province of Argentina and another one in 2016. However, the cyanide leaks never represented a potential risk to the environment and were always reported duly to the appropriate local authorities.
Barrick does not anticipate any material impact from the incident to the operating guidance of the Argentinian mine for 2017. At Veladero, the world’s largest gold mining company expects to produce between 770,000 ounces and 830,000 ounces, with the cost of one ounce of gold sold being between $750 and $800 and at an all-in sustaining cost (AISC) per ounce of between $790 and $860.
Investors hope that Barrick will solve the issue at Veladero as soon as possible since the gold producer expects that its increased production at Veladero mine combined with that one from Cortez mine will counterbalance expected decreases at Goldstrike and Pueblo Viejo, so that 2017 gold production will be higher than 2016 when the company produced 5.52 million ounces of gold, a 9.8% decrease on a year-over-year basis and slightly lower than the upper limit of the guided production.
The Argentinian mine is one of its five core mines together with Lagunas Norte in Peru, Pueblo Viejo in the Dominican Republic and Goldstrike and Cortez in the U.S.
From its core mines in the Americas, Barrick expects to produce approximately 70% of 2017 production, which is expected to range between 5.6 million and 5.9 million ounces at AISC of $650 to $710 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.
Barrick Gold is trading at $19.31 per share with a price-sales (P/S) ratio of 2.64 and a price-book (P/B) ratio of 2.79. The EV/EBITDA ratio is 6.61. The gold stock is uptrending and gained nearly 19% year to date.
The miner will release the results of the first quarter of 2017 on April 24, for which 16 analysts surveyed estimate an EPS of 20 cents on average, an 81.8% increase from EPS of the same quarter of 2016 and ranging between a low estimate of 11 cents and a high estimate of 27 cents. Revenue for the first quarter of 2017 are forecasted by seven analysts surveyed to come in at $2.15 billion. This figure ranges between a low of $1.74 billion and a high of $2.33 billion.
Disclosure: I have no positions in Barrick Gold.
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