Barrick cutting 2014 capital budget by further US$1 billion due to Pascua-Lama

TORONTO – Barrick Gold Corp. (TSX:ABX) is suspending construction at its troubled Pascua-Lama project until conditions warrant a resumption and cut its capital spending budget by a further US$1 billion next year.

Earlier this year, Barrick said it would trim $1.5 billion to $1.8 billion from its costs over 2013 and 2014 by cutting capital spending, including laying off staff.

Barrick said Thursday that its plan for $500 million in annual cost savings overall through a simplified organization assumes 1,850 fewer positions, of which 85 per cent have already been cut.

Barrick says it has decided to entirely halt construction on Pascua-Lama for now, but maintain the project until the current challenges are resolved and market conditions improve.

“As a result of our previous decision to slow down and re-sequence construction, which resulted in significant demobilization over the last few months, we are in a much better position to implement this temporary suspension quickly and efficiently, with many ramp-down activities already underway,” Barrick CEO president and CEO JamieSokalsky said in a statement.

“Our previously lowered capital cost guidance for 2014 is now expected to be further reduced by up to $1.0 billion while we continue to address all our environmental and social obligations. This decision is consistent with our disciplined capital allocation framework announced last year.”

The announcement was part of Barrick’s third-quarter report, which showed it had 58 cents US per share of adjusted earnings — down from 88 cents cents last year but seven cents better than estimates.

The Toronto-based company has been reducing costs and downsizing as a result of generally weak prices for gold and copper, its main commodities, and delays at the Pascua-Lama project.

The project, which straddles the border between Chile and Argentina, has been delayed by the Chilean courts and government due to community concerns about the potential environmental impact.

In the third quarter ended Sept. 30, Barrick had US$2.98 billion of revenue, down from a restated $3.4 billion revenue a year earlier and slightly above estimates.

Adjusted net earnings dropped to US$577 million from US$880 million in the third quarter of 2012 while net income dropped to $172 million or 17 cents per share from $649 million or 65 cents per share.

Analysts had estimated 51 cents per share of adjusted earnings, 49 cents per share of net income and $2.89 billion of revenue, according to estimates compiled by Thomson Reuters.

In September, the Supreme Court of Chile upheld an environmental permit for Pascua-Lama, on the condition that a satisfactory water management system is built.

An indigenous community living below the project had asked the court to revoke the licence and require another environmental impact study be done. The court stopped short of ordering a re-evaluation, but said construction must be suspended until work to protect the water systems is finished.

The mine on the border between Chile and Argentina was initially expected to be producing gold and silver by the second half of 2014, but the company now targets production by mid-2016.

Barrick shares are down almost 40 per cent so far this year. In pre-market trading, they declined 44 cents to US$20.06 from the Wednesday close in New York at US$20.50.

In Toronto, Barrick shares closed Wednesday at C$21.55.