BALL MILL COLLAR at Barrick Gold's $8.5bn Pascua Lama mega-project on Chile's border with Argentina.

BALL MILL COLLAR at Barrick Gold's $8.5bn Pascua Lama mega-project on Chile's border with Argentina.

Barrick Gold Faces up to $10bn Impairment

Issue 50, July 2013

Barrick Gold is facing write-downs of up to $10bn according to analysts, following delays at its Pascua-Lama project on Chile’s border with Argentina and a sharp fall in the gold price.

Shares in Barrick, the world’s largest gold miner by production, lost 7.7 per cent on Monday after the company flagged write-downs of up to $5.5bn at the project, equal to its entire carrying value. Forecast production has been delayed from late 2014 to mid-2016.

“In light of the lower metal price environment,” Barrick told investors, the carrying value of other assets is also under review, with impairments “likely to be significant.” The group’s balance sheet currently includes goodwill of $3.5bn relating to its $7.7bn acquisition of copper miner Equinox in 2011, which could also be written-off entirely.

Its operating gold assets are meanwhile valued on the basis of a spot price of $1,700 per ounce, whilst reserves are calculated at a price of $1,500, indicating the extent to which high tide economics have been left beached by the retreat in the gold price. Futures last traded in New York below $1,250.

The total write-down, which analysts at TD Securities estimate could top $10bn, is likely to substantially exceed the $5.6bn accounting charge Barrick incurred when it decided to close its hedging book in late 2009, a decision that forced gold through $1,000.

“Hindsight is always twenty-twenty,” said chief executive Aaron Regent at the time, since dismissed, defending Barrick against charges that hedging had capped its upside. The group issued $3.5bn of equity to fund the unwinding. Shares have since lost 60 per cent, compared to a 25 per cent rise in the gold price.

Silver Wheaton, which has a silver streaming agreement over the Pascua-Lama project, said in response to the news this week that it has extended the exercise date of an opt-out clause by 12 months to December 2016. “As long as Barrick is still advancing construction of Pascua-Lama at the end of 2015,” president Randy Smallwood said, “Silver Wheaton does not intend to cancel the silver stream.”

A Chilean court of appeal is due to rule on the project this month, risking indefinite suspension on environmental grounds. Barrick Gold will announce quarterly results in August.

“Hindsight is always twenty-twenty.”

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