Barrick takes fresh look at Pascua-Lama

Barrick Gold (TSX: ABX: NYSE: ABX) has rehired one of its former executives and a seasoned mine builder to evaluate options for a more modest, scalable starter project that could be built underground on the Argentina side of the company’s failed Pascua-Lama gold project which straddles the Argentina-Chile border.

George Bee spent 16 years of his career at Barrick, during which time he helped develop the company’s Goldstrike mine in the U.S. through its various phases, built the Pierina mine in north-central Peru and led the team that developed the Veladero mine in Argentina.

“He has a lot of experience operating and building high-altitude projects,” Andy Lloyd, Barrick’s senior vice-president of communications, tells The Northern Miner. “He has the regional and technical expertise, and he was somebody who was part of Barrick at an earlier time, when the company was at the height of its success, and part of our strategy now is to bring back that culture and way of working, so he’s the perfect candidate for this position.”

As Barrick’s new senior vice-president for Lama, Bee’s focus will be to evaluate and possibly advance an underground starter project option at the mothballed project — a plan that has been evaluated for some time.

Barrick Gold’s Pascua Lama project. Credit: Barrick Gold.

“Since the project was suspended there have been a number of optimization studies and a lot of smart people at the project have looked at how it could be optimized, and what alternatives we could look at,” Lloyd says. “As that work was going forward, it was becoming more and more clear that the starter option is one that would make a lot of sense.

“We see a smaller, scalable project there that would likely … build over time,” he continues. “The idea is that we could develop it over the years. It hasn’t been defined, and that’s the work George will be driving forward … we haven’t made a decision one way or the other, but what he will do is take this concept and flesh it out, and see what it would look like and how it would integrate with a larger project. He’ll bring that back to the management team as a proposal.”

Lloyd points out that before a Chilean court ordered the company to stop building due to environmental concerns three years ago — and after spending US$5.5 billion on the project — the company had already finished half of the processing plant on the Argentina side of the border. While Pascua-Lama straddles Chile and Argentina, 75% of the deposit sits in Chile and 25% in Argentina.

“There are a number of issues in Chile that we’re continuing to work through with permitting, and legal and regulatory issues that need to be resolved, before anything can happen on construction,” Lloyd says. “It makes a lot of sense to advance the starter option.”

If a phased development plan for the project gets the go-ahead, Barrick says it could use cash flow from Pascua-Lama to fund development on both sides of the Chilean-Argentina border. In his role, Bee is also in charge of developing the Frontera district — a 140 km stretch of prospective ground controlled by Barrick on the El Indio belt.

Andrew Kaip of BMO Capital Markets said in a research note that Barrick “could provide initial details of a revised development scenario sometime in the first half of 2017.

“In an underground scenario, the company will have to go back to work from the late 1990s on the Frontera-Brecha zone to assess the underground potential,” he noted. “A series of tunnels was completed during this time to delineate the deposit.”

Kaip pointed out that results published by the company in the second quarter of 1999 showed that a surface drill hole 25 metres from the portal to the tunnel in Argentina returned nearly 300 metres grading 4.86 grams gold per tonne, 1% copper and 25 grams silver per tonne.

For its part, Argentina has always been a loyal supporter of the project, Lloyd notes. The provincial government of San Juan — where the Pascua-Lama project is located — has “always been a significant supporter of the mining industry, and it’s aware mining is a key part of the economy.

Barrick Gold’s Pascua-Lama gold property straddling the Chile-Argentina border, as seen in 2009. Credit: Barrick Gold.

“We’re not saying we’re going to invest in the project just yet, but we say there is potential, and we’ve hired one of the best people we know in the business to develop the plan and bring it forward,” Lloyd says.

As for rumours that Barrick would eventually bring in a strategic partner to share the financial and political risk, Lloyd said he wouldn’t rule it out, but not before the company can come up with a sensible way forward.

“From the big picture we’ve definitely said that Pascua-Lama is a project that probably by its nature could bring a partner on, and it could certainly be a project of interest to Chinese partners, or others,” he says. “The issue [at this point] is what they’re investing in. A partner needs to know what they are buying into, so it’s not likely we would bring a partner in before we have a concerted plan that we can present and talk about.”

In May, Barrick agreed to pay shareholders US$140 million to settle a lawsuit in the United States. The class-action suit alleged that Barrick had not appropriately disclosed the project’s risks about the project, especially around environmental compliance, but also from a financial perspective, Lloyd says. Barrick rejects the allegations. The funds were covered by Barrick’s insurance company.

There is also a class-action lawsuit in the works in Canada, but Lloyd notes that there is a conflict between a number of law firms over who should have carriage of the case. “Obviously it’s a lucrative opportunity for someone, so they’re arguing who should have the right to bring it forward. It hasn’t gotten to the point where it’s before the courts.”