Pascua adds 22% to Barrick’s reserves

Eschewing grassroots exploration in favour of a tightly focused district development program, Barrick Gold (ABX-T) plans to spend US$90 million this year to increase reserves near its existing mines and development projects.

This initiative is one of several designed to help the company achieve a 35% increase in annual production to 5 million oz. at a cash cost of US$145 per oz. by 2003, up from total production of 3.7 million this year. The Pascua mine in Chile and the Bulyanhulu mine in Tanzania are expected to be important contributors to this new production goal.

“Our district development program is part of our two-tier growth program,” President Randall Oliphant told a gathering of analysts in Toronto. “The other tier will be disciplined acquisitions based on a US$300 gold price assumption.”

While Barrick’s once-frenetic rate of acquisition appears to have slowed in recent months, the company has been keeping numerous juniors cashed up with exploration dollars, particularly those with ground near its existing operations.

Chairman Peter Munk expressed hope that the recent rally in gold prices would benefit hard-hit exploration companies. “We’d love to see a recovery in the junior mining sector because that’s traditionally been our pipeline of projects.” he said. “We’ve moved away from doing haphazard exploration all over the world, and intensified [our] work with juniors.”

The recent upward spike in gold prices spurred plenty of questions about Barrick’s hedging program, specifically whether the major might follow in the footsteps of several producers that have eliminated or greatly reduced their hedge positions (see separate story, page 6).

While Barrick has reduced the total amount of ounces committed in its current program to 9.8 million oz. from 18.8 million oz., it still has 84% of its 59.3 million oz. in gold reserves leveraged to the price of gold. However, it has added new features that allow it earlier participation in gold price rallies.

Barrick’s 1999 hedging program allowed it to enjoy a premium of US$106 per oz. over the spot price of gold. This was a boon to the company’s bottom line for 1999, which showed a 10% increase in earnings and a 30% increase in cash flow.

Net income rose to US$331 million (or 83 per share) on revenue of US$1.4 billion, compared with US$301 million on revenue of US$1.3 billion in 1998. Net income in the fourth quarter was US$81 million, down from US$83 million a year earlier.

Total cash costs fell to US$134 per oz. in 1999 from US$180 per oz. a year earlier. Total production costs were US$244 per oz. for the year, down from US$252 in 1999.

Last year’s global exploration effort allowed Barrick to report a 15% increase in proven and probable reserves to 59.3 million contained ounces, up from 51.5 million oz. in 1998.

The largest increase came from the Pascua project, which straddles the border between Chile and Argentina. Reserves increased by 22%, to 17.1 million oz. gold and 560 million oz. silver, with most of the increase coming from the Penelope and Morro Oeste mineralized zones in Argentina.

“The Pascua numbers are great, but it’s only half the story,” said Alex Davidson, vice-president of exploration. “It’s not just a mine, it’s a district. Our discovery costs to date are US$3.50 per oz. These ounces are cheap to find and cheap to exploit.”

The Pascua mine is expected to produce gold for a mere US$60 per oz. in its first five years (including silver credits), down from last year’s estimate of US$125 per oz. The life-of-mine cash costs are expected to average US$100 per oz. The lower cost estimates were attributed to higher gold and silver grades and lower mining costs.

Barrick plans to develop Pascua in phases, with the first phase scheduled for completion in 2002. It will involve a 33,000-tonne-per-day plant expected to produce 800,000 oz. gold and 35 million oz. annually. It will be built on the Argentine side, thanks to a 1998 agreement between the governments of Chile and Argentina that allows equipment and labour to move freely across their mutual border.

An 11,000-tonne-per-day expansion (including a flotation circuit for sulphide ores) is expected to be commissioned in 2005, bringing the total capacity to 44,000 tonnes per day. Production would rise to 1 million oz. per year.

The third phase is still under review but could begin as early as 2003. It will involve relocating the Tambo mill to the property and result in annual production climbing to 1.2 million oz. This mill would process smaller oxide deposits in the region.

“We see a mine life of at least 18 years,” said Allan Hill, vice-president of development. He noted that the project would provide a 14% rate of return and a 6-year payback. Capital costs for the first phase are expected to be US$950 million, followed by an additional US$300 million for the remaining phases.

The mine will be a conventional open-pit operation built at an elevation of 4,600 metres. The processing circuit will be capable of treating oxide and sulphide ores. The copper sulphide minerals will be floated and the tails routed to the cyanide leach circuit. Gold recoveries are expected to average 85% (90% for oxides and 75% for sulphides), with a 78% average recovery rate for silver.

Barrick also holds a 40% interest in the nearby Veladero gold-silver project being developed by majority owner Homestake (HM-N). Oliphant told analysts that some discussions related to mutual development have taken place. “We’re off to a good start with Homestake, and I think we’ll probably end up doing something with them. We’re not dependent on it, but I think they’d like to do something with us.”

Barrick is also planning more exploration this year near its Bulyanhulu mine project, the hub of the company’s district development program in Tanzania. Construction is already under way at the US$280-million mine, which is scheduled to begin production in the second quarter of 2001.

The highly mechanized underground mine is expected to produce 400,000 oz. gold at an average total cash cost of US$130 per oz. over its 19-year mine life. The 2,500-tonne-per-day plant will consist of a crushing and grinding circuit, a copper-gold-silver flotation circuit, a tailings thickening-filtration circuit and tailings disposal.

Recent exploration has boosted reserves to 7.5 million oz. (averaging 15 grams gold), up from 3.6 million oz. at the time of acquisition in March 1999. This year’s program will include 80 diamond drill holes totalling 55,000 metres on Reef 1 and 5,000 metres of drilling on Reef 2. A further 15,000 metres of RAB drilling and 10,000 metres of diamond drilling will test numerous exploration prospects.

“With ongoing drilling, we’re confident we’ll see 10 million ounces in Reef I alone,” Davidson said. “We’ve discovered several potential new reefs and plan to test geophysical and geochemical anomalies.”

Barrick has assembled a large land package in Tanzania’s Lake Victoria region, including ground held by several joint-venture partners. “The geology is similar to the Abitibi belt in Quebec,” Davidson added. “Many of the geologists we have working in the region are experienced Abitibi geologists.”

Barrick also expects its new Rodeo mine in Nevada’s Carlin trend to contribute 350,000 annual oz. at a cost of US$160 per oz., starting in the second half of next year. Its ore will be processed at the new US$330-million roaster facility at the Goldstrike property, scheduled for startup this summer. The roaster will treat carbonaceous ores at Goldstrike and reduce processing costs by 10% — a US$500-million savings over the property’s known reserves.