Barrick Gold, the world's largest gold mining company announced Thursday it is temporarily suspending construction of its troubled Pascua-Lama gold mine that straddles the border between Chile and Argentina.
Barrick said in its earnings release that the decision to re-start the $8.5 billion mine will depend on improved project economics, the outlook for metal prices, and reduced uncertainty associated with legal and regulatory requirements.
"We have determined that the prudent course - at this stage - is to suspend the project, but naturally we will maintain our option to resume construction and finish the project when improvements to its current challenge have been attained," Barrick chief executive Jaime Sokalsky said in a statement.
Falling gold prices, rising costs and a sagging stock price weighed down by its Pascua-Lama project have plagued the Toronto-based company. Barrick said the suspension will reduce the company's 2014 capital costs by up to $1 billion. The company also said 10 other mines around the world were being scaled back, suspended or sold to focus on more profitable production.
Earlier this year, Chile's environmental regulator stopped construction its side of the border and imposed sanctions on the $8.5 billion mine, citing "serious violations" of its environmental permit. Barrick has already spent $5 billion on the project, which sits at an elevation of 3,800 to 5,200 metres above sea level.
Barrick had hoped to begin production in early 2014, and previously warned shareholders that it might abandon the Chilean side because of construction delays. The bi-national mine was initially expected to be producing gold and silver by the second half of 2014.
While Argentine officials were eager to keep building, most of the estimated 18 million ounces of gold and 676 million ounces of silver are buried on the Chilean side. On the Argentine side, where Barrick fuels a third of San Juan province's economy, officials have been watching closely and trying to figure out how to preserve thousands of jobs.
Chile's Supreme Court confirmed last month the suspension of the mine until environmental commitments and all works to protect the water systems are adopted.
An indigenous community living below the mine accused Barrick of contaminating their water downstream. Scarce river water is vital to life in Chile's Atacama Desert, and the Diaguita Indians fear the Pascua-Lama mine is ruining their resource.
Sokalsky promised shareholders in April that Barrick was committed to focus on producing returns for investors. Barrick ousted former CEO and President Aaron Regent last year, citing its disappointing share price performance. The stock has plummeted from over $40 to around $20 since then.
Barrick remains committed long-term to Argentina, where it plans to invest $400 million next year, said Guillermo Calo, the company's top executive in the country.
"The company announced a temporary reduction in Pascua-Lama's construction and not its cancellation, as was rumored," he said, adding that Barrick's nearby Veladero mine continues to employ 3,000 people directly. "Market conditions are not favorable for the industry, with gold prices that have remained low during an extended period of time, which has generated a challenging environment for the sector. In this context, we need to evaluate how to make the investments that Pascua-Lama needs to complete its construction."