Barrick Gold’s US$8.5 Pascua-Lama mine formally suspended by Chilean court until pollution standards met

SANTIAGO — A Chilean appeals court on Monday formally suspended Barrick Gold Corp’s controversial US$8.5 billion Pascua-Lama gold mine until the company builds infrastructure that will prevent water pollution.

In April, the Copiapo Court of Appeals temporarily and preventively froze construction of the project, which straddles the Chile-Argentine border high in the Andes, while it examined claims by indigenous communities that it has damaged pristine glaciers and harmed water supplies.

On Monday, the court said it was ordering a freeze on construction of the project until all measures required in the government’s environmental license for adequate water management, “as well as urgent and transitory measures required by the environmental regulator,” are adopted.

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Chile’s environmental regulator has also suspended Pascua-Lama, citing major environmental violations, and asked Barrick, the world’s top gold miner, to build water management canals and drainage systems. Barrick has said it is fully committed to complying with all aspects of the regulator’s order.

The court ruling also called for the project’s environmental license to be reviewed and for all data on nearby glaciers to be presented to the regulator.

Barrick or the indigenous Diaguita community now have days to appeal the ruling to the Supreme Court.

A source close to the company said Barrick is not likely to appeal the decision.

The Diaguitas could contest the ruling if they deem the measures imposed by the court are too weak, and could potentially ask the top court to seek Barrick’s permit be revoked, lawyer Lorenzo Soto told Reuters.

“If we appeal it would be because the safeguard as ordered aren’t sufficient,” Soto said.

A potential decision from the Supreme Court would likely be issued this year, but it is tricky to anticipate how it might rule on Pascua-Lama, originally forecast to produce 800,000 ounces to 850,000 ounces of gold per year in its first five years of full production.

Last year, the Supreme Court suspended a key permit for Canadian miner Goldcorp Inc’s El Morro copper-gold project, and rejected the planned US$5 billion Central Castilla thermo-electric power plant.

But it also cleared the way for the unpopular HidroAysen hydro-power project.

A full court-ordered halt of the project would be a major hit for Barrick as 80% of the metal reserves are on the Chilean side. It would also be a further blow to Chile’s business-friendly reputation.

Several big mining and power projects have faced setbacks in recent months in Chile, the world’s No. 1 copper producer, where around 60% of export revenue comes from the metal.

It remains unclear what kind of legal action Barrick could take if the permit for its project – whose construction was already well underway – were canceled or placed under review.

To be sure, the regulator told Reuters the project shouldn’t face a permanent block if Barrick meets all the requirements. The regulator added the earliest Pascua-Lama could be reactivated is one to two years.

But Chilean courts have appeared increasingly open to lawsuits from environmental or social groups against mega projects.

While Chile’s economy is riding a copper boom, many in the economically stratified country feel mining profits have bypassed them and hurt the environment, and are increasingly taking their demands to court.

Source: http://business.financialpost.com/2013/07/15/barricks-pascua-lama-mine-to-have-work-suspended-by-chilean-court-report/

Get ready for turbulent gold earnings season

The second quarter of 2013 is one that gold miners and their investors would love to forget. Unfortunately, they will have to relive the horrors when the companies start reporting earnings later this month.

The results will be ugly. Analysts at Stifel Nicolaus estimated that the gold miners under their coverage (which includes the senior producers and a smattering of others) will report an average 20% drop in EBITDA from the first quarter. Lower metal prices are obviously a key factor, but so is an anticipated decline in production (down 1%) and an increase in cash costs (up 8%).

With squeezing margins and potential mine closures on investors’ minds, the Stifel analysts ran their models at a gold price of US$1,000 an ounce to see how many operations would have to shut down if the price stayed at that level for an extended period. They found that Kinross Gold Corp., Barrick Gold Corp. and Newmont Mining Corp. would lose well over 30% of their production from closures. But Goldcorp Inc. would only lose 7% because of its low-cost asset base.

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“With a management response on costs, probably half of the production loss could be saved for a year or two. However, the simple study shows that there would be strong supply side support at US$1,000 [an ounce],” they said in a note.

The only gold miner under Stifel Nicolaus coverage to be downgraded is Barrick Gold Corp., which was cut to hold from buy by analyst George Topping. He noted the company needs higher gold prices to pay off its debt, and the stock is likely to drift lower if prices remain flat. He also anticipates a dividend cut in the second quarter, along with US$7-billion to US$8-billion of writedowns. Neither of those moves would come as a surprise to investors.

Source: http://business.financialpost.com/2013/07/09/get-ready-for-turbulent-gold-earnings-season/

Will You Be Buying Groceries With Gold Soon?

The Arizona legislature last week tried to legalize shopping with gold and silver coins. Thankfully, Gov. Jan Brewer quickly put the kibosh on the idea, vetoing the law on Thursday. But even if she hadn’t, it never would have worked. I’m sorry. Did that statement sound a bit too matter-of-fact? Too dismissive of the gold bugs’ idea of a “sound monetary policy”? Well, let’s consider the evidence. Bugs of a feather flock together Arizona’s proposed law was flawed from the get-go, because it fatally misunderstood the philosophy behind precious-metal investors. Stock investors sometimes buy gold stocks such as Yamana Gold Inc. (USA) (NYSE:AUY) or Goldcorp Inc. (USA) (NYSE:GG) in hopes they will rise in value, so they can cash out at a profit. (Although with Yamana shares down 13% so far this year, and Goldcorp down 21%, there have been precious few profits to cash out lately.) They’re equally willing to trade one gold-mining stock with a high P/E (Goldcorp Inc. (USA) (NYSE:GG) costs 16.5 times earnings for example, and Yamana Gold Inc. (USA) (NYSE:AUY) more than 20) for a gold miner that looks cheaper than the competition — for example, Newmont Mining Corp (NYSE:NEM), which costs only 10 times earnings. People who buy actual precious metal — or invest in it vicariously, through ETFs such as SPDR Gold Trust (ETF) (NYSEARCA:GLD) or iShares Silver Trust (ETF) (NYSEARCA:SLV), which own actual ingots — have a different motivation. They buy gold or silver because they think it’s safer than cash. They’re convinced the metal will hold value over time. More than that, they’re convinced it will gain value over time. Hence, they’re wholly uninterested in converting their gold or silver into cash, or, even worse, converting their gold and silver into orange juice and Oreos at the supermarket, as Arizona’s law would have permitted.

Had Gov. Brewer signed Arizona’s bill into law, Arizona would have joined Utah as the second state in the Union to permit use of gold and silver coins as currency. Colorado tried to follow suit last year, but the bill died in the state Senate, and several other states are said to be contemplating, or actually working on, similar legislation. But for now, the sole state in the nation that permits use of gold and silver as legal tender is Utah. So how’s that working out? Recognizing that even with the law’s passage, few Utahns would feel comfortable walking down the street, their pockets a-jingling full of gold and silver coins (muggers being one risk, holey pockets another), Utah came up with an alternative. Rather than literally paying for goods and services in gold coins, the state permitted the establishment of a depository — the Utah Gold and Silver Depository — where folks could deposit their precious-metal coinage, and bullion as well. Deposits would be linked electronically to debit cards at UGSD, which account holders could then use to pay for goods and services with funds backed by their gold and silver — funds that automatically translated the day’s price for an ounce of gold, for example, times the amount of gold in an account, into a current gold-backed balance that could be paid out of the card.

Source: http://www.insidermonkey.com/blog/yamana-gold-inc-usa-auy-goldcorp-inc-usa-gg-newmont-mining-corp-nem-will-you-be-buying-groceries-with-gold-soon-134858/

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