After 18 years of production, Pierina (Peru) is shutting down. As a part of the process that is leading the Peruvian mine to halt operations, Barrick Gold Corp. (ABX, Financial) is building two new water treatment plants and a cyanide detoxification plant to destroy cyanide contained in the site’s heap leach pad.
The two water treatment plants will collect the water that comes from the mine; before giving it back to the environment surrounding Pierina, where it may be used for irrigation by some communities, the water will be treated through a reverse osmosis technology so various metals, salts and the acidity level will be contained within the limits required by the new Peruvian regulations.
The cyanide detoxification plant will operate until the site is completely solution free. This process will be responsibly undertaken by Barrick, and it is very important during the reclamation of an area, especially at Pierina where particular weather and environmental conditions at the open pit may exacerbate the acid rock drainage phenomenon.
In addition to building two water treatment plants and one cyanide detoxification plant, other measures taken to reclaim the area will include the coverage of the heap leach pad and waste dump with a layer of clay, topsoil and native vegetation and the mine’s open pit backfilling operations.
Pierina is located about 185 miles north of Lima at an altitude of approximately 4,100 meters. Pierina produced 54,000 ounces of gold in 2015, at a sales cost of $62 million, and AISC of $1,411 per ounce.
The mine closure and the sale of a 50% stake in Kalgoorlie (Australia) will not have any impact on Barrick's gold production.
Barrick is continuing negotiations with Newmont Mining Corporation (NEM, Financial) for the sale of its 50% interest stake in Kalgoorlie, Super Pit in Australia, to the largest U.S. gold producer. Even though the two companies have agreed on the current resource value of the mine, problems still exist concerning the future value of the asset that is delaying the closing.
Disagreements on the asset's future value are referred to as “different assumptions on exchange rates and gold price, those sorts of things.” (Bloomberg TV Canada).
The sale of half Kalgoorlie plus other potential assets' divestment (64% stake in Acacia, 50% stake in Zaldivar, the copper mine in Chile and the Lumwana copper mine in Zambia) belong to the Canadian miner’s strategy to further strengthen the balance sheet through the reduction in the total net debt. The Canadian miner has been able to reach the 25% reduction in total debt with the proceeds that came from noncore and high-cost assets' divestment.
For this year Barrick expects to produce 5.0 million to 5.5 million ounces of gold at AISC of $750 to $790 per ounce and 380 million to 430 million pounds of copper at $1.95 to $2.25 per pound.
Barrick is trading at $16.83 per share and gained 128.73% year to date. The stock declined since the beginning of August (-25%), but it has been surging again (+7.6%) since the beginning of the week.
The enterprise value/EBITDA is 7.11, and the price-book (P/B) ratio (mrq) is 2.67.
The world's largest gold producer will release its third-quarter results on Oct. 26 after market close, and the conference call and webcast will take place on Oct. 27 at 9 a.m. (ET).
Disclosure: I have no positions in any stock mentioned in this article.
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