Barrick, Goldcorp forecast US$2.7B to build Pueblo Viejo

ThePuebloViejo gold-silver project in the Dominican Republic could be Barrick Gold’s (ABX-T, ABX-N) most expensive development project yet, with a total projected price tag of US$2.7 billion.

Barrick, the world’s biggest gold mining company, will front 60% of the cost while the rest will be covered by 40%-owner Goldcorp (G-T, GG-N).

Barrick has submitted a feasibility study and the project notice to the government so it can go ahead with construction. Barrick says the project will be the largest ever foreign investment in the D. R.

It’s estimated that Pueblo Viejo will produce 1 million oz. gold at a cash cost of US$250 per oz. over the first five years; translating into about 600,000 oz. gold for Barrick.

“(It’s) significant, even for us, in light of our size,” says Vincent Borg, Barrick’s senior vice-president of corporate communications. “And it’s got a twenty-five-year mine life so it’s going to be a very significant long-term asset.”

Before Barrick had finished the final feasibility for Pueblo Viejo, it was the company’s Pascua-Lama gold-silver project, which lies on the border of Chile and Argentina, that had the most costly development bill.

At last count, development costs were expected to ring in at US$2.3 to US$2.4 billion at Pascua- Lama, which is estimated to produce 750,000 to 775,000 oz. gold over the first five years of operation. The project hosts reserves of 18 million oz. gold and has a mine life of 20 years.

But analysts have become a little nervous about these mammoth projects, as Barrick faces slightly lower production and higher cash costs this year.

The company forecasts that production will fall slightly in 2008 to 7.6 to 8.1 million oz. gold (compared with a total of 8.06 million oz. in 2007) while cash costs increase to US$390-415 per oz. from US$350.

“Not an attractive combination,” wrote Richard Gray, an analyst at Blackmont Capital, in a note to clients. “We also remain concerned with the ultimate capital costs and timing for large projects such as Pueblo Viejo, Cerro Casale, and Pascua- Lama, and the pressure these investments may put on an already levered balance sheet.”

Gray has, in turn, given Barrick a “hold” rating with a 12-month target share price of $53.

Barrick is shooting for a 2011 startup for Pueblo Viejo, but Genuity Capital Markets analyst Chantal Gosselin has delayed her estimated production timeline to mid-2012.

Gosselin gave Barrick a hold rating with a 12-month target of $52 per share.

In Toronto on the Pueblo Viejo news, Barrick shares were up 90, or 1.8%, to $50.60 on 3.3 million shares traded. Goldcorp rose $1.10, or 2.7%, to $42.54 per share on a volume of almost 4.4 million shares.

Barrick acquired Pueblo Viejo in 2006 as a part of the Placer Dome takeover.

Placer Dome signed an agreement with the Dominican government in 2001 for the mine, which closed in 1999 after producing 5 million oz. gold and 22 million oz. silver over more than 20 years. By 2004, Placer expected to mine about 403,000 oz. gold per year and 2.2 million oz. silver over 33 years, with development costs estimated at US$336 million.

Things have changed in just a few years.

“Ours is fairly different, scope and scale-wise,” Borg says of the project plan. “Our tonnage capacity is now 24,000 tonnes per day and before it was 18,000 tonnes.”

Barrick has also identified additional reserves and resources. Proven and probable reserves now stand at 20.4 million oz. gold with 423.6 million lbs. copper and 117.3 million oz. silver contained within the gold reserves.

The copper and silver will be credited against the gold cash costs, and is reflected in the US$250-peroz. estimate.

The company has also discovered the Monte Oculto zone at Pueblo Viejo since taking over the project, which contributed about 900,000

oz. to the mine’s reserves. The new zone has a lot of zinc, Borg says, about 2.5 or 2.6 billion lbs.

“But we’re still evaluating the methods to treat it,” he says.

Barrick will employ about 3,500 people over the 3.5-year construction phase and about 1,000 people during operations.