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The Real Problem at Barrick Gold’s Veladero Mine

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Veladero mine issues

Barrick Gold (ABX) has been facing issues at its Veladero mine in Argentina since March 28, 2017. It was on this day that a pipe carrying processing solution at the mine’s heap leach facility failed, causing a cyanide spill—the third such spill for the company in the past two years. After the latest incident, Argentinian authorities restricted Barrick from adding fresh cyanide solution to Veladero’s heap-leach facility.

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On May 28, 2017, the company reported that one of the employee unions at the mine has planned a work stoppage. The next day, Barrick announced that the work stoppage has ended, and it’s now in the formal process of dialogue with union leadership. According to the media reports, the workers could resume a strike in June if talks with the management fail to resolve their concerns.

Veladero stake sale to Shandong Gold

Previously on April 6, 2017, Barrick had announced a strategic cooperation agreement with Shandong Gold. The very first step of this agreement involved Shandong Gold acquiring 50% of the Veladero mine. The next steps will include exploring a joint development of Pascua-Lama and evaluating further opportunities with Barrick.

Cutting production guidance

During its 1Q17 earnings, Barrick had cut its 2017 guidance from 5.6 million–5.9 million ounces to 5.3 million–5.6 million ounces. The company had, however, mentioned that approximately two-thirds of this reduction is due to the company’s anticipated sale of a 50% stake in the Veladero mine. This guidance assumes that the Veladero mine will start normal operations in June, which is subject to the Argentinian government’s approval of changes to the mine’s operating systems.

Barrick expects the normal operations to resume in the second half of June. This could be a near-term catalyst for the company.

As compared to the cut in production guidance for Barrick, its peers (GDXJ) (GDX), Goldcorp (GG), Kinross Gold (KGC), and Agnico Eagle Mines (AEM) maintained their production guidance, while Newmont Mining (NEM) raised its longer-term guidance to incorporate its recently started projects.

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