Barrick pulls plug on El Indio, Tambo — Three other mines slated for shutdown in 1999

Having tried, and failed, to turn around the Chilean operations of the former Lac Minerals, Barrick Gold (ABX-T) has moved to wipe the under-performing

operations off its books.

The company has announced it will take an after-tax writedown of US$385 million for the three months ending Sept. 30, to provide for the early closing of the El Indio and Tambo mines in northern Chile and the Bullfrog, Pinson and Mercur mines in the western U.S. At the same time, it has revised its mining plans for the low-cost Meikle mine in Nevada and the Pierina development project in northwestern Peru.

At Meikle, which is on-track to produce just under 600,000 oz. gold this year, Barrick will be increasing the annual production rate to 650,000 oz. Pierina, scheduled to start up in 1998, is expected to produce 750,000 oz. in 1999.

Barrick acquired El Indio and Tambo in 1994, when it took over over Lac Minerals. Operating costs at El Indio, which had been as low as US$95 per oz.

in 1994, ballooned to US$166 in 1995, US$263 in 1996, and US$353 in the first half of this year. The mine had consistently fought difficult metallurgy, including copper sulphides that had to be roasted to release gold. Tambo, which had operated as a division of El Indio until 1995, also saw its costs increase through 1996 and 1997.

Barrick’s Bullfrog mine in western Nevada had limited reserves remaining, with its main pit and a satellite pit mined out, and a second satellite pit near exhaustion. Costs at Bullfrog, though relatively high, actually fell to US$276 per oz. in the first half of 1997, from US$281 in 1996 and US$309 in 1995.

Mercur, in Utah, had about two and a half years left, and unit costs were US$358 in the first half of 1997.

Pinson, operated by part-owner Homestake Mining (HM-N), was also expected to close in 1999, after a minesite drill program failed to uncover more reserves.

It, too, was a high-cost mine, with an average unit cash cost of US$342 in 1996 and US$324 in the first half of this year.

The mines that are slated to close produced just under 630,000 oz. gold in 1996. Up to the middle of 1997, their aggregate production was 276,000 oz. The closures are expected to cost Barrick about 1.5 million oz. in gold reserves, but growing reserves at other projects should negate that effect.

Meikle, which produced 288,167 oz. of gold in the first half of the year at US$96 per oz., is expected to offset much of the lost production from the mines Barrick will be closing. The rest should be made up by production from Pierina and from the Pascua project in northern Chile, which is scheduled to start pumping out 800,000 oz. per year in 2001.

Pierina potential

Barrick has particularly high hopes for Pierina, expecting costs to be held around US$50 per oz. The project, acquired in 1996 in the takeover of Arequipa Resources, sported a reserve of 61.4 million tonnes grading 3.3 grams gold per tonne and an additional resource of 12.4 million tonnes grading 1.9 grams per tonne.

Pierina’s stripping ratio is expected to be low, reducing mining costs, and the initial mine plan calls for higher-grade material (around 4 grams per tonne) to be exploited in the early years of production. The lower unit costs that come with production of higher-grade ore will shorten the time to recover the capital investment.

Pascua mine

At Pascua, 156 million tonnes grading 2 grams gold per tonne are in reserve, with an additional 120 million tonnes grading 1.7 grams classified as a resource. Cash costs at Pascua, 50 km north of El Indio, are expected to run at US$200 or lower.

The principal ore type at Pascua is a directly leachable oxide, unlike the refractory ores at El Indio. The project does have a sulphide ore type in its reserve, but plans for a flotation plant (which had originally been scheduled for construction shortly after the oxide orebody entered production) have been held up.

The company has not made changes to the plans at other operating mines, which are mainly low-cost producers. Unit costs at Betze-Post in Nevada, were US$181 in the first half of the year; an ounce of gold from Holt-McDermott in northeastern Ontario cost Barrick US$135; one from Bousquet in northwestern Quebec cost US$185; and at Doyon, also in northwestern Quebec, costs have traditionally been below US$250, but development costs pushed them higher this year.

By the end of 1999, Barrick will retain only two of the seven gold mines it acquired in the Lac purchase — Bousquet and Doyon, both of which are vein type deposits in Quebec with high grades and low costs. All of Lac’s former Chilean operations — El Indio, Tambo and Toqui — have been closed or sold, and the Macassa mine near Kirkland Lake, Ont., was also sold.