Pascua-Veladero combo key to deal

Vancouver — With the US$2.3-billion takeover of California-based Homestake Mining (HM-N) in hand, Barrick Gold (ABX-T) is wasting no time in drawing up plans for a combined Pascua Lama-Veladero gold-silver operation along the Chile-Argentina border.

Slated to have a market capitalization of US$9 billion, the “new-look” Barrick holds 100% of both Veladero (a potential 500,000-oz.-gold-per-year operation) and the nearby Pascua Lama (with an estimated production of 800,000 oz. gold per year).

“We’ll take a step back and look at it as a combined project,” says Randell Oliphant, Barrick’s CEO. “We’ll start exploring immediately the best way to do this.”

If the projects were treated separately, the capital expenditures would come in at US$1.7billion, with Pascua-Lama accounting for US$1.25 billion. Oliphant says the combined operation would be “less expensive and more efficient.”

Late last year, Barrick put construction of Pascua Lama on hold because of low gold prices and higher-than-expected capital costs.

With Pascua Lama on the shelf, Homestake could not share infrastructure costs with Barrick. This made the Veladaro project much more challenging.

Veladero is located high in the Andes mountains. Its principal deposits, Filo Federico and Amable, are about 10 km southeast of the main Pascua pit. Production was expected to begin in 2003.

Pascua-Lama’s proven and probable reserves stand at 263 million tonnes grading 2.2 grams gold and 66 grams silver per tonne. The mine was to go into production as an open pit producing 33,000 tonnes per day. Barrick had marked Pascua down for production of 840,000 oz. gold annually for 20 years.

Cost estimates have Pascua producing gold at an average of US$100 per oz. over its projected life and at US$60 per oz. over its first five years, when the pit will be mining higher-grade material (running about 2.5 grams gold and 75 grams silver per tonne).

At last count, Veladero held resources of 381 million tonnes grading 1.17 grams gold.

Just over two years ago, Barrick tried to purchase the 60% stake in Veladero it did not hold by acquiring Vancouver-based junior Argentina Gold. The company was, however, beaten out by Homestake in the takeover battle. Homestake paid US$200 million for the 60%, which was essentially Argentina Gold’s only asset.

Under the merger agreement, Barrick is offering 0.53 of a share for each of Homestake’s 263.3 million outstanding shares. The deal is expected to close in the fourth quarter of this year.

In related news, Barrick says it will spend US$10 million to close its Tambo gold mine in Chile. The 200,000-oz.-per-year mine stopped operating a year ago.