Johannesburg, South Africa — 04 May 2012 – Capital spending by the world’s largest gold producers is increasing at a faster pace than earnings for a second successive year, as the industry’s biggest mining projects are beset by delays and surging labour costs.
Bloomberg News reports from here that Barrick Gold Corporation said it was reviewing cost estimates for its US$5 billion Pascua-Lama gold and silver project on the Chile-Argentina border because of wage and raw-materials inflation. And Newmont Mining Corporation may have to raise the US$4.8 billion budget for its Conga mine in Peru after political opposition.
The two gold miners are building the multibillion-dollar mines to arrest a decline in output and end the underperformance of their shares relative to the commodity they produce. Escalating costs may mean producers reassess other proposed projects, according to Jorge Beristain, an analyst at Deutsche Bank AG.
Barrick, Newmont and Goldcorp Inc., the three largest producers by market value, have forecast a combined capital expenditure of as much as US$11.8 billion this year, 24% more than in 2011, according to data compiled by Bloomberg. Aggregate operating income will climb 12%, according to the average of analysts’ estimates compiled by Bloomberg.
Capital expenditure at the three companies will be more than triple what they spent five years earlier. Over that period, gold prices climbed 156%.
Barrick saw its output drop 1.1% to 7.68Moz last year. It’s targeting annual output of 9Moz in 2016 and says 2012 capital spending will be US$5.5 billion to US$5.9 billion, as much as 19% more than last year.
Newmont will only advance and build projects in its pipeline “that deliver competitive returns,” Omar Jabara, a spokesman for the Colorado-based company, said in an e-mailed statement.
Goldcorp reviews its capital spending plans regularly, Jeff Wilhoit, a spokesman for the company, said in an interview. “We’ve got the benefit of having a project pipeline that is quite robust in a variety of economic and financial scenarios,” he said. “If any factors were to change, we would take that into account in our decision-making.”
Newmont suspended construction at Conga in November after clashes between Peruvian police and opponents of the mine. Newmont said last week it’s evaluating the recommendations of a government report that said the project needs “substantive improvements.”
Canada’s Kinross Gold Corp. has delayed development of mines in Ecuador and Chile and will concentrate on expanding its Tasiast mine in Mauritania. The company is using stricter criteria for spending amid rising costs for labour, raw materials and equipment, it said.
Source: Bloomberg News. For more information, click here.