Event: "Barrick Gold Corp. (ABX, US$24.46, OUTPERFORM, TP US$40)
announced suspension of construction work on the Chilean side of
the Pascua-Lama (
) project while it works to address environmental and other
regulatory requirements to the satisfaction of Chilean authorities.
The ABX announcement follows media reports (Reuters) indicating a
Chilean court had issued a preliminary injunction to halt
construction activities pending a full hearing.
Impact: Potentially negative; SLW partially protected by
Completion Guarantee. As part of the 2009 PL silver stream
agreement, ABX has provided SLW with a Completion Guarantee (
), requiring ABX to complete PL to >75% of design capacity by
December 31, 2015. During 2014-15, SLW will be entitled to the
silver production from currently producing mines to the extent of
any production shortfall at PL, until ABX satisfies the CG. If ABX
fails to satisfy terms, SLW may elect to terminate and be entitled
to the return of its $625Mln upfront cash payment, less credits for
Catalyst: "We estimate each six month delay at PL impacts NAV by
1%, with no PL (worst-case) lowering NAV by 15% (after credits).
SLW's PL silver stream (25% of LOM production) currently accounts
for 18% of our SLW NAV and 20% of FY15 attributable silver
production (26% in FY16). ABX noted that construction activity in
Argentina, where the majority of critical infrastructure is
located, including the process plant and tailings storage facility,
is not affected, and ABX further noted that it is too early to
assess the impact on scheduling."
Valuation: "Our TP of C$44 is based on an equal weighting of
1.2x our cash-adjusted NAVPS (C$29.88) and 25x FY13/14 CFPS ($1.90)
under a metal price scenario of $30/oz silver and $1,600/oz
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