(Bloomberg News) Capital spending by the largest gold producers is increasing at a faster pace than earnings for a second straight year as the industry's biggest mining projects are beset by delays and surging labor costs.

Barrick Gold Corp. said yesterday it's reviewing cost estimates for its $5 billion Pascua-Lama gold and silver project on the Chile-Argentina border because of wage and raw-materials inflation. Newmont Mining Corp. may have to raise the $4.8 billion budget for its Conga mine in Chile after political opposition.

The two gold miners are building the multibillion-dollar mines to arrest a decline in production 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.

"The growth-at-any-cost route, I think, is the wrong way to go," George Topping, a Toronto-based analyst at Stifel Nicolaus & Co., said in an interview. "The only people that are making money off building these new mines are the employees, the government, contractors. The shareholders aren't actually getting any of the rewards here."

Spending Triples

Barrick, Newmont and Goldcorp Inc., the three largest producers by market value, have forecast a combined capital expenditure of as much as $11.8 billion this year, 24 percent more than in 2011, according to data compiled by Bloomberg. Aggregate operating income will climb 12 percent, 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 percent while the NYSE Arca Gold BUGS Index of gold miners has risen 32 percent.

Barrick, which is based in Toronto, saw its gold production drop 1.1 percent to 7.68 million ounces last year. It's targeting annual output of 9 million ounces in 2016 and said yesterday 2012 capital spending will be $5.5 billion to $5.9 billion, as much as 19 percent more than last year.

"Everybody's talking about the same thing: do we need this much growth, and are the returns worth the risk?" said David Christensen, chief executive officer of ASA Ltd. in San Mateo, California, which manages $600 million, including Barrick shares.

'Robust Pipeline'

Omar Jabara, a spokesman for Greenwood Village, Colorado- based Newmont, didn't respond to telephone calls and an e-mail seeking comment.

Barrick CEO Aaron Regent said yesterday that Pascua-Lama and the Pueblo Viejo mine in the Dominican Republic that's starting up this year will cut overall operating costs and boost profit. The projects will add $2.5 billion in annual earnings before interest, taxes, depreciation and amortization in their first five years, he said in a presentation at Barrick's annual shareholders meeting in Toronto.

Pascua-Lama is located in the Andes mountains at an elevation of 3,800 to 5,200 meters (12,468 to 17,061 feet). Barrick raised the estimated cost by $1.4 billion to a range of $4.7 billion to $5 billion in July. It said at the time that buildings at the site would require more steel and concrete to handle the weight of snow and withstand high winds.

Barrick said yesterday it's reassessing the cost and scheduling of the project because of rising wages and commodities prices, competition for skilled workers and "lower- than-expected labor productivity."

Gold Rally

The company is still planning to start production there in mid-2013, Regent said. Returns from Pascua-Lama will be "robust" even after cost inflation, he said.

"Yes, the capital cost is up, but remember the gold and silver price has gone up quite dramatically as well," Regent told reporters after the shareholders meeting.

Gold has risen for 11 consecutive years and reached a record $1,923.70 an ounce on Sept. 6. Bullion will average $1,772 in 2012 and $1,940 in 2013, according to the average of analysts' estimates compiled by Bloomberg.

Gold futures for June delivery fell 0.5 percent to settle at $1,654 yesterday on the Comex in New York.

The metal's upward price trend will continue as governments increase monetary supply, Peter Munk, Barrick's founder and chairman, said yesterday at the meeting. Prices also will rise as investors buy gold to hedge against inflation, Regent said.

Gold ETFs

Investors have flocked to the metal in recent years. Gold held via exchange-traded funds backed by the metal have more than tripled in the last five years, according to data compiled by Bloomberg.

By comparison, gold-mining stocks have been less popular. The 64-member S&P/TSX Global Gold Index has risen about 3.2 percent over the past five years.

Barrick fell 2.7 percent yesterday in Toronto to $38.80, or 8.4 times earnings, compared with a three-year average multiple of 16. It reported first-quarter net income rose 2.8 percent to $1.03 billion and sales increased 18 percent to $3.64 billion. Barrick raised its quarterly dividend to 20 cents a share from 15 cents.

The company forecasts 2012 gold output of 7.3 million to 7.8 million ounces, compared with 8.6 million ounces in 2006, the year after it acquired Placer Dome Inc. to become the world's largest producer. Newmont expects to produce as much as 5.2 million ounces in 2012, 7.7 percent lower than in 2006.

Goldcorp Halt

Goldcorp's output dipped 0.2 percent to 2.51 million ounces last year. The company said last week it's reviewing its 2012 2.6 million-ounce forecast after lower-than-expected first- quarter output at a Canadian mine. Vancouver-based Goldcorp also said work on its El Morro mine stopped after a Chilean court suspended an environmental permit.

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."


"As an industry, we are working hard basically to stand still," Regent said. The difficulty in finding new economic gold deposits is "considerable" and future projects are more likely to be located in remote parts of the world, he said.

Barrick's most advanced projects after Pascua-Lama are Cerro Casale in Chile and Donlin Gold in Alaska. One option may to be build Cerro Casale in phases, Regent said. No decisions have been made, he said.

"I think we are going to see in 2012 a lot more of this internal soul-searching from companies that ultimately not all of the projects that are on the drawing board get built," Deutsche Bank's Beristain, who's based in Greenwich, Connecticut, said in an interview.

Canada's Kinross Gold Corp. said in February it will delay development of mines in Ecuador and Chile and concentrate on expanding its Tasiast mine in Mauritania. The company is using stricter criteria for spending amid rising costs for labor, raw materials and equipment, it said.

"At what cost do you have to just put the mine back on the shelf and say the ore is in the ground, the resource is there, but based on current market conditions maybe it should be revisited another day?" Beristain said. "I think we are reaching the breaking point for some of these mega projects out there."