Analysis of the $400 Million Expansion Project of Shandong Gold and Barrick's Veladero Gold Mine

Shandong Gold and Barrick’s joint venture Veladero Gold Mine has submitted a $400 million expansion plan for 2025-2028 to Argentina’s “Regime for the Promotion of Investment in Large Projects” (RIGI), aiming to produce an additional approximately 1.6 million ounces of gold during the asset’s lifespan. It also intends to enjoy incentives such as a reduction in income tax rate from 35% to 25%, foreign exchange policy facilitation, and other marginal cost reductions. The application is still under review and needs to meet the minimum investment threshold of $200 million and obtain final approval from the local government. [1]

• Production Elasticity
  : The incremental 1.6 million ounces (approximately 5.0 tons) of gold has a limited share in global gold mine output, but for Veladero alone, it can significantly increase annual output and mine throughput capacity, enhancing its position in Barrick’s high-end asset portfolio. If gold prices remain high in the future, cash flow can be boosted through expansion (the annualized impact needs further quantification based on phased production).
• Synergy with Company’s Overall Capacity
  : As an important overseas growth point, this project can provide considerable marginal contribution on top of original production, and reduce execution risks by leveraging Barrick’s operational experience in Argentina, which aligns with Shandong Gold’s global expansion strategy of “external acquisition + merger integration”.

• Fiscal Incentive Relief
  : The RIGI policy reduces the income tax rate to 25%, meaning if the project is finally approved, the marginal tax burden will decrease by about 10 percentage points without changing costs, which has a positive leverage effect on the project’s internal rate of return (IRR) and free cash flow. Combined with foreign exchange facilitation measures, it can alleviate cost fluctuations caused by cross-border capital allocation and equipment imports, thereby improving unit cost controllability. [1]
• Financial Matching Capability
  : The company’s current market capitalization is approximately 161.85 billion yuan, with a static price-to-earnings ratio of 33.4x, price-to-book ratio of 5.32x, ROE of 13% and net profit margin of 4.88%, indicating there is still room for profit expansion. However, in the short term, efficient capital allocation is needed to prevent return dilution. The structural optimization of the project in terms of after-tax profit and cash flow can improve capital return rate, especially when gold prices remain high, which is expected to enhance EPS elasticity. [0]

• Long-Term Free Cash Flow Support
  : If the expansion proceeds smoothly, Veladero will further become a “cash generator” for Shandong Gold in its international business, similar to Barrick’s consistent Tier One arrangement, which helps increase the proportion of free cash flow in the group as a whole, thereby supporting dividend/reinvestment strategies.
• Risk Hedging and Diversification
  : Through overseas assets and RIGI incentives, Shandong Gold can reduce its reliance on single policies and capacity constraints of domestic mining areas, help stabilize income when the gold price cycle reverses, and enhance its strategic layout in Latin America.

1. Approval and Execution
   : The RIGI approval is still in progress. If there are political or geopolitical changes (such as policy adjustments or intensified inflation), incentives may be delayed or weakened; in addition, project progress needs to avoid cost overruns and construction delays.
2. Gold Price Fluctuations
   : Although current gold prices are high, any significant correction will compress the project’s NPV, requiring hedging and flexible production scheduling strategies; in addition, local currency depreciation can easily erode the US dollar-converted value of local revenue.
3. Financing and Cash Flow Matching
   : The $400 million investment needs to be coordinated with internal cash flow and financing capacity, especially considering domestic asset-liability levels (such as a current ratio of only 0.53), and liquidity must be ensured without being sacrificed.

If the expansion is approved by RIGI and proceeds as planned, it will provide long-term value increments for Shandong Gold in three dimensions: production volume, after-tax cash flow, and international layout. In the short term, the approval process should be continuously promoted, project governance and risk management should be strengthened, and at the same time, a portfolio of domestic assets with short payback periods and stable cash flows should be sought to support overseas capital expenditures. It is recommended to monitor the progress of RIGI approval, the gold price curve, and the rhythm of project capital expenditures, and update progress with Barrick at the appropriate time to more accurately evaluate its substantial contribution to the company’s valuation and profitability.

[0] Jinling API Data (Shandong Gold Company Overview, 2025-12-16)
[1] Yahoo Finance - “Barrick, Shandong Gold aim for $400 million investment in …” (https://uk.finance.yahoo.com/news/barrick-shandong-gold-aim-400-181032519.html)