TORONTO, ONTARIO - November 1, 2012 (Investorideas.com Mining stocks newswire) Based on IFRS and expressed in US dollars. For a full explanation of results, the Financial Statements and Management Discussion & Analysis, please see the company''s website, www.barrick.com.
Barrick Gold Corporation (ABX)(ABX.TO) (Barrick or the "company") today reported net earnings of $0.62 billion ($0.62 per share) compared to net earnings of $1.37 billion ($1.37 per share) in the same prior year quarter. Adjusted net earnings were $0.85 billion ($0.85 per share)(1) compared to $1.38 billion ($1.38 per share) in the third quarter of 2011. Operating cash flow of $1.73 billion and adjusted operating cash flow of $1.27 billion1 for the quarter compared to operating cash flow of $1.90 billion and adjusted operating cash flow of $2.00 billion, respectively, in the same prior year period.
Operating Highlights
Gold and copper production of 1.78 million ounces and 112 million pounds, respectively
Gold total cash costs of $592 per ounce1 and net cash costs of $537 per ounce1
Gold total cash margins of $1,063 per ounce1, and net cash margins of $1,118 per ounce1
C1 cash costs of $2.33 per pound1 and C1 cash margins of $1.19 per pound1
2012 Outlook
The company expects 2012 gold production of 7.3-7.5 million ounces2, within the original guidance range of 7.3-7.8 million ounces. Total cash costs for gold are anticipated to be $575-$585 per ounce, compared to the previous guidance of $550-$575 per ounce, primarily due to higher cash costs from Australia Pacific and African Barrick Gold (ABG). Net cash costs are anticipated to be $480-$500 per ounce3, within the previous guidance of $460-$500 per ounce.
Full year 2012 copper production is expected to be about 450 million pounds as a result of the delay in first production at Jabal Sayid in Saudi Arabia . C1 cash costs in 2012 are still anticipated to be $2.10-$2.30 per pound.
Pueblo Viejo First Gold Production on Schedule and Budget
During the third quarter, the Pueblo Viejo mine in the Dominican Republic poured its first gold on schedule and within capital guidance. The mine is currently undergoing commissioning, with commercial production anticipated in December 2012. Barrick's 60 percent share of average annual gold production is anticipated to be 625,000-675,000 ounces at total cash costs of $300-$350 per ounce4 in its first full five years of operation.
Pascua-Lama Project Update
During the quarter, Barrick made substantial progress at Pascua-Lama. Along with construction advancement at site, the company strengthened the construction management team and hired Fluor to assume overall project management. Fluor is a global leader in construction of large mining projects, and the same firm that successfully managed construction of our recently completed Pueblo Viejo mine.
In July, the company announced preliminary results of a review indicating an increase in capital costs to $7.5-$8.0 billion and a delay in first production to mid-2014. Since then, Barrick has been working with Fluor on a more comprehensive top-to-bottom review. This review will be complete by our 2012 year-end results release; however, work to date suggests capital costs will be closer to $8.0-$8.5 billion, with first production in the second half of 2014.
Disciplined Capital Allocation Framework
As a result of Barrick's on-going portfolio review and cost control focus, the company has cut or deferred approximately $1.0 billion in capex from the initial sustaining and minesite expansion budget for 2013. Despite additional spending at Pascua-Lama, and continued inflationary industry cost pressures, Barrick expects 2013 capex to be largely in line with 2012.
"We are on track to achieve our production guidance with higher production expected in the fourth quarter," said Jamie Sokalsky, President and Chief Executive Officer. "Despite some cost pressures, Barrick remains the lowest cost senior gold producer. We poured first gold on schedule and budget at Pueblo Viejo and made substantial progress at Pascua-Lama, which remains our top priority. Both are world-class assets that together are expected to produce about 1.5 million ounces5 at low operating costs. We''re also making progress in support of our disciplined capital allocation framework. We''ve cut or deferred significant capital expenditures that were previously budgeted and we''re continuing to work toward optimizing our asset portfolio. As I have said, returns will drive production; production will not drive returns."
FINANCIAL RESULTS
Reported net earnings were $0.62 billion or $0.62 per share compared to $1.37 billion or $1.37 per share in the same prior year quarter. Net adjusting items in the quarter totaled $231 million, largely related to:
$148 million in impairment charges primarily related to an exploration property in Papua New Guinea, acquired as a result of the Kainantu acquisition in 2007; and
$71 million in unrealized losses on non-hedge derivative instruments.
Third quarter 2012 adjusted net earnings were $0.85 billion or $0.85 per share compared to $1.38 billion or $1.38 per share in the same prior year period. The lower net earnings and adjusted net earnings primarily reflect lower gold and copper sales volumes, higher cost of sales applicable to gold, and lower realized gold prices.
Operating cash flow of $1.73 billion and adjusted operating cash flow of $1.27 billion for the quarter compare to operating cash flow of $1.90 billion and adjusted operating cash flow of $2.00 billion, respectively, in the third quarter of 2011. Adjusted operating cash flow excludes the impact of approximately $0.5 billion of net proceeds related to the settlement of a portion of our Australian dollar hedge positions.
Third quarter EBITDA was $1.50 billion6 compared to $2.46 billion in the same prior year period, reflecting the same factors affecting net earnings.
The third quarter realized gold price was $1,655 per ounce6, five percent lower than the same prior year quarter. Gold total cash margins and net cash margins were $1,063 per ounce and $1,118 per ounce, respectively, compared to $1,290 per ounce and $1,420 per ounce in the third quarter of 2011. C1 cash margins were $1.19 per pound compared to $1.71 per pound in the prior year period. C1 cash costs of $2.33 per pound compared to $1.83 per pound in the prior year period as lower cost production from the Zaldívar mine contributed to a lesser proportion of total copper sales. During the third quarter, sales from Zaldívar were impacted by a labor strike at the port of Antofagasta , which delayed shipment of 26 million pounds. The strike has ended and these sales will be recorded in the fourth quarter.
OPERATING RESULTS
North America Regional Business Unit
The North America Regional Business Unit (RBU) produced 0.80 million ounces at total cash costs of $508 per ounce in the third quarter. Cortez produced 0.23 million ounces at total cash costs of $293 per ounce, in line with expectations, and is anticipated to return to higher production levels in the fourth quarter primarily as a result of mine sequencing.
Goldstrike production of 0.35 million ounces at total cash costs of $507 per ounce benefited, as anticipated, from increased productivity following maintenance improvements in the first half of the year and from access to higher grades in the open pit. We expect full year production for the region to be 3.425-3.55 million ounces at total cash costs of $475-$525 per ounce, both within the previous guidance ranges.
South America Regional Business Unit
South America produced 0.39 million ounces at total cash costs of $440 per ounce in the third quarter. The Veladero mine produced 0.17 million ounces at total cash costs of $523 per ounce, reflecting the impact of lower recoveries due to lower leach pad kinetics during the third quarter. Leach recoveries have improved with higher solution rates and better ore permeability, which is expected to continue and result in higher fourth quarter production. Lagunas Norte produced 0.19 million ounces at total cash costs of $337 per ounce with access to higher grades following the completion of pit dewatering. We expect full year production for the region to be 1.55-1.65 million ounces at total cash costs of $430-$480 per ounce, both within the previous guidance ranges.
Australia Pacific Regional Business Unit
Australia Pacific produced 0.48 million ounces at total cash costs of $815 per ounce in the third quarter. The Porgera mine produced 0.12 million ounces at total cash costs of $1,026 per ounce, primarily reflecting lower equipment availability and lower underground tons mined. Full year production for Australia Pacific is expected to be about 1.80 million ounces at total cash costs of approximately $800 per ounce, both in line with previous guidance.
African Barrick Gold plc
Third quarter attributable production from ABG was 0.11 million ounces at total cash costs of $965 per ounce. Production and cash costs have been mainly impacted by mill maintenance shutdowns and lower grades at Buzwagi together with equipment availability issues at Bulyanhulu. While production from North Mara was in line with expectations during the quarter, lower equipment availability has delayed access to higher grade ore. As a result, Barrick's share of 2012 production is expected to be 5-10 percent below the low end of the previous guidance range of 0.500-0.535 million ounces, at total cash costs of $900-$950 per ounce, compared to the previous guidance of $790-$860 per ounce.
Copper
During the third quarter, Barrick strengthened its Global Copper Business Unit (CBU) in line with its objective of maximizing returns and free cash flow from its assets. The changes will further assist in efforts to address the near-term challenges at Lumwana and Jabal Sayid and to evaluate the expansion opportunities at Lumwana and Zaldívar. The copper assets now report to a new senior leadership team led by a CBU President, Mark Fisher. Mr. Fisher and his team will focus exclusively on optimizing the copper business. "Mark has been an exceptional leader at various large scale Barrick operations and has over 30 years of global mining experience," said Jamie Sokalsky. "I am confident that this new team is best positioned to maximize the value of the copper assets in the CBU through the realization of operational efficiencies and synergies, and its dedicated focus on managing all aspects of this significant business."
The Zaldívar copper mine in Chile produced 66 million pounds at C1 cash costs of $1.63 per pound in the third quarter. The Lumwana mine in Zambia produced 45 million pounds of copper at C1 cash costs of $2.90 per pound.
Expected 2012 production for Lumwana is 155-165 million pounds, within prior guidance of 145-165 million pounds, at previously guided C1 cash costs of $3.30-$3.50 per pound. In the second quarter of 2012, we determined the need to advance a number of key initiatives in an effort to achieve better longer-term results. The migration to an owner maintained operation to improve maintenance practices and equipment availability is progressing. Additional staffing and training is underway and maintenance technicians have been redeployed from other sites to assist with the transition. Infrastructure improvements to help mitigate the impact of the annual rainy season have been completed.
Overall higher grades at Lumwana are expected in 2013, with production anticipated to be about 250 million pounds at lower C1 cash costs. The scale of the Chimiwungo ore body is expected to allow for more productive mining and it will be the primary future supply of ore for the operation. Exploration results to date continue to confirm the upside potential of Chimiwungo. We are nearing completion of a substantial in-fill drilling program to provide a more precise model of the ore body for mine planning purposes. We continue to expect completion of these programs at the end of the year and the results will form the basis for an updated resource base and life-of-mine plan. They will also be incorporated into a prefeasibility study on the expansion opportunity for Lumwana, which has the potential to double processing rates.
At the recently constructed Jabal Sayid copper mine, a dedicated EPCM team is working toward achieving full compliance with standards for safety and security in order to commence production. During the quarter, the company was notified the operation is not in compliance with standards for safety and security in Saudi Arabia . The previous owner originally designed the mine in compliance with Western Australia standards. The operation is currently expected to achieve full compliance in 2014, at which time production will start. Initial testing has been completed and about 440,000 tonnes of ore at an average grade of 2.25% copper have been stockpiled to date. Average annual production from Jabal Sayid is expected to be 100-130 million pounds at C1 cash costs of $1.50-$1.70 per pound7 in its first full five years of operation. Total project capital expenditures are still anticipated to be about $400 million8.
The company has floor protection on approximately 60 percent of its expected copper production for the remainder of 2012 at an average floor price of $3.75 per pound9 and has full participation to any upside in copper prices.
COST MANAGEMENT
Barrick continues to employ key risk management strategies, which have helped manage our cost exposures, maximize margins and give predictability to our earnings.
The largest currency exposure for the company is the Australian dollar/US dollar exchange rate. During the quarter, with the Australian dollar trading at historically elevated levels against the US dollar, and based on our currency outlook, the company opportunistically unwound approximately AUD$2.6 billion of our Australian dollar hedges at an average spot price of $1.05. We realized net cash proceeds of approximately $0.5 billion upon the settlement of these contracts in the third quarter. The corresponding accounting gains will be recognized in the consolidated statement of income based on the original hedge contract maturity dates, which are between 2012 and 2014, with locked-in gains of approximately $90 million, $280 million, and $110 million positively impacting our total reported cash costs per ounce in Q4 2012, 2013 and 2014, respectively. For the remainder of 2012, every $0.01 movement in the Australian dollar will have a $2 per ounce impact on our consolidated total cash costs. As of the end of the third quarter, the company continues to have approximately AUD$1.8 billion hedged, primarily in 2014-2016, at an average rate of about $0.92.
The company has largely mitigated the direct impact of higher crude oil prices through the use of financial contracts and production from Barrick Energy. The contribution from Barrick Energy, along with the financial contracts, provides hedge protection for approximately 75 percent of the expected remaining 2012 fuel consumption.
EXPLORATION UPDATE
The 2012 exploration guidance is $450-$490 million10. We have over 100 exploration drill rigs operating globally, with over one third of these at Goldrush and Lumwana.
In Nevada , over 50 drill rigs are currently operating, 12 of which are located at Goldrush. Drilling continues to expand the footprint. The mineralized corridor has now almost doubled, delineated along seven kilometers in strike length. The scale and continuity of the system, and the extent of high grade zones being defined, is providing multiple development scenarios. Based on results to date, we expect significant increases in the already defined indicated and inferred resources by the end of 2012.
At Lumwana, the full contingent of 25 exploration drill rigs is operating at Chimiwungo. As the in-fill drilling program nears completion, results are expected to increase reserves by the end of 2012.
PROJECT UPDATE
Pueblo Viejo
During the third quarter, Pueblo Viejo poured first gold on schedule and within capital guidance of $3.6-$3.8 billion (100% basis). The company''s 60 percent share of annual gold production in the first full five years of operation is expected to average 625,000-675,000 ounces at total cash costs of $300-$350 per ounce11.
The mine is ramping up to commercial production, which is expected in December 2012. Pueblo Viejo is anticipated to produce about 80,000 ounces of gold to Barrick in 2012, however, actual results will vary depending on how the ramp up progresses.
As part of planned start up activities, the first three autoclaves have been tested at 50 percent to 100 percent of design capacity, with results that are in line with expectations for the initial ramp up period. The fourth autoclave is currently undergoing pre-commissioning testing, prior to planned commissioning in the fourth quarter. Construction of the tailings starter dam achieved its full height of 182.5 meters and the oxygen plant has been commissioned. Over 2.0 million contained ounces of gold have been stockpiled to date. The operations staff have been hired and trained by experienced personnel from our North America RBU.
Construction progress also continued on a 215 MW dual fuel power plant at an estimated net incremental cost of approximately $300 million (100 percent basis) or $180 million (Barrick's 60 percent share). The power plant is expected to commence operations in 2013 utilizing heavy fuel oil, but have the ability to subsequently transition to lower cost liquid natural gas.
Pascua-Lama
Pascua-Lama is expected to be one of the world''s largest, lowest cost mines and, once in production, is expected to contribute significant free cash flow to the company for many years to come.
During the third quarter, we strengthened the project management and construction teams, and made significant progress in a number of key areas:
commenced transfer of project management from Barrick to Fluor, the leading global EPCM contractor that successfully managed our recently completed Pueblo Viejo project;
reorganized and strengthened the Barrick project team, including a new project director and the hiring of experienced construction industry experts to improve the oversight and leadership of the project;
increased the quantity and quality of skilled labor, with approximately 1,900 new hires over the past quarter primarily from the province of San Juan and the rest of Argentina;
advanced review of all major contracts, material quantities and prices, unit costs, installation rates and productivity; and
progressed a detailed review of project schedule, including related logistics (e.g. transportation, camps).
To date, approximately $3.7 billion has been spent. The tunnel is approximately 60 percent complete and 90 percent of the required material and equipment for the process plant has been committed. Plans are progressing to increase the camp capacity to provide additional project construction flexibility.
As disclosed with Barrick's second quarter report, preliminary results of a review indicated an increase in capital costs to $7.5-$8.0 billion and a delay in first production to mid-2014. Since then, the company has been working with Fluor to carry out a more comprehensive top-to-bottom review. This review will be complete by our 2012 year-end results release; however, work to date suggests capital costs will be closer to $8.0-$8.5 billion, with first production in the second half of 2014.
Delays in the earthworks and underground works for the process plant are the main reason for the shift in schedule to the second half of 2014. The indicated increase in capital costs is split, roughly evenly, among: i) the impact of the delay of first gold to the second half of 2014; ii) increased labor hours and installation rates after being reviewed in more detail with Fluor during this quarter; and iii) incremental payments to Fluor to assume project and additional construction management, as well as increased incentives for Fluor and other contractors to come in on time and on budget.
Pascua-Lama is a world class resource of nearly 18 million ounces of proven and probable gold reserves and 676 million ounces of silver contained within the gold reserves and a mine life of 25 years. It is expected to produce an average of 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of production. Expected total cash costs remain in the range of $0 to negative $150 per ounce12 using a silver price assumption of $25 per ounce. The company expects to update production and total cash cost guidance for Pascua-Lama with its year-end 2012 results.
2012 OUTLOOK
Barrick expects 2012 gold production of 7.3-7.5 million ounces, within its original guidance of 7.3-7.8 million ounces.
Total cash costs for gold are anticipated to be $575-$585 per ounce, compared to the previous guidance of $550-$575 per ounce, primarily as a result of higher cash costs from Australia Pacific and ABG. Net cash costs are expected to be $480-$500 per ounce, within the previous guidance of $460-$500 per ounce.
Full year 2012 copper production is expected to be about 450 million pounds, as a result of the delay in first production at Jabal Sayid. C1 cash costs in 2012 are still anticipated to be $2.10-$2.30 per pound.
DISCIPLINED CAPITAL ALLOCATION FRAMEWORK
Barrick's renewed focus on maximizing shareholder value will be achieved through a disciplined approach to capital allocation based on maximizing returns on investment and free cash flow. Under this approach, all capital allocation options, which include organic investment in exploration and projects, and acquisitions or divestitures to improve the quality of our portfolio, will be assessed on the basis of maximizing risk-adjusted returns. Our increased emphasis on free cash flow will position the company, in the future, with the potential to return more capital to shareholders, repay debt, and make additional attractive return investments to upgrade our portfolio.
In June 2012, we initiated a full review of our operations and projects. This portfolio review is an on-going, dynamic process. Cost control is also a vital part of this review and an integral component of our capital allocation framework. The company has been reviewing company-wide costs and evaluating ways to reduce these, including sustaining capital and general and administrative expenses.
Barrick has made significant progress in support of its renewed focus on disciplined capital allocation. In the second quarter:
The company cut or deferred about $3 billion in capex that was budgeted over a four year period as a result of recalibrating longer-term production to higher quality, more profitable levels.
Annual gold production is expected to be about 8 million ounces by 2016.
Annual copper production is expected to be about 600 million pounds by 2015 with the opportunity to increase to more than 1 billion pounds if we proceed with the Zaldívar sulfides and Lumwana expansions.
During the third quarter:
Barrick cut or deferred about $1.0 billion in capex from the initial sustaining and minesite expansion budget for 2013 as a result of the company''s on-going portfolio review and cost control focus. Despite additional spending at Pascua-Lama, and continued inflationary industry cost pressures, Barrick expects 2013 capex to be largely in line with 2012.
Barrick confirmed it entered into discussions with China National Gold Group related to the potential sale of its 73.9% equity holding in ABG, which is in line with the focus on portfolio optimization.
Barrick's vision is to be the world''s best gold company by finding, acquiring, developing and producing quality reserves in a safe, profitable and socially responsible manner. Barrick's shares are traded on the Toronto and New York stock exchanges.
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