Mr. Jamie Sokalsky reports
BARRICK REPORTS FIRST QUARTER 2013 RESULTS
Barrick Gold Corp. had strong first-quarter 2013 financial and operating results.
Highlights include:
- Net earnings of $847-million (85 cents per share);
- Adjusted net earnings of $923-million (92 cents per share);
- Operating cash flow of $1.09-billion;
- Adjusted operating cash flow of $1.16-billion.
Results are based on international financial reporting standards and expressed in U.S. dollars. For a full explanation of results, the financial statements, and management discussion and analysis, please see the company's website.
FIRST-QUARTER 2013 OPERATING HIGHLIGHTS AND FULL-YEAR 2013 GUIDANCE
First
quarter 2013
2013 guidance (previous)
Gold
production (000s of ounces) 1,797 7,000-7,400
All-in sustaining costs ($ per
ounce) $ 919 $950-$1,050 ($1,000-$1,100)
Total cash costs ($ per ounce) $ 561 $610-$660
Copper
Production (millions of pounds) 127 480-540
C1 cash costs ($ per pound) $ 2.46 $2.10-$2.30
C3 fully allocated costs ($ per
pound) $ 3.00 $2.60-$2.85
"Our high-quality portfolio of mines combined with our sharp focus on cost management has translated into strong quarterly financial and operating results. It is very rewarding to see that our cost reduction efforts have begun to take effect and are reflected in low all-in sustaining costs of $919 per ounce and total cash costs of only $561 per ounce this quarter. We have also further reduced total capex, exploration and all-in sustaining cost guidance for the full year," said Jamie Sokalsky, Barrick's president and chief executive officer. "At Pascua-Lama, we are working to address the environmental and other regulatory requirements on the Chilean side of the project. Concurrently, we are taking a hard look at evaluating all alternatives in light of the uncertainties associated with the suspension of construction in Chile. We are committed to a disciplined approach to capital allocation, based on the principle that returns will drive production, production will not drive returns. While we remain positive on the long-term fundamentals for gold and copper, we don't rely on higher metal prices to be the only driver of shareholder returns."
Financial results
Net earnings and adjusted net earnings for the first quarter 2013 were $847-million (85 cents per share) and $923-million (92 cents per share), respectively, compared with net earnings and adjusted net earnings of $1.04-billion ($1.04 per share) and $1.10-billion ($1.10 per share), respectively, in the same prior-year period. The decrease in net earnings and adjusted net earnings was largely driven by lower realized gold and copper prices, lower gold and copper sales volumes and higher cost of sales applicable to gold and copper, partially offset by lower income tax expense.
Significant adjusting items (net of tax effects) for the quarter include:
- $63-million in unrealized foreign currency translation losses on working
capital balances;
- $30-million in other non-recurring expenses;
- $17-million in unrealized gains on non-hedge derivative instruments.
First-quarter 2013 operating cash flow of $1.09-billion compares with $1.37-billion in the first quarter of 2012. Adjusted operating cash flow of $1.16-billion removes the impact of the Australian dollar hedge settlement and compares with adjusted operating cash flow of $1.48-billion in the same prior-year period.
Operating results
First-quarter 2013 gold production was 1.80 million ounces at all-in sustaining and total cash costs of $919 per ounce and $561 per ounce, respectively. All-in sustaining and total cash costs benefited from strong performances at Goldstrike, Cortez and Veladero. The company reaffirms 2013 gold production guidance of seven million to 7.4 million ounces at total cash costs of $610 to $660 per ounce. Full-year all-in sustaining cost guidance has been reduced to $950 to $1,050 per ounce from the previous guidance of $1,000 to $1,100 per ounce.
North America regional business unit
North America produced 870,000 ounces at all-in sustaining and total cash costs of $770 per ounce and $487 per ounce, respectively. Barrick's 60-per-cent share of production from the new Pueblo Viejo mine was 96,000 ounces at total cash costs of $550 per ounce, after achieving commercial production in January. The mine remains on track to ramp up to full capacity in the second half of this year. Barrick's share of average annual gold production in the first full five years of operation is anticipated to be 625,000 to 675,000 ounces at all-in sustaining and total cash costs of $500 to $600 per ounce and $300 to $350 per ounce, respectively.
The government of the Dominican Republic is asking Pueblo Viejo Dominicana Corp. (jointly owned 60 per cent by Barrick and 40 per cent by Goldcorp) to accelerate and significantly increase its share of the benefits from Pueblo Viejo. The company, while reserving its rights under the special lease agreement, which cannot be unilaterally altered, continues to engage in dialogue with the government in an effort to achieve a mutually acceptable outcome.
The Cortez mine produced 340,000 ounces at total cash costs of $177 per ounce, largely reflecting better than anticipated grades. Goldstrike produced 230,000 ounces at total cash costs of $605 per ounce primarily as a result of higher-than-expected grades and recoveries.
The company continues to expect full-year 2013 production for North America to be 3.55 million to 3.70 million ounces at all-in sustaining and total cash costs of $820 to $870 per ounce and $495 to $545 per ounce, respectively.
South America regional business unit
South America produced 370,000 ounces at all-in sustaining and total cash costs of $638 per ounce and $405 per ounce, respectively. Higher silver byproduct credits at the Veladero mine and delays in sustaining capital spend at Pierina and Veladero positively impacted all-in sustaining costs.
The Veladero mine contributed 210,000 ounces at total cash costs of $400 per ounce and Lagunas Norte produced 150,000 ounces at total cash costs of $333 per ounce. Barrick continues to expect South America to produce 1.25 million to 1.35 million ounces in 2013 at all-in sustaining and total cash costs of $875 to $925 per ounce and $550 to $600 per ounce, respectively.
Australia Pacific regional business unit
Australia Pacific produced 450,000 ounces at all-in sustaining and total cash costs of $1,096 per ounce and $785 per ounce, respectively. Porgera, the region's largest contributor, produced 120,000 ounces at total cash costs of $934 per ounce, reflecting the processing of lower-cost stockpiles.
Barrick continues to expect full-year 2013 production for Australia Pacific to be 1.70 million to 1.85 million ounces at all-in sustaining and total cash costs of $1,200 to $1,300 per ounce and $880 to $950 per ounce, respectively.
African Barrick Gold PLC
First-quarter attributable production from African Barrick Gold was 110,000 ounces at all-in sustaining and total cash costs of $1,561 per ounce and $931 per ounce. The company continues to expect Barrick's share of 2013 production from African Barrick Gold to be 400,000 to 450,000 ounces at all-in sustaining and total cash costs of $1,550 to $1,600 per ounce and $925 to $975 per ounce, respectively.
Global copper business unit
Copper production was 127 million pounds at C1 cash costs of $2.46 per pound and C3 fully allocated costs of $3 per pound. Lumwana produced 57 million pounds at C1 cash costs of $3.41 per pound and Zaldivar produced 70 million pounds at C1 cash costs of $1.54 per pound. Barrick continues to expect 2013 copper production to be 480 million to 540 million pounds at C1 cash costs of $2.10 to $2.30 per pound and C3 fully allocated costs at $2.60 to $2.85 per pound.
Utilizing option collar hedging strategies, the company has protected the downside on approximately half of the company's remaining 2013 copper production at an average floor price of $3.50 per pound and can participate on the same amount up to an average price of $4.25 per pound.
Pascua-Lama project update
Pascua-Lama is one of the world's largest gold and silver resources with nearly 18 million ounces of proven and probable gold reserves, 676 million ounces of silver contained within the gold reserves and an expected mine life of 25 years. It is expected to produce an average of 800,000 to 850,000 ounces of gold and 35 million ounces of silver in its first full five years of operation at all-in sustaining and total cash costs of $50 to $200 per ounce and negative $150 to nil per ounce, respectively.
During the fourth quarter of 2012, prestripping activities in Chile were halted to address increased dust in the open-pit area following stronger than normal winds. The project has since strengthened dust mitigation and control measures. Regulatory restrictions have also been placed on the project due to the need to repair and improve certain aspects of the water management system in Chile. Completion of measures to address these aspects is targeted for first quarter 2014.
On April 9, 2013, the Copiapo Court of Appeals in Chile granted a request for a preliminary injunction to suspend construction activities on the Chilean side of the project pending a hearing on a constitutional rights action filed in September of 2012. The action alleges non-compliance with the environmental requirements of the project's Chilean environmental approval. Upon confirming the court order, Barrick took immediate steps to suspend construction activities in Chile, which includes work on the primary crusher and the Chilean side of the tunnel that conveys ore from Chile to Argentina. Activities determined to be necessary for environmental protection are expected to continue, upon appropriate authorization as contemplated by the court. Construction in Argentina, where the majority of Pascua-Lama's critical infrastructure is located, including the process plant and tailings storage facility, has not been affected. Until the company has clarity on the regulatory and legal aspects, it is unable to fully assess the impact on the capital budget, operating costs and schedule of the project. The company is at an early stage of evaluating an alternative development plan that involves accelerating the development of another smaller pit in Argentina in order to provide a source of ore for initial production. This alternative could provide ore for about six months of production during commissioning and ramp-up, following which the mine plan would be dependent on a continuous supply of Chilean ore. Therefore, if resumption of construction activities in Chile, including the prestripping, is delayed beyond late 2013, or if such development alternative is determined not to be feasible, there could be a significant change to the mine plan and an impact on the capital cost and production schedule of the project. The company will continue to evaluate all alternatives, in light of the uncertainties associated with the legal and regulatory actions, and the current commodity price environment, including the possibility of suspending the project.
As of March 31, 2013, approximately $4.8-billion had been spent. During the quarter, the La Mesa substation in Chile was energized and the southern portion of the 23-kilovolt mine distribution loop completed. As of that date, the tunnel was approximately 80 per cent complete. In Argentina, construction of the process plant facility advanced with about 70 per cent of structural steel erected, 65 per cent of concrete poured and 55 per cent of mass earthworks completed.
Disciplined capital allocation
Barrick's strategy prioritizes shareholder value creation by focusing on maximizing risk-adjusted rates of return and free cash flow. The company has taken and will undertake the following steps to refocus the business and adhere to the principles of its disciplined capital allocation framework based on the principle that returns will drive production, production will not drive returns:
- The company has reduced its 2013 outlook in a number of key spending
categories, largely driven by its sharp focus on cost control, which is
an integral element of its disciplined approach to capital allocation.
Barrick launched a companywide overhead review in the first quarter of
2013 and reduced overhead costs by over $100-million for the full year.
The company identified approximately $500-million of further reductions to
expenditures and has announced revisions to full-year 2013 guidance as
follows:
- Total capex to $5.2-billion to $5.7-billion from previous guidance of $5.7-billion to $6.3-billion;
- All-in sustaining costs to $950 to $1,050 per ounce from previous
guidance of $1,000 to $1,100 per ounce;
- Exploration to $300-million to $340-million from previous guidance of $400-million to $440-million.
- The company is pursuing opportunities to optimize the company's portfolio,
including the potential sale of Barrick Energy, Kabanga and other non-core assets.
- In today's challenging environment, Barrick has no plans to build any
new mines.
- The company continues to advance its rapidly expanding Goldrush deposit
in Nevada.
- Barrick recalibrated long-term gold production to a higher-quality, more
profitable target of eight million ounces by 2016.
Barrick's vision is to be the world's best gold mining company by operating in a safe, profitable and responsible manner.
KEY STATISTICS
(in U.S. dollars)
Three months ended
March 31,
2013 2012 (restated)
Operating results
Gold production (thousands of ounces) 1,797 1,881
Gold sold (thousands of ounces) 1,747 1,783
Per ounce data
Average spot gold price $ 1,632 $ 1,691
Average realized gold price 1,629 1,691
Total cash costs 561 540
All-in sustaining costs 919 909
Copper production (millions of pounds) 127 117
Copper sold (millions of pounds) 115 119
Per pound data
Average spot copper price $ 3.60 $ 3.77
Average realized copper price 3.56 3.78
C1 cash costs 2.46 2.04
Depreciation 0.35 0.44
Other 0.19 0.20
C3 fully allocated costs 3.00 2.68
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per share data)
Three months ended
March 31,
2013 2012 (restated)
Revenue $ 3,437 $ 3,644
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Costs and expenses (income)
Cost of sales 1,844 1,753
Corporate administration 45 48
Exploration and evaluation 54 73
Other expense 166 117
Impairment charges 5 94
Other income (21) (41)
Loss from equity investees - 4
(Gain) on non-hedge derivatives (42) (34)
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Income before finance items and
income taxes 1,386 1,630
Finance items
Finance income 3 3
Finance costs (108) (48)
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Income before income taxes 1,281 1,585
Income tax expense (420) (535)
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Net income $ 861 $ 1,050
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Attributable to
Equityholders of Barrick Gold 847 1,039
Non-controlling interests 14 11
Earnings per share data attributable
to the equityholders of Barrick Gold
Net income
Basic $ 0.85 $ 1.04
Diluted 0.85 1.04
We seek Safe Harbor.
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