Ms. Amy Schwalm reports
BARRICK REPORTS THIRD QUARTER 2014 RESULTS
Barrick Gold Corp. had third quarter net earnings of $125-million (11 cents per share). Adjusted net earnings were $222-million (19 cents per share). Operating cash flow was $852-million. The company reported strong quarterly results with solid production and lower than expected costs, which drove the second reduction to annual all-in sustaining cost guidance this year.
OPERATING HIGHLIGHTS AND GUIDANCE
Third quarter Revised Previous
Gold 2014 2014 guidance 2014 guidance
Production (000s of ounces) 1,649 6,100-6,400 6,000-6,500
All-in sustaining costs ($ per
ounce) $834 $880-$920 $900-$940
Adjusted operating costs ($ per
ounce) 589 580-630
Copper
Production (millions of pounds) 131 440-460 410-440
C1 cash costs ($ per pound) $1.82 $1.90-$2.00 $1.90-$2.10
Total capital expenditures ($ millions) 604 2,200-2,500
"We are pleased to report another quarter of strong operating results, underpinned by a disciplined business model that prioritizes shareholder returns," said Kelvin Dushnisky, co-president of Barrick. "We are focused on the best assets in the best regions, where we see the most potential to create value for shareholders, areas where we have already established distinctive geological and technical knowledge and strong partnerships. We will only invest in mines and development opportunities that can generate strong returns and free cash flow through commodity cycles. This is reflected in the priorities we have defined for Barrick."
"Operational excellence remains a top priority for Barrick. Our performance in the third quarter reflects the quality of our mines and our people," said Jim Gowans, co-president of Barrick. "Our operating teams continue their relentless efforts to improve performance and cut costs. As a result, we were able to reduce annual cost guidance for the second time this year."
Company priorities
This has been a year of transition for the leadership of Barrick. On April 30, 2014, John L. Thornton assumed the chairman role, and the board of directors was strengthened through the addition of four new independent directors. On July 16, 2014, the company announced a new executive management structure, including the appointment of Mr. Dushnisky and Mr. Gowans as co-presidents, to seamlessly drive the business and execute on Barrick's priorities. Since that time, two more independent directors have joined the board of directors, and there have been additional changes to strengthen the executive team.
These changes have rejuvenated the leadership of Barrick and are directed at one overriding objective: to make Barrick the investment of choice among gold producers.
To achieve this objective, the company is focused on the following priorities to drive shareholder value:
- Operational excellence: Excel in all areas of the company, including
delivering the full potential of its mines and resources. Put the best
people in key roles and enable them to deliver.
- Best assets and regions: Focus on assets with the most potential in
core regions.
- Strong partnerships: Establish deep relationships with key
stakeholders, such as governments, suppliers and local communities for
performance and growth.
- Financial flexibility: Restore the balance sheet to a position of
strength.
- Focus on returns: Improve free cash flow generation and shareholder
returns through operating efficiencies and profitable growth, including
the prioritization of near-mine opportunities. All investments must meet
return on investment thresholds.
Financial highlights
Third quarter 2014 adjusted net earnings were $222-million (19 cents per share) compared with $577-million (58 cents per share) in the prior-year period. The decrease was primarily due to lower gold and copper sales volumes and lower realized gold and copper prices, partially offset by lower cost of sales applicable to gold and copper. Net earnings for the third quarter were $125-million (11 cents per share) compared with net earnings of $172-million (17 cents per share) in the prior-year quarter. Significant adjusting items for the quarter include:
- $51-million in unrealized losses on non-hedge derivative instruments;
- $42-million in unrealized foreign currency translation losses.
Third quarter operating cash flow of $852-million compares with $1.2-billion in the prior-year period. The decrease in operating cash flow primarily reflects lower sales volumes and lower gross margins, partially offset by a decrease in income tax payments.
Financial flexibility
Barrick is committed to restoring its balance sheet to a position of strength. Maintaining financial flexibility will be a key driver of the company's future direction. Barrick's strong underlying business underpins its liquidity. The company's five cornerstone mines produced 1.0 million ounces of gold at average all-in sustaining costs of $696 per ounce in the third quarter.
These mines are anticipated to contribute about 60 per cent of production in 2014 at average AISC of $730 to $780 per ounce, maintaining Barrick's position in the first quartile of the industry cost curve.
The company has a modest debt repayment schedule over the next three years with approximately $200-million maturing by the end of 2015 and less than $1.0-billion due by the end of 2017. Including the company's $4.0-billion undrawn credit facility and $2.7-billion of cash, Barrick had significant liquidity at the end of the third quarter.
Goldrush and other opportunities in Nevada
The company is concentrating its efforts on the best regions, where it has a competitive advantage. Barrick will accelerate the identification and advancement of profitable growth opportunities in these core regions. A regional strategy allows the company to leverage its competitive strengths, which include deep geological and technical expertise, as well as strong local relationships. This will help identify the best prospects first and permit them as efficiently as possible, translating into less time to production.
Opportunities at or near existing operations will be the first priority, minimizing risk and maximizing return on invested capital. Accordingly, the company continues to focus its exploration and growth efforts on Nevada. It is among the regions of the world with the best geological potential for gold, has a well-established mining industry, and an area where Barrick has strong relationships with key stakeholders and a proven record of success. Approximately 50 per cent of Barrick's 2014 exploration budget is allocated to Nevada, with a large majority allocated to advance Goldrush, the only significant greenfield discovery by a major gold producer in the past five years. Beyond Goldrush, Barrick has several other growth opportunities and projects in Nevada with the potential to meet company risk-adjusted return hurdles.
The Goldrush project, located about six kilometres from the Cortez mine, is progressing through a prefeasibility study, which remains on schedule for completion in mid-2015. Infill drilling continues to demonstrate continuity of high grades. A number of development options are under consideration, including underground mining or a combination of both underground and open-pit mining. The company is increasingly certain that there will be an underground mining component. Barrick submitted a permit application for twin exploration declines in the second quarter. The declines will help to better define the existing resource and allow the company to test for additional mineralization beyond the northern end of the deposit.
Turquoise Ridge contains over 5.0 million ounces (75-per-cent basis) in reserves at an average grade of 17.3 grams per tonne, and is the highest reserve grade deposit in the company's operating portfolio. Barrick believes Turquoise Ridge has the potential to become another core mine. The operation is currently restricted by haulage and ventilation constraints. One option being considered is an additional shaft, which could increase production by up to 75 per cent for five to eight years. Drilling of the northern extension of the deposit is exceeding expectations, and is supporting a prefeasibility study on the shaft scenario, which is expected to be completed in early 2015.
At Cortez, the Lower zone is characterized by strong and continuous ore zones. A prefeasibility study to evaluate deeper mining below the currently permitted level is expected to be completed by late 2015. Below this level, the Lower zone is mostly oxide and higher grade than the zones above. Drilling has yet to determine the limits of the Lower zone, and recent drilling results have met or exceeded expectations. Based on these results, the Lower zone exploration drift will be extended another 500 feet to the south in early 2015 to enable further step-out drilling.
The Spring Valley project, 70 per cent owned by Barrick and approximately 60 miles west of Cortez, continues to advance through a prefeasibility study, which is on track for completion in late 2015. This is a low-capital-cost heap leach project, with the potential to become a stand-alone mine. Barrick expects to report an initial resource estimate with its year-end 2014 results.
Operating highlights
Cortez
The Cortez mine produced 273,000 ounces at AISC of $589 per ounce in the third quarter. Production in 2014 is expected to be 880,000 to 920,000 ounces, below previous guidance of 925,000 to 975,000 ounces. This is primarily due to negative-grade reconciliations, which impacted production in the first half of 2014. AISC guidance remains at the high end of the $750- to $780-per-ounce range. In 2015, production is expected to be below one million ounces due to the sequencing and mining of ore and waste phases.
Goldstrike
Goldstrike produced 239,000 ounces in the third quarter at AISC of $921 per ounce. Production benefited from higher processed grades. AISC was better than expected due to lower processing costs, mainly as a result of processing less acidic ore and lower sustaining capital. Modifications to the autoclave facility for the thiosulphate project are almost complete and will enable Goldstrike to accelerate the cash flow from about 4.0 million stockpiled ounces through the addition of a patented thiosulphate process. This is expected to contribute an average of 350,000 to 450,000 ounces of annual production at similar AISC to the overall operation in the first full five years. First production is on track for the fourth quarter of 2014 at a total capital cost of approximately $620-million. Lower production is expected in the fourth quarter in part from an autoclave shutdown to facilitate start-up of the thiosulphate project and also from expected lower grades as stripping begins for the next phase of the open pit. Production at Goldstrike in 2014 is expected to be 865,000 to 915,000 ounces, and AISC guidance has been reduced to $870 to $900 per ounce as a result of lower lime consumption at the roaster. In 2015, production is expected to exceed 1.0 million ounces with contributions from the thiosulphate process.
Pueblo Viejo
Barrick's 60-per-cent share of production from Pueblo Viejo in the third quarter was 168,000 ounces at AISC of $551 per ounce. Production and recoveries were impacted by planned autoclave shutdowns for maintenance. Fourth quarter production is expected to benefit from higher-grade ore. The copper circuit is in the commissioning phase, and copper shipments are expected to commence in the first quarter of 2015. Production in 2014 is expected to be 600,000 to 700,000 ounces at AISC of $510 to $610 per ounce.
Lagunas Norte
Lagunas Norte produced 157,000 ounces at AISC of $554 per ounce in the third quarter. Production was higher in the third quarter due to processing higher-grade material and a faster leach cycle from stacking ore on the new area of the leach pad. Fourth quarter production is expected to benefit from higher grades. Production in 2014 is anticipated to be 570,000 to 610,000 ounces, and AISC guidance has been reduced to $590 to $620 per ounce.
Veladero
The Veladero mine produced 178,000 ounces at AISC of $822 per ounce in the third quarter. Production benefited from higher grades on positive grade reconciliations. This trend is expected to continue into the fourth quarter. Production guidance in 2014 has been increased to 680,000 to 720,000 ounces, and AISC guidance has been reduced to $890 to $920 per ounce.
North America portfolio
Barrick's other North American mines consist of Bald Mountain, Round Mountain, Turquoise Ridge, Golden Sunlight, Ruby Hill and Hemlo. This segment produced 213,000 ounces in the third quarter at AISC of $980 per ounce. In 2014, production is now expected to be at the high end of the 795,000- to 845,000-ounce range, and AISC guidance has been reduced to $980 to $1,000 per ounce.
Australia Pacific
Australia Pacific produced 292,000 ounces at AISC of $855 per ounce in the third quarter. The Porgera mine contributed 137,000 ounces at AISC of $928 per ounce and benefited from higher throughput and grades. Production guidance in 2014 has been increased to 1.05 million to 1,125,000 ounces, and AISC guidance has been reduced to $885 to $910 per ounce.
African Barrick Gold
Third quarter attributable production from ABG was 122,000 ounces at AISC of $1,098 per ounce. Barrick's share of 2014 production from ABG is anticipated to be above the high end of the 430,000- to 460,000-ounce range and AISC at the low end of the $1,100- to $1,175-per-ounce range.
Global copper
Copper production in the third quarter was 131 million pounds at C1 cash costs of $1.82 per pound. Copper production guidance for 2014 has been increased to 440 million to 460 million pounds, and C1 cash costs have been narrowed to $1.90 to $2 per pound, primarily due to an earlier than expected restart of operations at Lumwana in July.
Lumwana contributed 75 million pounds at C1 cash costs of $1.84 per pound. Subsequent to quarte-end, the Zambian government proposed changes to the country's mining tax regime that would replace the current corporate income tax and variable profit tax with a 20-per-cent royalty, which, if approved, would take effect on Jan. 1, 2015. The application of a 20-per-cent royalty rate compared with the 6-per-cent royalty the company is currently paying would challenge the economic viability of the mine.
The Zaldivar mine produced 56 million pounds in the third quarter at C1 cash costs of $1.79 per pound. The mine continues to be a steady generator of free cash flow.
In July, Barrick reached an agreement to form a joint venture with Saudi Arabian Mining Company (Ma'aden) to operate the Jabal Sayid copper mine. The transaction is expected to close in the fourth quarter of 2014. First shipments of concentrate are expected in early 2016. Once the mine reaches full production, the average annual output will be 100 million pounds per year, with the potential to increase to 130 million pounds, at first-quartile C1 cash costs.
Pascua Lama project
The project is currently on care and maintenance. A decision to restart development will depend on improved economics and more certainty regarding legal and permitting matters. Barrick is in the final stages of preliminary engineering for the permanent water management system and is discussing the permitting requirements necessary to obtain approval for construction with Chilean regulators. The company is making progress on establishing a constructive dialogue with a group of 15 Diaguita indigenous communities and associations in Chile's Huasco province through a memorandum of understanding. Under the MoU, Barrick is providing these groups with technical and environmental information on Pascua Lama, along with financial resources and materials to facilitate their analysis of the information.
Barrick continues to explore opportunities to improve the project's risk-adjusted returns, including engineering optimization, partnerships, or royalty and other income-streaming agreements.
OPERATING GUIDANCE FOR 2014
Current Previous
Gold Production AISC Production AISC
(000s of ($ per ounce) (000s of ($ per ounce)
ounces) ounces)
Cortez 880-920 750-780 925-975 750-780
(high end) (low end) (high end)
Goldstrike 865-915 870-900 865-915 920-950
(high end) (low end)
Pueblo Viejo 600-700 510-610 600-700 510-610
(60%) (high end)
Lagunas Norte 570-610 590-620 570-610 640-680
(high end) (low end)
Veladero 680-720 890-920 650-700 940-990
(high end) (low end)
Total 3,700-3,900 730-780 3,800-4,000 750-800
North America 795-845 980-1,000 795-845 1,075-1,100
portfolio (high end) (low end)
Australia 1,050-1,125 885-910 1,000-1,080 1,050-1,100
Pacific (high end) (low end)
African Barrick 430-460 1,100-1,175 430-460 1,100-1,175
Gold (above high (low end) (above high (low end)
end) end)
Total gold 6,100-6,400 880-920 6,000-6,500 900-940
Copper Production C1 cash costs Production C1 cash costs
(millions of ($ per pound) (millions of ($ per pound)
pounds) pounds)
Total copper 440-460 1.90-2.00 410-440 1.90-2.10
FINANCIAL HIGHLIGHTS
(in millions of U.S. dollars, except per-share data)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2014 2013 2014 2013
Revenue $ 2,598 $ 2,985 $ 7,662 $ 9,585
Costs and expenses (income)
Cost of sales 1,642 1,788 4,924 5,430
General and administrative
expenses 98 100 283 297
Exploration and evaluation 45 48 130 154
Other expense (income) 83 169 425 406
Impairment charges 18 13 542 9,345
Loss (gain) on non-hedge
derivatives 65 (19) -- (74)
Income (loss) before finance
items and income taxes 647 886 1,358 (5,973)
Finance items
Finance income 3 2 9 7
Finance costs (198) (122) (599) (391)
Income (loss) from continuing
operations before income taxes 452 766 768 (6,357)
Income tax expense (275) (748) (687) (968)
Income (loss) from continuing
operations 177 18 81 (7,325)
(Loss) from discontinued
operations -- (9) -- (506)
Net income (loss) $ 177 $ 9 $ 81 $ (7,831)
Attributable to
Equityholders of Barrick Gold
Corp. $ 125 $ 172 $ (56) $ (7,536)
Non-controlling interests $ 52 $ (163) $ 137 $ (295)
Earnings (loss) per share data
attributable to the
equityholders of Barrick
Gold
Income (loss) from continuing
operations
Basic $ 0.11 $ 0.18 $ (0.05) $ (7.02)
Diluted $ 0.11 $ 0.18 $ (0.05) $ (7.02)
(Loss) from discontinued
operations
Basic $ -- $ (0.01) $ -- $ (0.51)
Diluted $ -- $ (0.01) $ -- $ (0.51)
Net income (loss)
Basic $ 0.11 $ 0.17 $ (0.05) $ (7.53)
Diluted $ 0.11 $ 0.17 $ (0.05) $ (7.53)
We seek Safe Harbor.
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