Ms. Angela Parr reports
BARRICK REPORTS SECOND QUARTER 2016 RESULTS
Barrick Gold Corp. had net earnings of $138-million (12 cents per share) for the second quarter and adjusted net earnings of $158-million (14 cents per share). Second quarter EBITDA (earnings before interest, taxes, depreciation and amortization) was $881-million. Second quarter revenues were $2.01-billion and operating cash flow was $527-million. The company generated $274-million in free cash flow in the second quarter, marking five consecutive quarters of positive free cash flow.
Highlights (all amounts expressed in U.S. dollars):
- Barrick reported net earnings of $138-million (12 cents per share) and
adjusted net earnings of $158-million (14 cents per share) for the
second quarter. Second quarter EBITDA was $881-million.
-
The company reported revenues of $2.01-billion in the second quarter
and net cash provided by operating activities
was $527-million. Barrick generated $274-million in free cash flow in
the second quarter, marking five consecutive quarters of positive free
cash flow.
- Gold production in the second quarter was 1.34 million ounces at a cost
of sales applicable to gold of $1.23-billion and all-in sustaining
costs of $782 per ounce.
- Compared with the first half of 2015, cost of sales applicable to gold has
declined by 14 per cent to $2.43-billion. Over the same period, Barrick has
reduced its all-in sustaining costs by 19 per cent.
-
For the full year, Barrick expects cost of sales applicable to gold to be in
the range of $5.2-billion to $5.5-billion. All-in sustaining cost guidance for
2016 has been reduced to $750 to $790 per ounce, down from $760 to $810 per
ounce at the end of the first quarter, and below the company's original 2016
guidance of $775 to $825 per ounce. Barrick continues to expect gold production
of 5.0 million to 5.5 million ounces for the year.
-
Barrick has reduced total debt by $968-million year to date and remains on
track to achieve its $2-billion debt reduction target for the year.
-
Commercial production has commenced at the Jabal Sayid copper mine in
Saudi Arabia. Reflecting this milestone, Barrick has increased its 2016
copper guidance to 380 million to 430 million pounds, up from the original guidance
of 370 million to 410 million pounds.
Second quarter cost of sales applicable to gold was $1.23-billion, a reduction of 13 per cent compared with the prior-year period. Production in the quarter was 1.34 million ounces of gold at all-in sustaining costs of $782 per ounce. Barrick continues to expect full-year production of 5.0 million to 5.5 million ounces of gold. It expects cost of sales applicable to gold for 2016 to be in the range of $5.2-billion to $5.5-billion. It has reduced its all-in sustaining cost guidance to $750 to $790 per ounce, down from its most recent range of $760 to $810 per ounce.
Barrick's operations continued to deliver robust performance in the second quarter, demonstrating capital discipline, improved operational efficiency and productivity, and stronger cost management as the company targets best-in-class performance. This is driving growing margins and profitability across the entire business, in support of the company's overriding objective to grow free cash flow per share. At the same time, Barrick continues to strengthen its balance sheet with nearly $1-billion in debt repayments completed so far this year or roughly half of its $2-billion debt reduction target for 2016. Lower debt levels have better positioned the company to withstand gold price volatility while setting it up to invest in future growth.
Barrick has the industry's largest gold reserves and resources, with an average reserve grade significantly higher than its peer group average. This represents an immense source of value and optionality for the company. Barrick's growth group is actively advancing a strategy to grow the company's free cash flow per share by allocating capital to the opportunities with the best returns. Barrick is pursuing a multifaceted approach that will optimize the development of its existing reserves and resources, invest in exploration to discover the next major deposit, and assess external opportunities for acquisitions, seed financing, earn-ins, and other partnerships and joint ventures. Ultimately, the investments Barrick makes will be focused on growing its free cash flow per share while maintaining strict capital discipline, such that the company is continuously upgrading the long-term value of its portfolio. Barrick's existing operations will also contribute to growth by achieving step changes in performance that will drive down its cost structure and expand margins. The company will do this by leveraging innovation and new technology, which is a core pillar of its best-in-class philosophy.
Financial highlights
Second quarter net earnings were $138-million (12 cents per share), compared with a net loss of $9-million (one cent per share) in the prior-year period. Adjusted net earnings for the second quarter were $158-million (14 cents per share), compared with $60-million (five cents per share) in the prior-year period. Higher net earnings reflect a decrease in operating costs, particularly lower fuel and energy prices (even when factoring in fuel hedges above spot prices), favourable foreign exchange movements, reduced royalty expense and the impact of best-in-class initiatives, including lower labour, contractor and consumable costs and other operating efficiencies. In addition, earnings benefited from lower exploration, evaluation and project expenses. The company generated $881-million of EBITDA in the second quarter, compared with $690-million in the prior-year period.
Second quarter revenues were $2.01-billion, compared with $2.23-billion in the prior-year period. Operating cash flow in the second quarter was $527-million, compared with $525-million in the second quarter of 2015. Despite lower production as a result of non-core asset sales, operating cash flow remained in line with the prior-year period. This was driven by higher gold prices and lower operating costs, as a result of lower energy and fuel costs, combined with lower labour, consumable and contractor costs, and improved operating efficiencies driven by best-in-class initiatives. These gains were partially offset by an increase in working capital, combined with the impact of higher income taxes paid, compared with the prior-year period.
Free cash flow for the second quarter was $274-million, marking five consecutive quarters of positive free cash flow. This reflects the company's driving focus on maximizing free cash flow per share through capital discipline, improved operational efficiency and productivity, and stronger cost management.
Restoring a strong balance sheet
Strengthening the balance sheet remains a top priority. In 2016, Barrick intends to reduce its total debt by at least $2-billion by drawing on its existing cash balance, and by maximizing free cash flow from operations, as well as potential non-core asset sales.
So far this year, Barrick has reduced its total debt by $968-million, representing approximately half of its debt reduction target for the year.
The company will continue to pursue non-core asset sales with discipline and will only proceed with transactions that make sense for the business, on terms it considers favourable to its shareholders.
In this regard, Barrick intends to initiate a process to explore the sale of its 50-per-cent stake in the KCGM operation in Western Australia.
The company's liquidity position is strong and continues to improve, underpinned by free cash flow generation across the business and modest near-term debt repayment obligations. At the end of the second quarter, Barrick had a consolidated cash balance of approximately $2.4-billion. The company now has less than $150-million in debt due before 2018, and about $5-billion of its outstanding debt of $9-billion does not mature until after 2032. Over the medium term, Barrick aims to reduce its total debt to below $5-billion.
Operating highlights and outlook
Barrick's overarching objective as a business is to grow its free cash flow per share. In support of this objective, the company is focused on driving industry-leading margins by improving the productivity and efficiency of its operations. This means a continuous, relentless cycle of improvement and innovation, underpinned by its best-in-class program. Barrick's aspiration is to achieve all-in sustaining costs below $700 per ounce by 2019.
Barrick produced 1.34 million ounces of gold in the second quarter at a cost of sales of $1.23-billion, compared with 1.45 million ounces at a cost of sales of $1.41-billion in the prior-year period. All-in sustaining costs in the second quarter were $782 per ounce, compared with $895 per ounce in the second quarter of 2015. Excluding the impact of divested mines, production for the second quarter increased by 126,000 ounces.
Compared with the first half of 2015, cost of sales applicable to gold declined by 14 per cent to $2.43-billion, primarily due to fewer ounces sold as a result of divestments. Cost of sales at Barrick's remaining operations was in line with the prior-year period, with higher grades and sales volumes offset by a decrease in direct mining costs. Compared with the first half of 2015, all-in sustaining costs have fallen by 19 per cent. These reductions reflect decreased direct mining costs, particularly lower fuel and energy prices, reduced royalty expense, and the impact of best-in-class initiatives, including lower labour, contractor and consumable costs, and more predictive and precise maintenance. Lower mine site sustaining capital expenditures and a higher proportion of production from lower cost operations also contributed to lower all-in sustaining costs.
Please see Barrick's second quarter 2016 management discussion and analysis (MD&A) for individual operating segment performance details.
Barrick continues to expect full-year gold production of 5.0 million to 5.5 million ounces. For the full year, the company expects cost of sales applicable to gold to be in the range of $5.2-billion to $5.5-billion. It has reduced its all-in sustaining cost guidance for 2016 to $750 to $790 per ounce, down from $760 to $810 per ounce at the end of the first quarter, and below the original 2016 guidance of $775 to $825 per ounce. All-in sustaining costs are now expected to be highest in the third quarter, reflecting a shift in the timing of certain sustaining capital expenditures to the second half of the year.
Capital expenditures for 2016 are now expected to be $1.25-billion to $1.40-billion, down from $1.35-billion to $1.55-billion at the end of the first quarter, and below the original 2016 guidance range of $1.35-billion to $1.65-billion.
As it continues to embed best-in-class initiatives across the portfolio, Barrick expects to identify additional savings opportunities over the course of the year.
Second quarter Current Original
of 2016 2016 guidance 2016 guidance
Gold
Production (thousands of
ounces) 1,340 5,000 to 5,500 5,000 to 5,500
Cost of sales applicable to
gold (millions of dollars) 1,227 5,200 to 5,500 not applicable
All-in sustaining costs
($ per ounce) 782 750 to 790 775 to 825
Cash costs ($ per ounce) 578 540 to 570 550 to 590
Copper
Production (millions of
pounds) 103 380 to 430 370 to 410
Cost of sales applicable to
copper (millions of dollars) 79 275 to 320 not applicable
All-in sustaining
costs ($ per pound) 2.14 1.95 to 2.25 2.05 to 2.35
C1 cash costs ($ per pound) 1.52 1.35 to 1.65 1.45 to 1.75
Total capital
expenditures (millions of dollars) 284 1,250 to 1,400 1,350 to 1,650
Mine site guidance updates
Based on improved operational performance, Barrick now anticipates higher production and lower costs at both Cortez and Turquoise Ridge. Cortez is now expected to produce 980,000 to 1.05 million ounces of gold at all-in sustaining costs of $520 to $550 per ounce, compared with the company's previous guidance range of 900,000 to one million ounces at all-in sustaining costs of $580 to $640 per ounce. At Turquoise Ridge, Barrick's share of production is now anticipated to be in the range of 240,000 to 260,000 ounces of gold at all-in sustaining costs of $640 to $700 per ounce, compared with the previous guidance range of 200,000 to 220,000 ounces at all-in sustaining costs of $770 to $850 per ounce.
Reflecting the impact of severe winter weather conditions in the first half of 2016, Barrick now expects full-year gold production at Veladero to be in the range of 580,000 to 640,000 ounces, down from the previous guidance of 630,000 to 690,000 ounces. All-in sustaining cost guidance remains unchanged at $790 to $860 per ounce.
Copper
Copper production in the second quarter was 103 million pounds at a cost of sales of $79-million and all-in sustaining costs of $2.14 per pound. The Jabal Sayid project, a 50-50 joint venture with Saudi Arabian Mining Company (Ma'aden), commenced commercial production on July 1. Barrick's share of 2016 copper production from Jabal Sayid is expected to be 10 million to 20 million pounds at all-in sustaining costs of $2.80 to $3.10 per pound. The mine is expected to ramp up to a production rate of about 100 million pounds per year in the second half of 2017, as additional underground development is completed.
Reflecting the start of commercial production at Jabal Sayid, Barrick has increased its copper production guidance for 2016 to 380 million to 430 million pounds, up from the original guidance of 370 million to 410 million pounds. For the full year, the company expects cost of sales applicable to copper to be in the range of $275-million to $320-million. Copper all-in sustaining cost guidance remains unchanged at $1.95 to $2.25 per pound.
In June, 2016, the Zambian government passed legislation to amend the royalty tax for mining operations to a variable rate based on the prevailing copper price, effective June 1, 2016. These rates are 4 per cent at copper prices below $2.04, 5 per cent at copper prices between $2.04 and $2.72, and 6 per cent at copper prices of $2.72 and above. Legislation was also passed to remove the 15-per-cent variable profit tax on income from mining companies. Barrick's 2016 copper guidance takes into consideration the revised royalty rates commencing June 1.
Best-in-class in action
Pueblo Viejo autoclaves case study
Applying creative thinking and knowledge to unlock potential
The key to unlocking the massive refractory orebody at Pueblo Viejo rests within four giant autoclaves, the largest ever used in the gold mining industry. Each autoclave weighs 780 tonnes, and is roughly 38 metres long and six metres in diameter, about as wide as a Boeing 747 fuselage. Improving the availability and throughput of the autoclaves has the potential to unlock substantial value for the mine.
Until recently, each autoclave has required, on average, a 22-day maintenance shutdown every six months. Large metal walls that separate the compartments inside each autoclave begin to fail as a result of the forces generated by continuous agitation of the ore slurry. A buckled or failed wall can interfere with normal operation, damaging the agitator blades and shafts, and accelerating the buildup of scale and sand, thereby requiring frequent maintenance.
Challenging and pushing past technical limits are a critical component of Barrick's best-in-class philosophy. Faced with this challenge, the team at Pueblo Viejo came up with a plan to increase autoclave availability and throughput by extending the period between maintenance shutdowns from every six months to every seven or potentially eight months.
To achieve this, the team applied Barrick's extensive autoclave operating experience to propose a number of critical modifications to the autoclaves. High oxidization rates inside the autoclaves implied the number of interior compartments could be reduced, thereby mitigating the buildup of scale and the associated maintenance requirements. However, the remaining compartment walls would continue to fail at a similar rate, limiting the potential gains. To solve this problem, the team worked with an engineering partner to develop a new design for the interior compartment walls. The design better integrates the walls into the autoclaves using stronger titanium structure sections, improved bracing and larger bolts.
The new walls have been successfully installed in two of the mine's four autoclaves. Initial results have been positive, indicating that increased run time between shutdown maintenance is achievable. If successful in all four autoclaves, this initiative has the potential to increase throughput at Pueblo Viejo by 240,000 tonnes per year (basis of 100 per cent), increasing autoclave availability from 84 per cent to 86.5 per cent, driving increased production, lower unit costs and additional free cash flow from the operation. Other benefits include reducing materials cost for autoclave maintenance work (spare parts, valves and ancillary equipment) and reducing contractor costs, due to fewer shutdowns per year.
Goldstrike open-pit haulage case study
When challenging conventional wisdom pays off
Over nearly 30 years of managing one of the largest open-pit gold mines in the world, conventional wisdom at Goldstrike suggested that the technical limit for open-pit haul truck utilization was 79 per cent, taking into account the mine runs two open pits seven miles apart. In simple terms, for every hour of potential operating time, the average truck achieved about 48 minutes of productive work time. At the end of 2015, the mine was operating a fleet of 29 Komatsu 930 haul trucks.
Motivated by a desire to challenge conventional wisdom in pursuit of best-in-class performance, the open-pit team at Goldstrike evaluated how to increase haul truck availability to a level the mine had never achieved. Drawing on other experiences from across the industry, the team came up with a concept that allows some haul trucks to be parked, while significantly increasing utilization of the trucks remaining in service. The secret was breaks but not the brakes on the trucks. Typically, when haul truck drivers at Goldstrike were scheduled to take a break, they simply pulled over in a safe location and enjoyed a rest, usually spent inside the cab of the truck itself. This had trucks idling, rather than engaging in productive work.
Earlier this year, Goldstrike began testing a new system. The mine is in the process of installing a series of modular break rooms at strategic locations around the open pit where drivers can rest. While drivers are on break, relief drivers take over operation of the trucks. In just six months, the results have been impressive -- a 6-per-cent improvement in haul truck utilization in the open pit, moving from 79 per cent to 85 per cent, and six haul trucks taken out of the fleet. Today, the mine is moving the same amount of material in the open pit, with fewer trucks. This initiative, combined with other improvement projects, has helped to reduce open-pit mining costs at Goldstrike from $1.40 per tonne at the start of the year to $1.25 per tonne today. The shift to using properly configured break rooms also increases safety, by promoting a more restful environment for operators.
As often happens, when you remove one bottleneck, other opportunities for improvement present themselves. The open-pit team is now evaluating how to further optimize shovel use at the mine, matching the right shovels with the right haulage plans and ore types.
Technical information
The scientific and technical information contained in this news release has been reviewed and approved by Steven Haggarty, PEng, senior director, metallurgy, of Barrick who is a qualified person, as defined in National Instrument 43-101, standards of disclosure for mineral projects.
UPDATED 2016 OPERATING AND CAPITAL EXPENDITURE GUIDANCE
All-in
Production sustaining
(millions of Cost of sales costs Cash costs
ounces) ($ millions) ($ per ounce) ($ per ounce)
Gold production
and costs
Cortez 0.980 to 1.050 520 to 550 430 to 450
Goldstrike 0.975 to 1.075 780 to 850 560 to 610
Pueblo Viejo
(60%) 0.600 to 0.650 550 to 590 420 to 450
Lagunas Norte 0.410 to 0.450 580 to 630 410 to 450
Veladero 0.580 to 0.640 790 to 860 520 to 570
-------------- -------------- ------------
Subtotal 3.500 to 3.900 650 to 700 480 to 510
-------------- -------------- ------------
Porgera (47.5%) 0.230 to 0.260 850 to 960 650 to 730
Acacia (63.9%) 0.480 to 0.500 950 to 980 670 to 700
KCGM (50%) 0.350 to 0.365 670 to 700 610 to 630
Hemlo 0.215 to 0.230 800 to 850 650 to 690
Turquoise Ridge
(75%) 0.240 to 0.260 640 to 700 480 to 520
Golden Sunlight 0.030 to 0.045 1,080 to 1,130 990 to 1,100
-------------- -------------- -------------- ------------
Total gold 5.000 to 5.500 5,200 to 5,500 750 to 790 540 to 570
============== ============== ============== ============
All-in
Production sustaining C1
(millions of Cost of sales costs cash costs
ounces) ($ millions) ($ per ounce) ($ per ounce)
Copper production
and costs
Zaldivar (50%) 100 to 120 2.20 to 2.40 1.70 to 1.90
Lumwana 270 to 290 1.80 to 2.10 1.20 to 1.50
Jabal Sayid
(50%) 10 to 20 2.80 to 3.10 1.90 to 2.20
---------- ---------- ------------ ------------
Total copper 380 to 430 275 to 320 1.95 to 2.25 1.35 to 1.65
========== ========== ============ ============
($ millions)
Capital expenditures
Mine site sustaining 1,100 to 1,200
Project 150 to 200
--------------
Total capital expenditures 1,250 to 1,400
==============
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per-share amounts)
Three months Six months
ended ended
June 30, June 30,
2016 2015 2016 2015
Revenue $ 2,012 $ 2,231 $ 3,942 $ 4,476
--------- --------- --------- ---------
Costs and expenses (income)
Cost of sales 1,336 1,689 2,660 3,397
General and administrative expenses 88 70 146 137
Exploration, evaluation and project
expenses 56 97 111 183
Impairment charges 4 35 5 40
Loss on currency translation 23 33 162 31
Closed mine rehabilitation 7 (19) 30 (11)
Income from equity investees (3) - (8) -
(Gain) loss on non-hedge derivatives 1 8 (3) 11
Other expense (income) (11) 32 3 14
--------- --------- --------- ---------
Income before finance costs and
income taxes 511 286 836 674
Finance costs, net (162) (192) (373) (386)
--------- --------- --------- ---------
Income before income taxes 349 94 463 288
Income tax expense (note 10) (173) (103) (359) (208)
--------- --------- --------- ---------
Net income (loss) $ 176 $ (9) $ 104 $ 80
========= ========= ========= =========
Attributable to
Equityholders of Barrick Gold $ 138 $ (9) $ 55 $ 48
Non-controlling interests $ 38 $ - $ 49 $ 32
Earnings (loss) per share
attributable to the equityholders
of Barrick Gold
Net income (loss)
Basic $ 0.12 $ (0.01) $ 0.05 $ 0.04
Diluted $ 0.12 $ (0.01) $ 0.05 $ 0.04
We seek Safe Harbor.
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