TORONTO, ONTARIO--(Marketwire - July 31, 2008) -
SECOND QUARTER REPORT - JULY 31, 2008
Based on US GAAP and expressed in US dollars
For a full explanation of results, the Financial Statements and Management Discussion & Analysis, full year guidance and mine statistics, please see the Company's website, www.barrick.com.
Highlights
- Barrick reported second quarter net income of $485 million ($0.56 per share) and operating cash flow of $531 million ($0.61 per share) compared to net income of $396 million ($0.46 per share) and operating cash flow of $336 million ($0.39 per share) in the prior year period. Net income rose 22% and operating cash flow increased 58% compared to the prior year period.
- Second quarter gold production was 1.86 million ounces at total cash costs of $417 per ounce(1), and copper production was 87 million pounds at total cash costs of $1.08 per pound(1).
- Higher gold prices have significantly outpaced year on year cash cost increases from energy and other inflationary pressures. Revenues expanded 20% from the year ago quarter to $2.0 billion and cash margins have increased 68% to $477 per ounce over the same prior year period.
- Significant progress continues to be made at the Company's three most advanced projects. The Buzwagi project in Tanzania is expected to produce first gold in mid-2009 and receipt of the Record of Decision for Cortez Hills in Nevada is anticipated during the second half of 2008, enabling the start of a 15 month construction period. Site work has commenced at Pueblo Viejo in the Dominican Republic, a significant number of long lead time items have been secured and approximately one-third of the capital budget has been committed or is subject to firm pricing.
- Subsequent to quarter end, the Company announced an all cash offer to purchase an oil and gas producer in Western Canada which is expected to provide a long term economic hedge of about one-quarter of Barrick's annual direct oil consumption and is intended to mitigate industry-wide energy cost challenges. Barrick has also agreed to sell certain non-core royalties to Royal Gold Inc., in exchange for $150 million in cash and a reduced royalty structure on the Crossroads deposit contiguous to the Cortez mine in Nevada.
- Barrick continues to be in line with its gold production guidance for 2008 of 7.6 - 8.1 million ounces but now expects full year production to trend towards the lower end of the range. With higher assumed energy, gold and other consumables prices, total cash costs for 2008 have been revised and are now expected to be in the range of $425 - $445 per ounce.
Barrick Gold Corporation reported Q2 production of 1.86 million ounces of gold at total cash costs of $417 per ounce compared to 1.96 million ounces produced at total cash costs of $340 per ounce for the prior year period.
Second quarter net income of $485 million ($0.56 per share) and operating cash flow of $531 million ($0.61 per share) compared to net income of $396 million ($0.46 per share) and operating cash flow of $336 million ($0.39 per share) in the prior year period. Net income rose 22% and operating cash flow increased 58% compared to the prior year period. The increase in second quarter operating cash flow was partially offset by higher inventories as well as the timing of income tax payments which are generally higher in the first and second quarters. EBITDA of $886 million was 20% higher than prior year EBITDA of $740 million(2). Reported net income included post-tax special items of $31 million that caused earnings to increase by $0.04 per share.
Higher gold prices have significantly outpaced year on year cash cost increases from energy and other inflationary pressures. Revenues expanded 20% from the year ago quarter to $2.0 billion and cash margins have risen 68% to $477 per ounce over the same prior year period despite a 91% jump in oil prices, which averaged $124 per barrel compared to $65 per barrel in the same period a year ago.
"Barrick has posted another quarter of solid financial results despite surging energy costs," said Peter Munk, Chairman and interim CEO of Barrick. "Our recent offer for Cadence Energy forms part of a long term strategy to confront energy cost challenges facing our industry and is another example of Barrick's ability to leverage its financial strength in innovative ways."
PRODUCTION AND COSTS
In Q2 2008, Barrick produced 1.86 million ounces of gold at total cash costs of $417 per ounce and realized a gold price of $894 per ounce. Higher production is anticipated for the balance of the year largely as a result of better grades at the Goldstrike operation. Production is expected to be weighted to the last quarter of the year, which is also expected to have lower cash costs than Q3.
The South American business unit produced 0.54 million ounces of gold in Q2 at total cash costs of $270 per ounce. The Lagunas Norte mine continued to benefit from positive grade reconciliations, producing 0.26 million ounces of gold at total cash costs of $135 per ounce. The Veladero mine produced 0.16 million ounces at total cash costs of $464 per ounce.
The North American business unit contributed 0.69 million ounces in Q2 at total cash costs of $448 per ounce, including 0.37 million ounces from the Goldstrike complex at cash costs of $452 per ounce. Average ore grades processed for the Betze pit in the quarter were 20% lower than the prior year period but increased 28% from Q1 as the waste stripping phase neared completion and ore started to be mined. Production and costs at Goldstrike are expected to improve in the second half, particularly in Q4, as higher grade ore is now being sourced from the open pit. A contractor fatality in April resulted in the decision to place the Getchell mine at the Turquoise Ridge JV on care and maintenance and an expected loss of about 30,000 ounces in 2008.
The Australia Pacific business unit produced 0.47 million ounces in Q2 at total cash costs of $520 per ounce. The Porgera mine contributed 0.15 million ounces at $414 per ounce, while lower grades were experienced at Plutonic, Kanowna, Cowal and Kalgoorlie. Access to higher grade ore at Cowal continues to be restricted due to a slip on the east wall, which is expected to limit production to lower grade stockpiles until Q4. Production at Plutonic was also impacted by an explosion at a gas pipeline in northwestern Australia, which resulted in a loss of gas supply.
Production from the African business unit was 0.15 million ounces in Q2 at total cash costs of $493 per ounce. The Bulyanhulu mine experienced lower mining rates due to continued effects from the illegal strike in late 2007.
Copper production of 87 million pounds was below prior year levels, primarily due to lower leach recoveries at Zaldivar as a result of acid supply shortages and also from ore grade sequencing at the Osborne mine. Copper sales were 78 million pounds at total cash costs of $1.08 per pound and a realized price of $3.65 per pound.
PROJECTS UPDATE
The Buzwagi project in Tanzania continues to remain on track and within its budgeted pre-production capital of $400 million, with about 80% of funds committed or spent. The first gold is expected in mid-2009. Buzwagi is expected to produce 250,000 - 260,000 ounces per year at estimated total cash costs of about $300 per ounce(3) based on an oil price of $100 per barrel.
Work commenced on site at Pueblo Viejo in the Dominican Republic. Dismantling of historical facilities and camp construction is underway, and an accelerated procurement plan is being advanced with approximately one-third of the pre-production capital budget, expected to be about $2.7 billion (100% basis), committed or subject to firm pricing. Post start-up, an additional $0.3 billion (100% basis) is expected to complete the phased expansion to 24,000 tonnes per day. A significant number of long lead time items have been secured, including the mills, autoclaves, tanks, oxygen plant and the entire mining fleet. In addition, almost all of the anticipated structural steel requirements have been purchased. Costs are currently tracking the capital budget, which is largely based on late 2007 input prices. The previous cash cost estimate of $250 per ounce in the first full five years of production was based on initial HFO power, which the Company is currently in the process of securing, and assumed a longer term, lower cost power supply. Assuming life-of-mine HFO power at an oil price of $100 per barrel, cash costs are expected to be in the range of $275 - $300 per ounce(3) for the first full five years of production; however, the Company continues to explore a range of options for lower cost, long term power. Proven and probable reserves at Pueblo Viejo are estimated to have increased by 9% to 22.2 million ounces (100% basis)(4). After a three and a half year construction period, Barrick's share of annual gold production in the first full five years of operation is expected to be about 600,000 ounces.
The Cortez Hills project in Nevada remains on schedule and within its initial capital budget of $480 - $500 million, with over 50% of funds committed or spent. Receipt of the Record of Decision (ROD) is anticipated in the second half, enabling the start of pre-production waste stripping and a 15 month construction period. Once Cortez Hills enters production, annual production at Cortez is expected to increase to about 1.0 million ounces annually in the first full five years at estimated total cash costs of about $300 per ounce(3) based on an oil price of $100 per barrel.
In Tanzania, Barrick's JV partner Xstrata Plc expects to complete a pre-feasibility study on the world-class Kabanga nickel sulfide deposit in the third quarter of 2008.
In Chile, work is underway to update the feasibility study at Cerro Casale. At Pascua-Lama, we are still awaiting sectoral permits in Argentina and the resolution of certain fiscal matters, including the cross-border tax agreement.
Barrick's South American region has announced plans to increase its investment in the approved wind farm in Chile by $30 million for a total cost of $70 million.
EXPLORATION(5)
The 2008 exploration budget has been increased to $225 million to reflect 100% ownership in Cortez and drilling success at a number of exploration properties.
The Company's top exploration focus remains in Nevada, where drilling focused on confirming potential at Turquoise Ridge and Cortez Hills during the second quarter.
Since acquiring Pueblo Viejo through the Placer Dome transaction, proven and probable reserves have increased by nearly 9 million ounces (100% basis), including over 2 million ounces from the Monte Oculto discovery. Current programs are focusing on three previously identified targets near the existing pit areas and the Monte Oculto deposit.
In Papua New Guinea, work has commenced on the Kora target on the Kainantu property, on the adjacent Wamun property, and on Tabar Island.
CORPORATE DEVELOPMENT
Subsequent to quarter end, Barrick made an all cash offer of Cdn$6.75 per share to acquire Cadence Energy Inc. for a total cost of Cdn$410 million. This innovative transaction is expected to form part of a long term strategy to economically hedge oil exposure at lower rates than currently available in the forward market. The formal offer is expected to be mailed to Cadence shareholders no later than August 5, 2008 and will be open for acceptance for 35 days and subject to certain customary conditions.
In July, Barrick entered into a definitive agreement to sell certain non-core royalties to Royal Gold Inc., in exchange for $150 million in cash and a reduction in various royalties that Barrick would pay to Royal Gold, including those for the Crossroads deposit which is contiguous to Barrick's Cortez mine in Nevada. Barrick is targeting the conversion of all of the existing measured and indicated resource of 1.1 million ounces(6) at Crossroads to the proven and probable reserve category by year end. The deposit has considerable upside potential that current drilling activities are targeting.
FINANCIAL POSITION
At June 30, 2008, Barrick maintained the gold industry's strongest credit rating, with a cash balance of $1.9 billion and net debt of $2.1 billion after drawing from its credit facility to complete the Cortez cash transaction. This liquidity, combined with the robust cash flows being generated, positions the Company well to continue building out its major project pipeline.
OUTLOOK
Stronger gold prices in 2008 have resulted in higher year on year cash margins. Barrick continues to be in line with its gold production guidance for 2008 of 7.6 - 8.1 million ounces but now expects full year production to trend towards the lower end of the range due to lower mining rates at Bulyanhulu; lower ore grades at Plutonic; limited access to higher grade ore at Cowal; and the impact of placing the Getchell mine on care and maintenance.
The industry is experiencing cost pressures from rising energy costs, which comprise about 25% of the Company's total operating expenditures. Accordingly, gold cash costs for the balance of the year are expected to be higher than originally planned due largely to energy costs, higher gold price related costs such as royalties and taxes, and higher costs related to consumables. Original 2008 guidance for total cash costs of $390 - $415 per ounce for gold was based on $800 per ounce gold and $90 per barrel oil price assumptions. Assuming a second half gold price of $950 per ounce and an oil price of $125 per barrel, the Company now expects total cash costs for gold for 2008 to be in the range of $425 - $445 per ounce. Of the difference between earlier and current guidance, about 30% ($10 per ounce) is related to the direct impact of higher oil and energy costs; about 15% ($6 per ounce) is related to higher royalties and taxes and about 30% ($10 per ounce) is related to increases in consumables and labor and the impact of currency movements.
The Company maintains its full year guidance for copper of 380 - 400 million pounds at total cash costs of $1.15 - $1.25 per pound but expects production to be at the low end of the range largely due to acid supply shortages which have impacted leach recoveries at Zaldivar and also from ore grade sequencing at Osborne. Cash costs per pound are also expected to trend to the higher end of guidance, largely due to higher energy costs, exchange rates and acid prices.
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.
(1) Total cash costs per ounce/pound is defined as cost of sales divided by ounces of gold sold or pounds of copper sold. Total cash costs per ounce/pound exclude inventory purchase accounting adjustments, amortization and accretion. For further information on this operating performance measure see pages 29 - 30 of the Company's MD&A.
(2) EBITDA is a non-GAAP measure. For further information on this measure, see pages 27 - 28 of the Company's MD&A.
(3) Inputs other than oil prices are as assumed in the feasibility study.
(4) Calculated in accordance with National Instrument 43-101 as required by Canadian securities regulatory authorities.
