Barrick Gold Reports Lossws In The Second Quarter Of This Fiscal

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Oct 15, 2014

Barrick Gold Corporation (ABX, Financial) last month reported a second-quarter net loss of $269 million ($0.23 per share), reflecting an impairment charge of $514 million related to the Jabal Sayid copper project. Adjusted net earnings were $159 million ($0.14 per share). Operating cash flow and adjusted operating cash flow was $488 million.

"Second quarter all-in sustaining costs of $865 per ounce in a lower production quarter clearly demonstrate our ongoing and relentless focus on company-wide cost management," said outgoing President and CEO Jamie Sokalsky. "The commitment by our mine managers to cost reduction and capital efficiency has allowed us to lower our mid-year operating and capital cost guidance for the second year in a row."

"Going forward, we will build on the momentum we have today," said co-President Kelvin Dushnisky. "Barrick will continue to focus on maximizing free cash flow and risk-adjusted returns, with a more nimble and entrepreneurial structure focused on developing internal and external partnerships that reflect the original DNA of the company."

"Barrick has some of the best assets in the gold industry and our operations are delivering strong results," added Co-President Jim Gowans. "We still see a lot of opportunities to surface additional value and improve efficiency across our portfolio as we pursue true operational excellence."

Financial discussion

Second quarter 2014 adjusted net earnings were $159 million ($0.14 per share) compared to $663 million ($0.66 per share) in the prior year period. The decrease was primarily due to lower realized gold and copper prices and lower gold and copper sales volumes. The net loss for the second quarter was $269 million ($0.23 per share) compared to a net loss of $8.56 billion ($8.55 per share) in the prior year quarter.

Second-quarter operating cash flow of $488 million compares to $907 million in the prior year period. The decrease primarily reflects a lower gross margin. Adjusted operating cash flow of $488 million compares to $815 million in the prior year period.

Barrick continues to focus its exploration and growth efforts on Nevada. It is one of the most stable jurisdictions in the world and the company has a strong track record of proving up reserves in the region. Approximately 50 percent of Barrick's 2014 exploration budget3 is allocated to Nevada with a large majority to be used to advance Goldrush, the only significant green-field discovery by a major gold producer in the past five years. Beyond Goldrush, Barrick has several other growth opportunities and projects in Nevada near its top tier mines, including Cortez and Goldstrike, with the potential to exceed company risk-adjusted return hurdles.

The Goldrush project is located about six kilometers from the Cortez mine. It is currently in the pre-feasibility stage and the study remains on schedule for completion in mid-2015. The company is evaluating a number of development options, including underground mining or a combination of underground and open pit mining. Infill drilling is confirming continuity of high grade mineralization and supporting an underground mining scenario. During the second quarter, Barrick submitted a permit application for an exploration decline, which will help to better define the existing resource and allow the company to test for additional mineralization beyond the northern end of the deposit.

At Cortez, drilling in the Lower Zone is in the final stages of a program to upgrade and expand the resources. The Lower Zone is characterized by strong and continuous ore zones. A pre-feasibility 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.

During the second quarter, an Environmental Impact Assessment and Plan of Operations were approved for the 60 percent owned South Arturo project, another near-mine discovery which is located approximately eight kilometers northwest of Goldstrike. South Arturo has 1.7 million ounces in reserves, 2.4 million ounces4 of measured and indicated resources and 0.4 million ounces of inferred resources (100 percent basis). Barrick plans to start development in late 2015 and mine the high grade, high return portion of the resource (approximately 0.44 million ounces on a 100 percent basis) in 2016 and 2017. The bulk of the ore will be processed through Goldstrike's refractory facilities. Due to its high grade, near surface nature, the project is expected to have lower capital development and operating costs than Goldstrike.

Turquoise Ridge contains over 6.7 million ounces (100 percent basis) in reserves at an average grade of 0.51 ounces per ton, and is the highest reserve grade deposit in the company's operating portfolio. The operation is currently restricted by haulage and ventilation constraints. One option being considered is an additional shaft to reduce haulage distances. This could increase production by 75 percent for five to eight years. A pre-feasibility study on this scenario is expected to be completed in late 2014.

Pascua-Lama ramp-down complete

During the fourth quarter of 2013, Barrick announced the temporary suspension of construction at Pascua-Lama, except for activities required for environmental and regulatory compliance. The ramp-down process has been completed on schedule and budget, and the mine is now on care and maintenance. The company expects to incur costs of approximately $300 million this year, in line with original guidance, related to the ramp-down, care and maintenance activities and social and environmental obligations.

A decision to restart development will depend on improved economics and reduced uncertainty related to legal and regulatory requirements. To improve execution and cost control, remaining development will take place in distinct stages with specific work programs and budgets. Barrick continues to explore opportunities to improve the project's risk-adjusted returns, including strategic partnerships or royalty and other income-streaming agreements.

During the second quarter, Barrick signed a Memorandum of Understanding (MoU) with a group of 15 Diaguita indigenous communities and associations in Chile's Huasco province. The MoU marks a first step in establishing dialogue and working to build trust with members of this important stakeholder group. As part of the MoU, Barrick will make technical and environmental information about the Pascua-Lama project available to the communities and provide financial resources and materials required to support analysis of this information.

Operating results:

Cortez

The Cortez mine produced 0.22 million ounces at AISC of $754 per ounce in the second quarter. Production was affected by negative grade reconciliations from mining in the GAP area; however, this shortfall is expected to be partially recovered in the second half of the year with a contribution of higher grade ounces from the Cortez Hills open pit. As a result, 2014 production is expected to be at the low end of the guidance range of 0.925-0.975 million ounces and AISC are expected to be at the high end of the range of $750-$780 per ounce.

Goldstrike

Goldstrike produced 0.21 million ounces in the second quarter at AISC of $886 per ounce. Costs benefited from higher than expected production on higher grades and recoveries from the open pit operation, and lower capital stripping related to ongoing optimization of the mine plan. The autoclave facility is undergoing modifications that will enable Goldstrike to accelerate the cash flow from about 4.0 million stockpiled ounces through the addition of a patented thiosulfate process. The modified autoclaves are forecast to contribute an average of 0.350-0.450 million ounces of annual production at a similar AISC to the overall operation in the first full five years following implementation of this process. First production is on track for the fourth quarter of 2014. Production at Goldstrike for 2014 is expected to be at the high end of the guidance range of 0.865-0.915 million ounces and AISC at the low end of the range of $920-$950 per ounce. In 2015, production is expected to exceed 1.0 million ounces6 with contributions from the modified autoclaves.

Pueblo Viejo

Barrick's 60 percent share of production from Pueblo Viejo in the second quarter was 0.16 million ounces at AISC of $587 per ounce. The autoclaves have achieved targeted and sustainable run rates but will undergo some planned downtime related to scheduled maintenance in the second half of the year. Production for 2014 is expected to be in the range of 0.600-0.700 million ounces and AISC to be at the high end of the range of $510-$610 per ounce as a result of higher sustaining capital expenditures, primarily due to an increase in capitalized stripping costs.

Lagunas Norte

Lagunas Norte produced 0.12 million ounces at AISC of $593 per ounce in the second quarter. Production was impacted by a construction delay on the new Phase 5 area of the leach pad, which resulted in ore being placed at higher levels of the existing leach pad. Higher grades are anticipated in the second half of the year, as well as faster recoveries from the new leach pad area which is expected to be in operation in the third quarter. Production for 2014 is expected to be at high end of the guidance range of 0.570-0.610 million ounces and AISC at the low end of the range of $640-$680 per ounce.

Veladero

The Veladero mine had a strong quarter, producing 0.19 million ounces at AISC of $740 per ounce. Costs benefited from higher silver credits in the first half of the year. AISC are expected to be higher in the second half of the year primarily due to the timing of sustaining capital expenditures and also from lower silver credits as ore will be sourced mainly from a different pit. Production in 2014 is anticipated to be at the high end of the guidance range of 0.650-0.700 million ounces and AISC at the low end of the range of $940-$990 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 0.21 million ounces in the second quarter at AISC of $973 per ounce and is anticipated to produce 0.795-0.845 million ounces in 2014 at the low end of the AISC guidance range of $1,075-$1,100 per ounce.