The weak gold market and fears of recession in the industrial world may be working on the minds of many gold producers, but
Barrick earned US$72 million (or US18 per share) in the three months ended March 31. Revenues for the period were US$308 million, compared with US$323 million in the first quarter of 2000, when the company also earned US$72 million. Operating cash flow was US$165 million, slightly under the US$177 million figure in the comparable quarter last year.
John Carrington, the company’s chief operating officer, told Barrick’s annual meeting in Toronto that the Bulyanhulu project in northwestern Tanzania went into production on time and on budget. Bulyanhulu, which has reserves of 21.2 million tonnes grading 14.7 grams gold per tonne, is scheduled to produce 263,000 oz. gold at a cash cost of US$166 per oz., and 2001, its first full year, should see 400,000 oz. poured.
Jamie Sokalsky, chief financial officer, pointed out that Barrick could have financed Bulyanhulu out of cash but chose to borrow US$200 million from a consortium of banks so as to conserve cash for future acquisitions.
When a shareholder asked the board, “what are you going to do with all that cash?” Randall Oliphant, chief executive officer, replied that there were three uses for it — returning it to shareholders as dividends, buying back the company’s share float, and buying more projects. Barrick has paid dividends, but Oliphant said management sees the current weak gold market as a major opportunity for acquisitions.
The year-end had left Barrick with an operating profit of US$334 million, out of revenues of US$1.33 billion. A writedown of US$1.33 billion before taxes turned the operating profit into a net loss of US$766 million, the company’s largest loss ever and its first since 1997.
The writedown was all on non-cash items, including some of the goodwill that landed on the balance sheet after the takeovers of Lac Minerals and Arequipa Resources. It didn’t affect Barrick’s cash or debt positions, which are among the biggest advantages the company enjoys in the present gold market; low debt and substantial cash reserves have allowed it to borrow at low rates and maintain a margin-free hedge book.
The most significant item in the writedowns was a charge of US$790 million against the carrying value of the Pascua-Lama project, on the border between Chile and Argentina. Barrick placed construction at Pascua-Lama on hold in December of last year, partly because the permitting process looked as if it might hold up the construction schedule but partly because, as Sokalsky put it, “Pascua does not generate a high enough return.”
Pascua is a difficult project, both because of its high altitude and its metallurgical complexity. Barrick management maintains it will eventually go into production, but the company’s own emphasis on having projects compete with one another for financing has left little doubt that Pascua is the weakest of the projects at the development stage.
Developing the adjacent Veladero project on the Argentine side, where
Homestake insists it is still treating Veladero as a priority, and early testing indicates that it does not share Pascua’s difficult metallurgy.
Another US$132 million was written down against the Pierina mine in Peru, which Barrick acquired by taking over Arequipa Resources in 1996. Pierina has been a highly successful mine, with cash costs lower than any other in the Barrick stable, but it continues to work off its acquisition and development costs (in the US$200-per-oz. range) and reserves, which stood at 84.4 million tonnes grading 2.1 grams gold at year-end, have not been replaced at the mining rate.
During 2000, the production rate at Pierina was pushed up to 850,000 oz., and the mine is expected to produce 870,000 oz. this year. While this should shrink the project’s payback time, Pierina, which started up in 1999, has about seven years left at the higher production rates if all resources are converted to reserves.
Pierina produced 206,000 oz. at a cash cost of US$43 per oz. in the first quarter.
Barrick’s two Canadian underground mines, Bousquet in Quebec and Holt-McDermott in Ontario, both had relatively high cash costs during the quarter. Bousquet, which is scheduled to close in 2003 as reserves run out, mined at US$222 per oz. At Holt-McDermott, mining during the first quarter was concentrated in the lower-grade South zone, and cash costs ran to US$193 per oz. Higher-grade material is in the mining plan for the rest of the year, and Carrington said costs at Holt would likely decline in succeeding quarters.
At El Indio in Chile, cash costs rose to US$258 per oz. from US$173 the year before, and production was lower as mill throughput declined.
At the Goldstrike mine in Nevada, quarterly production was up to 613,000 oz. from 505,000 in the first quarter of 2000. The operation had cash costs of US$175, fractionally higher than in the comparable quarter a year before.
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