Barrick reports record free cash flow, increases dividend

Barrick Gold (TSX: ABX; NYSE: GOLD) is on track to meet its 2020 guidance of 4.6-5 million oz. gold, chief executive Mark Bristow announced on the company’s third-quarter earnings call. So far this year the major has produced 3.6 million ounces.

Operating cash flow in the three months ended Sept. 30 totalled US$1.9 billion, up from US$1.73 billion in the second quarter, and free cash flow jumped to US$1.3 billion, up from US$522 million from the previous quarter.

Adjusted net earnings in the quarter tallied US$726 million, up from US$415 million in the second quarter of the year, with adjusted net earnings per share of US41¢, up from US23¢ in the previous quarter.

Barrick said higher gold prices along with “agile management and operational efficiency” delivered strong results. Barrick cut its debt net of cash by 71% to US$0.4 billion and has no significant maturities until 2033.

The company reported all-in sustaining costs in the quarter of US$966 per oz. gold, down from US$1,031 per oz. in the second quarter, and US$2.31 per lb. for copper, up from US$2.15 per lb. in the previous quarter.

In addition, Barrick increased its third-quarter dividend to 9¢ per share, up 12.5% from the previous quarter. It is the third time the gold major has raised its quarterly dividend this year. The dividend has tripled since Barrick merged with Randgold Resources in September 2018.

“As I trust today’s results will show, in the face of an unprecedented challenge, we have been able to beat earnings consensus, reinforce our planning and capitalize on the gold price to create an industry-leading balance sheet,” Bristow said during an hour-long webcast.

While the pandemic is far from over, he added, “due to our disciplined approach to screening and quick roll-out of rapid tests to all operations … we were able to not only flatten the curve but drive it down. We are, however, all acutely aware that we need to remain vigilant as the Northern Hemisphere’s winter approaches.”

Before delving into the specifics of the third-quarter results, Bristow pointed out that “in an industry traditionally dominated by white males,” the company is “building an employee core aligned with the changing world.”

“We have a long tradition of hiring locally for both operational and managerial roles, recognizing these employees are as good as you can find anywhere and the policy leads to better team effectiveness and stability,” with about 80% local employees in Barrick’s African and Middle East region, 63% in Latin America and Asia Pacific, and 97% in North America.

The company is also hiring more women and a younger demographic, he said, adding, “it’s worth pointing out it is purely on a merit basis.”

Bristow noted that the third-quarter was its third strong three-month period in a row, and demonstrated that Barrick’s tier one assets capitalized fully on a gold price that was up 12% quarter-on-quarter, resulting in a 151% jump in free cash flow at US$1.3 billion, “the highest in the industry this quarter.”

Drilling down to the country level and starting in North America, Bristow noted that Turquoise Ridge posted slightly lower production compared with the second quarter due to autoclave maintenance and reliability upgrades as well as lower recoveries due to ore blend. “Turquoise Hill is still working through some issues and I’ve been spending a lot of time there,” he said, but noted that “the fact is, Turquoise Ridge has the highest grades and the lowest costs in Barrick’s portfolio and, even so, it’s improvement potential is enormous.” Bristow added that he continues to work with the management team as new geological and grade control measures are developed.

The mining executive noted that there is considerable upside at Turquoise Ridge and Twin Creeks, which Barrick refers to as the Turquoise Ridge complex. “We just need to build our understanding of the geological formations,” he explained. “We have sought to understand what lies between Turquoise Ridge and Twin Creeks. It’s amazing to me just how underexplored this areas is, and I believe we are making rapid progress on building that understanding.”

On the exploration side, Bristow said Nevada’s Carlin Trend “is our main hunting ground at present.”

In Alaska, Barrick’s joint venture at the Donlin project successfully completed its 2020 drill program and anticipates another drill campaign in 2021 to focus on areas that require further validation. Bristow noted that the exploration program is “driving Donlin further up the value chain.”

In Canada, where open-pit mining ended this week at Hemlo, a new underground contractor is on-site and construction has started on a new portal, which will provide access to new mining fronts and increase throughput. Barrick noted that Hemlo “has potential to grow into a tier two asset” with the possibility of extending its mine life out to 2030 and beyond. He also noted that the Black Fly zone extension to the west “looks promising” at this stage.

In the Dominican Republic, Barrick’s Pueblo Viejo mine increased production by 16%, following a plant maintenance shutdown in the second quarter and improved production costs. An environmental impact assessment for the process plant expansion was approved during the quarter. The company has also identified new satellite targets and is exploring other areas of the country.

Turning to Argentina, Bristow acknowledged that Veladero “has had a very hard time” with nationwide quarantines due to the pandemic, which has delayed the Phase 6 leach pad expansion, which is now expected to be finished in the first half of next year. The strategy at Veladero is also to find high-grade oxide mineralization to replace lower grade ounces in the current life of mine.

In addition, the country’s currency controls have further hamstrung the operation. “Due to the ongoing financial crisis in Argentina, the government has maintained currency restrictions and forced repatriation of export sales into pesos,” he said, which has resulted in Veladero implementing a “cash needs strategy,” selling only enough gold to cover its cash requirements to run the mine. But Bristow noted that the mine is Argentina’s largest dollar earner. “Our objective is to restore it to its tier one state, but there are several obstacles to overcome before we can achieve this.”

On South America more generally, Bristow said the company wanted to reinvigorate its presence in the region. “Barrick was once the leader in mining and exploration in Latin America and then withdrew to less challenging locations,” Bristow said. “Re-establishing [ourselves] … in the region was one of our top priorities after the merger.”

At Pascua Lama, ongoing modelling has identified geological and geo-metallurgical gaps that can be drill tested, while the company has 17 targets in Chile’s El Indo belt, four of which have potential for more than 2 million ounces. Its Alturas-Del Carmen project has an inferred resource of 8.9 million oz. gold.

“We have identified the potential for a tier one camp comprising four targets with a multi-million oz. potential within a 15-km range,” he said, and “added 17 targets to our resource triangle in that region.”

In Papua New Guinea (PNG), Bristow noted that he had met face to face with Prime Minister Marape on five separate occasions since the government’s decision in April not to extend Barrick’s special mining lease for Porgera. The mine has been on care and maintenance since then, but Bristow said there have been productive discussions to find a mutually acceptable arrangement to reopen the mine. The terms reached in principle are that the Barrick Niugini Ltd. (Barrick-Zijin joint-venture) will remain the mine’s operator; there will be an equitable share of economic benefits; and PNG will have a major equity stake. Efforts are underway to reach a framework agreement.

Finally, in Africa, Barrick’s Loulo mine in Mali delivered a solid performance, with development of the underground mine starting ahead of schedule. The company has also commissioned a 20 MG solar power plant, the first of its kind in the Barrick group, and is expected to save about 10 million litres of fuel per year. The Gounkoto underground development started in October, ahead of schedule, and is on track to deliver first development ore in the second quarter of next year.

Bristow noted that in Mali, as elsewhere, “the hunt remains for new ounces to replace mining depletion, [and] the Loulo-Gounkoto properties continue to yield strong results, which position us well for significant mine life extensions.”

Meanwhile in Cote d’Ivoire, “after years of trials and tribulations, the Tongon mine has settled down as a consistently solid performer and the emphasis now is to extend mine life by at least three years.” The aim is to achieve a longer mine life with added value and optionality in exchange for a slightly lower production profile.

In the Democratic Republic of Congo, Kibali also produced a good set of results, Bristow said, with the underground operation setting a new ore delivery record. In addition, the introduction of a 9 MW energy storage facility into the power grid has proved successful and will save about 4.5 million litres of fuel a year.

In Tanzania, Bristow pointed to the company’s Twiga joint-venture with the government, which paid its first dividend of US$250 million. He also noted that the Tanzanian mines – North Mara and Bulyanhulu – together had the potential to become Barrick’s seventh tier one asset, which it defines as one that can produce 500,000 oz. gold a year for at least ten years in the lower half of the industry’s cost curve.

“Tanzania continues to shape up as a major success story … by creating a relationship with the previously alienated government,” Bristow said. “North Mara has been revived with a focus on improving the underground mine and the start of an optimized open pit operation.” And mining has resumed at Bulyanhulu, with processing of fresh ore expected to start before the end of the year.