Barrick sees profit at low end

Lower production and higher power costs at key mines took a bite out of Barrick Gold‘s (ABX-T) recent second-quarter earnings, but the company says it still expects year-end earnings to ring in at about US70 per share, at the lower end of previous guidance.

During the three months ended June 30, the company posted net income of US$66 million (or 17 per basic and fully diluted share) on US$333 million in revenue, compared with earnings of US$72 million (18 per share) on US$323 million in the same period of 2000. Operating cash flow for the quarter fell by US$38 million to US$130 million.

For the first half of 2001, net income tallied US$138 million (35 per share) on US$649 million in revenue, down from year 2000 first-half earnings of US$144 million (36 per share) on US$653 million in sales. Cash flow fell to US$295 million from US$345 million.

"Overall we still expect to meet the targets," says Jamie Sokalsky, Barrick’s chief financial officer. "We’ve given the guidance. We’re in good shape. We’re anticipating the rest of the year will be as solid as the first half."

Barrick produced 958,362 oz. gold at a cash cost of US$162 per oz. during the quarter, brining first-half production to 1.9 million oz. at US$157 per oz. During the same periods of 2000, the company churned out 898,996 oz. and 1.8 million oz., respectively. Cash costs were US$266 and US$285.

The bulk of first-half production came from the Goldstrike mine in Nevada, which produced 1.2 million oz. This was 17% higher than in 2001, due in part to a new roaster facility. Cash costs rose US$10 to US$185 per oz., thanks to higher power costs and lower grades. Goldstrike is expected to produce 2.3 million oz. in 2001, marginally less than the record 2.4 million oz. in 2000. Cash costs should average US$195 per oz. as grades fall at the Betze-Post deposit.

The Bulyanhulu mine in Tanzania, which began production in early April, chipped in 63,579 oz. at US$206 per oz. Year-2001 production is pegged at 250,000 oz. at US$175 per oz. Output is expected to hit about 400,000 oz. per year at US$130 per oz. in 2002.

In the first half, Barrick’s premium gold sales program realized an average price of US$340 per oz., a premium of US$74 per oz. over the average spot price of US$266 per oz. The program contributed US$139 million in revenue.

On the exploration front, proven and probable gold reserves at the Veladero property in the Argentine Andes have been nearly doubled to 8 million oz., bringing the district’s total proven reserves of 2.4 million oz. and probable reserves to 23.4 million oz., including Barrick’s nearby Pascua-Lama property. Veladero is held 60% by Barrick and 40% by Homestake Mining (HM-N).

The company says the US$2.3-billion all-share takeover of Homestake has been submitted for regulatory and Homestake shareholder approval. Both approvals are expected in the fourth quarter of 2001. The deal will put the company behind only South Africa’s AngloGold (AU-N) among gold producers.

During the second quarter, Barrick reduced its spot deferred position to 15.8 million oz. from 16.1 million oz., or about 25% of reserves, at an average realized price of US$346 per oz. After the proposed merger, the company would have about 21% of reserves hedged.

Barrick expects to produce 3.75 million oz. at US$158 apiece in 2001.

The company pegs third-quarter earnings at US17 per share.

At June 30, Barrick had US$681 million in cash and equivalents.