Gold price not critical to Barrick profit’s

Facing a packed annual meeting audience and a toy version of his company’s brand new autoclave unit, American Barrick Resources (TSE) Chairman Peter Munk attempted to allay any concerns his shareholders may have over gold prices. As he noted, gold is the one and only product that Barrick produces (from six gold mines in the U.S. and Canada), and the company’s fortunes are tied to the price of the yellow metal.

Despite recent price fluctuations, he said the fundamentals behind the commodity’s supply and demand are on safe ground.

“In Russia and South Africa, where two-thirds of the world’s gold supply is produced, governments are under pressure to satisfy and meet the rising expectations of its miners,” said Munk.

Political unrest in both countries and rising demand for jewelry should keep the supply-demand equation in balance as new gold mines are brought into production, he said.

“Ultimately it doesn’t matter whether gold is trading at US$370 or US$470 per oz.,” he said. “What matters is that if you can produce the stuff for US$200 per oz. and sell it for US$370 per oz., you are still locking in a profit of close to 100%.”

Promising higher growth and profits, Munk said the company would stick to hedging to offer predictability for the long term.

In 1989, Barrick produced 467,837 oz. gold at an average cost of US$307 per oz., while realizing an average US$436 per oz., thanks to the company’s hedging program. That compares with a Commodities Exchange average of US$382 per oz.

As a result, the company’s net income of $35.8 million or 30 cents a share in 1989, compared with $30.5 million or 25 cents a share in 1988.

With its new autoclave unit installed recently at the Goldstrike mine in Nevada processing sulphides at a rate of 1,500 tons per day, Barrick’s gold output is expected to increase this year to 565,000 oz.

Commissioned in February, the autoclave combined with a 4,500- ton-per-day oxide mill has increased the amount of ore treated at Goldstrike to 6,000 tons daily.

By 1993 five more autoclave units will have been added to the operation, bringing capacity up to 12,750 tons per day, said Kenneth Thomas, Barrick’s vice-president of metallurgy and construction.

The estimated cost of that expansion has increased by about US$30 million, compared with original estimates, to US$395 million due to material costs and an upgrading in the design of the autoclaves.

Also, Barrick said it has increased its semi-annual dividend to 5 cents from 3.75 cents per common share, payable June 15 to shareholders of record May 31.