Barrick Gold Corporation (USA) (NYSE:ABX) reported a net loss of $9 million ($0.01 per share) for the second quarter, with adjusted net earnings of $60 million ($0.05 per share). Free cash flow was $26 million, compared to negative free cash flow of $128 million in the prior year period. Operating cash flow in the second quarter was$525 million. Second quarter adjusted EBITDA was $725 million1. On an unadjusted basis, EBITDA was $690 million1.
Gold production guidance for 2015 has been adjusted to 6.1-6.4 million ounces to reflect the impact of divestments, with production 55 percent weighted to the second half of the year. Costs are expected to be 10 percent lower in the second half of 2015. Full-year all-in sustaining cost guidance is $840-$880 per ounce, down from $860-$895 per ounce.
The implementation of a lean, decentralized operating model designed to maximize free cash flow and take costs out of the business has helped to mitigate the impact of recent gold price declines. We have cut $300 million in capital spending so far this year and are on track to achieve $90 million in reduced general and administrative (G&A) expenditures by 2016. We have also made significant progress on our debt reduction target. Our current focus is on improving productivity and reducing operating costs to ensure our business is robust enough to generate a 10-15 percent return on invested capital through the metal price cycle.
Strengthening The Balance Sheet
Earlier this year, we set a debt reduction target of $3 billion for 2015. Thus far, we have announced agreements representing$2.45 billion from asset sales, joint ventures and streaming. In addition, we have also retired approximately $250 million in debt using cash on hand in the first half of this year. Collectively, these actions represent $2.7 billion, or 90 percent of our target. Transactions announced to date include:
- Sale of 100 percent of the Cowal mine for $550 million in cash, further focusing the geographic footprint of our portfolio by divesting the last Barrick-operated mine in Australia.
- Sale of a 50 percent interest in Barrick (Niugini) Ltd. for $298 million in cash2, establishing a long-term strategic partnership with China’s Zijin Mining.
- Sale of a 50 percent interest in the Zaldívar copper mine for $1.005 billion in cash2, realizing significant value from a non-core operation while maintaining a sizeable stake in this cash-generating asset. This transaction has also resulted in a new partnership with Antofagasta Plc, one of the world’s leading copper companies, with significant opportunities to collaborate on potential projects in the future.
- Streaming agreement on a portion of Barrick’s share of gold and silver production from Pueblo Viejo for $610 million in cash2, structured to maintain significant exposure to higher metal prices.
With a $4 billion undrawn credit facility and $2.1 billion in cash on hand at the end of the second quarter, we will continue to pursue our debt reduction target in a disciplined manner and will take only those actions that make sense for the business, on terms we consider favorable to our shareholders.
Additional asset divestments
Over the last several months, Barrick has received a number of proposals and expressions of interest relating to the proposed acquisition of various non-core assets in Nevada and Montana. Over the next several weeks, we intend to commence a formal process to sell Bald Mountain, Round Mountain (50 percent interest), Spring Valley (70 percent interest), Ruby Hill, Hilltop and Golden Sunlight. These assets represent an attractive portfolio of producing and development-stage assets in a politically stable and highly prospective region.
Our strategy is focused on maximizing free cash flow per share from a portfolio of high-quality gold assets in our core regions, underpinned by disciplined capital allocation and operational excellence. In the past six months, we have taken significant actions to improve our business plans, resulting in positive free cash flow in the second quarter. We remain focused on improving productivity and driving down costs to ensure we can continue to generate free cash flow in the current gold price environment.
Anticipating the potential for weaker gold prices in the second half of 2015, we challenged our leaders to cut spending by $1 billion. We have now increased this target. By the end of 2016, we are targeting $2 billion in reduced expenditures across the company. These reductions will come from operating expenses, capital spending and corporate overhead. We have identified$1.4 billion in potential opportunities to date. This will strengthen the resilience of our portfolio in a lower gold price environment, while positioning us to deliver stronger margins when gold prices recover.
These efforts are benefiting from the outcomes of our Value Realization reviews, which have now been completed for all operations. This process has identified concrete projects to maximize free cash flow, extend mine lives and lower costs. The reviews also support non-core asset sales by ensuring we understand the full value of every mine before proceeding with any divestiture. For details on key Value Realization opportunities identified at Lagunas Norte and Pueblo Viejo, please see Appendix 1 on page 9. For certain related risk factors, please see the cautionary statement on forward-looking information at the end of this press release.
We have also carried out a series of scenario planning exercises that detail actions we can take to optimize mine plans and increase flexibility in a lower gold price environment. These actions include:
- Adjust life-of-mine plans to maximize short-term free cash flow
- Place higher-cost operations on temporary care and maintenance
- Defer stripping activities
- Close or divest mines that do not meet capital allocation objectives
- Increase cut-off grades
- Reduce mining/processing rates
- Further reduce G&A and exploration
- Further reduce sustaining capital
- Process higher-grade stockpiles
As we continue to review all expenditures for 2015 and 2016, we are cancelling or deferring spending that does not meet our capital allocation objectives, which include, first and foremost, the ability to meet a hurdle rate of 15 percent. In the second quarter, we identified $240 million in reductions that have now been removed from our plans. Total capital expenditures for 2015 are now expected to be $1.6-$1.9 billion, 20 percent lower than in 2014.
Exploration expenditures are now expected to be $180-$220 million, a reduction of 17 percent from our original 2015 guidance. Sixty-five percent of our exploration budget is allocated to mine site exploration, with 35 percent directed at greenfield projects, primarily on our newest discovery Alturas and the El Indio belt.
Reductions identified in the second quarter include:
- Sustaining capital reduced by $100 million to $1.4-$1.6 billion;
- Expansion capital reduced by $50 million to $100-$150 million, driven by efficiencies and reductions at Turquoise Ridge,Cortez and Ruby Hill;
- Project capital reduced by $50 million to $100-$150 million, primarily reflecting reductions at Pascua-Lama and Spring Valley; and
- Exploration budget reduced by $40 million to $180-$220 million, focusing expenditures on our most promising opportunities where we see the highest potential returns.
We are focused on reducing costs and improving productivity across the entire business. Excluding severance and one-time costs, the company is on track to capture approximately $50 million in savings from reduced G&A expenditures and overhead costs in 2015, exceeding our original target of $30 million for the year. We expect to reach $90 million in annualized G&A savings by 2016.
Second quarter 2015 adjusted net earnings were $60 million ($0.05 per share) compared to $159 million ($0.14 per share) in the prior year period. The net loss for the quarter was $9 million ($0.01 per share) compared to a net loss of $269 million($0.23 per share) in the prior year quarter. Lower adjusted net earnings reflect lower gold sales and lower realized gold and copper prices compared to the prior year period. Significant adjusting items for the quarter (net of tax and non-controlling interest effects) include:
- $22 million in impairment charges primarily related to power assets at Pueblo Viejo;
- $30 million in unrealized foreign currency translation losses;
- $17 million in costs related to the closure of our Perth office; and
- A $15 million positive adjustment reflecting the impact of the increase in the discount rate used to calculate the provision for environmental remediation at closed mines.
Second quarter adjusted EBITDA was $725 million compared to $990 million in the prior year period. On an unadjusted basis, EBITDA was $690 million for the second quarter compared to $478 million in the prior year period. Operating cash flow was$525 million compared to $488 million in the prior year period. The company generated positive free cash flow of $26 millionin the second quarter compared to an outflow of $128 million in the prior year period, reflecting higher operating cash flow and lower capital expenditures as a result of the company’s continued emphasis on rigorous capital discipline.
The Board of Directors has decided to reduce the company’s quarterly dividend by 60 percent, from five cents per share totwo cents per share. The Board believes this reduction is a prudent measure to increase financial flexibility in light of current market conditions. The dividend will be paid on September 15, 2015 to shareholders of record at the close of business onAugust 31, 20153.
The Board has approved a Dividend Reinvestment Plan (the “DRIP”), which we intend to make available to eligible shareholders for the first time with payment of the above-mentioned dividend on September 15, 2015 to shareholders of record on August 31, 2015. The DRIP will allow registered or beneficial holders of Barrick’s common shares who reside inCanada or the United States to reinvest cash dividends paid on their common shares in additional common shares at a discount to the average market price (as defined in the DRIP), currently set at three percent and subject to change at the discretion of the Board. Additional details about the DRIP and enrollment instructions will be provided at a later date.
Operating Highlights And Guidance
Reflecting the divestiture of Cowal and 50 percent of Barrick (Niugini) Ltd., 2015 gold production is now anticipated to be 6.1-6.4 million ounces at reduced AISC of $840-$880 per ounce. Production is 55 percent weighted to the second half of the year, primarily due to higher planned production at Goldstrike, Cortez and Pueblo Viejo. Third quarter AISC are expected to be lower than our AISC in the first half of the year, and fourth quarter AISC are expected to be significantly lower than the third quarter, driven largely by higher production at Goldstrike, Pueblo Viejo and Cortez in the second half of the year.
Total copper guidance for 2015 remains unchanged at 480-520 million pounds at C1 cash costs of $1.75-$2.00 per pound3.
|Gold||2015||2015 Guidance||2015 Guidance|
|Production (000s of ounces)5||1,445||6,100-6,400||6,200-6,600|
|AISC ($per ounce)||895||840-880||860-895|
|Cash costs ($per ounce)4||624||600-640||600-640|
|Production (millions of pounds)||115||480-520||310-340|
|C1 cash costs ($per pound)||1.94||1.75-2.00||1.75-2.00|
|Total Capital Expenditures ($millions)6||414||1,600-1,900||1,900-2,200|
The Cortez mine produced 193,000 ounces at AISC of $811 per ounce in the second quarter. Production benefited from positive grade reconciliations in the Cortez Hills open pit and improved underground productivity, as well as from some initial treatment of refractory ore through Goldstrike’s thiosulfate (TCM) process. AISC were positively impacted by higher production, lower operating costs and lower sustaining capital. Production in 2015 is forecast to be 825,000-900,000 ounces at AISC of $760-$835 per ounce. Production in the second half is fourth-quarter weighted as the open pit transitions into higher-grade ore and as the ramp-up of the TCM circuit at Goldstrike allows for additional processing of refractory ore from Cortez.
The Goldstrike mine contributed 206,000 ounces in the second quarter, in line with plan. AISC of $732 per ounce were better than expected on higher tonnes and grades from the underground operation, as well as lower sustaining capital. Grades and recoveries from the TCM circuit continue to be consistent with feasibility results. Several adjustments were implemented to improve the throughput of the circuit during the commissioning phase and the process is expected to ramp up on schedule this year. Production and AISC guidance for 2015 is 1.00-1.15 million ounces and $700-$800 per ounce. The third quarter is expected to be the stronger of the two remaining quarters on higher anticipated open pit grades.
Barrick’s 60 percent share of production from Pueblo Viejo for the second quarter was 131,000 ounces at AISC of $682 per ounce. Production in the quarter was lower than planned due to lower gold recoveries, largely related to a higher proportion of carbonaceous ore. AISC were also impacted by lower silver recoveries associated with a temporary shutdown of the lime boil process during scheduled autoclave maintenance. Recent modifications to the lime boil are showing significantly improved silver recoveries and the first copper concentrate was shipped in the second quarter. Attributable production in 2015 is forecast to be 625,000-675,000 ounces at AISC of $540-$590 per ounce. Production is expected to be higher and costs lower in the fourth quarter compared to the third quarter on higher-expected grades, improved recoveries and better autoclave availability, as maintenance shutdowns were weighted to the first half of 2015.
The Lagunas Norte mine contributed 155,000 ounces at AISC of $509 per ounce in the second quarter. Production was in line with expectations while AISC were better than plan on lower sustaining capital. Production in 2015 is anticipated to be 600,000-650,000 ounces at AISC of $600-$650 per ounce.
The Veladero mine produced 151,000 ounces of gold in the second quarter, in line with plan. AISC of $961 per ounce benefited from higher than expected sales and lower sustaining capital. Production guidance for 2015 is 575,000-625,000 ounces at AISC of $950-$1,035 per ounce, with second half costs expected to be highest in the third quarter related to capitalized stripping and sustaining capital, as well as lower byproduct credits.
The Turquoise Ridge mine contributed 52,000 ounces (75 percent basis), in line with expectations. AISC of $780 per ounce reflect higher sustaining capital associated with the focus on growing production and improving ventilation. Costs are expected to be highest in the third quarter related to these efforts as well as to feasibility and detailed engineering work for the second shaft project. The mine is forecast to produce 175,000-200,000 ounces (75 percent basis) in 2015 at AISC of $775-$825 per ounce.
The Porgera mine produced 118,000 ounces (95 percent basis), slightly below plan on lower open pit grades. AISC of $1,128per ounce were lower than expected as a result of lower capitalized stripping costs due to fewer waste tonnes mined and lower sustaining capital. Reflecting the partial divestiture, attributable production in 2015 is now expected to be 400,000-450,000 ounces at AISC of $1,025-$1,125 per ounce.
Barrick’s other mines – consisting of Bald Mountain, Round Mountain, Golden Sunlight, Ruby Hill, Hemlo, Cowal, KCGM and Pierina – contributed 320,000 ounces at AISC of $895 per ounce in the second quarter. An improved closure plan at Pierina is expected to contribute approximately 270,000 ounces over the next three-and-a-half years for minimal capital.
Barrick’s share of second quarter production was 119,000 ounces at AISC of $1,149 per ounce. Attributable 2015 production from Acacia is anticipated to be 480,000-510,000 ounces at AISC of $1,050-$1,100 per ounce. Production will be weighted to the second half of 2015, driven by operational improvements and a planned ramp-up at Bulyanhulu.
Copper production in the second quarter was 115 million pounds at C1 cash costs of $1.94 per pound. For 2015, copper production is anticipated to be 480-520 million pounds at C1 cash costs of $1.75-$2.00 per pound.
Lumwana contributed 63 million pounds at C1 cash costs of $2.01 per pound in the second quarter, in line with expectations. The Zambian government has ratified amendments to the country’s mining tax regime that replaced the recently-adopted 20 percent gross royalty on open pit mines with a nine percent royalty, and reintroduced a 30 percent corporate income tax and a 15 percent variable profits tax. Production is anticipated to be 250-270 million pounds at C1 cash costs of $1.90-$2.15 per pound in 2015.
Production of 52 million pounds at Zaldívar at C1 cash costs of $1.85 per pound in the second quarter was in line with plan. Production for 2015 is anticipated to be 230-250 million pounds at C1 cash costs of $1.65-$1.95 per pound.
At Jabal Sayid, first shipments of low-cost copper-in-concentrate are anticipated in early 2016. Once the mine reaches full production, the average annual output is expected to be 100 million pounds per year with the potential to increase to 130 million pounds.
APPENDIX 1 – Key Value Realization Initiatives at Barrick’s Lagunas Norte and Pueblo Viejo Mines
Refractory Material Mine Life Extension Project: Since it began operations in 2005, Lagunas Norte has outperformed production expectations and become one of our most profitable mines. In 2014, the mine produced 582,000 ounces of gold at all-in sustaining costs of $543 per ounce. In its early years, production peaked at more than one million ounces per year. To date, Lagunas Norte has operated as an oxide heap leach mine. The mine will transition from oxide ore into mixed oxide/refractory material as it approaches the end of its current mine life in 2018.
We have now completed a Preliminary Economic Assessment (“PEA”) on a plan to extend the life of Lagunas Norte by approximately 12 years by mining the refractory material below the oxide ore body in the current pit. The refractory material cannot be economically processed using heap leaching due to low recoveries. The plan contemplates the installation of a new grinding-flotation-autoclave processing circuit to treat the refractory material.
Work has begun on a Pre-Feasibility Study (“PFS”) to further assess the technical and financial viability of, and risks associated with, the project, which has the potential to add nearly two million ounces of measured and indicated gold resources that are not currently included in the mine’s existing mineral reserves and resources. Based on the preliminary analysis completed to date, Barrick expects that approximately $500 million would be required to build the facilities necessary to treat the refractory material. The PEA for this initiative will be incorporated in an updated technical report prepared by Barrick’s independent technical advisor, Roscoe Postle Associates Inc. (“RPA”), which Barrick intends to file within 45 days. We expect to complete the PFS on this opportunity by the end of 2015.
The table below summarizes the mineral resources associated with the Refractory Material Mine Life Extension Project that, except as otherwise noted, are not included in the mine’s mineral resource statement as at December 31, 2014.
Gold Mineral Resources Associated with the Refractory Material Mine Life Extension Project1, 2, 3, 4, 5
|Within pit design6||Measured||1,203||2.60||100|
|Measured and Indicated||22,391||2.55||1,832|
|Heap leach stockpile7||Indicated||5,300||2.29||391|
|1||Mineral resources have been estimated as at December 31, 2014 based on a gold price of $1,400 per ounce. All estimates have been made in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum in National Instrument 43-101.|
|2||Mineral resources that are not mineral reserves do not have demonstrated economic viability.|
|3||Gold cut-off grades ranged from 0.48 g/t to 1.00 g/t depending on the material type.|
|4||Gold recovery as a result of this initiative is expected to reach an average of 90 percent.|
|5||Numbers may not add due to rounding.|
|6||Includes 2.013 million tonnes of measured and indicated resources grading 1.15 g/t gold (74 thousand contained ounces of gold) that were previously reported in the mine’s resource statement as at December 31, 2014.|
|7||This material is expected to be reclaimed from the existing leach facility and reprocessed through the new facility for this initiative.|
The PEA for the Refractory Material Mine Life Extension Project is preliminary in nature and is based in part on inferred resources which are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized.
Expansion of Tailings Storage Capacity: Pueblo Viejo is one of the world’s largest, lowest-cost gold mines. In 2014, Barrick’s 60 percent share of production from the Pueblo Viejo mine was approximately 665,000 ounces of gold at all-in sustaining costs of $588 per ounce. As reported in the mine’s resource statement as at December 31, 2014, in addition to existing reserves, Pueblo Viejo has approximately six million ounces of gold and 37 million ounces of silver in the measured and indicated resource category (Barrick’s 60 percent share). A significant portion of these resources are not currently included in reserves due to tailings storage constraints. We have completed a PEA evaluating a plan to remove these constraints to tailings capacity, which if implemented could allow Barrick to significantly extend the life of the mine. Barrick expects to complete further engineering work and commission a PFS in the second half of 2016 to refine the technical and financial analysis for the increase in tailings storage capacity and confirm whether the measured and indicated resources described above can be brought into reserves.
Conversion of Power Plant and Lime Kilns to Natural Gas Fuel: Energy is one of the biggest cost drivers at any mining operation. We have completed a PFS on an initiative to reduce energy costs at Pueblo Viejo by converting the fuel supply for the Quisqueya I power plant that supplies electricity to the mine to natural gas from more expensive heavy fuel oil, and retrofitting the lime kilns to burn natural gas instead of diesel. The power plant was originally designed to operate on multiple fuel types, including natural gas. The PFS evaluated the delivery and use of liquid or compressed natural gas to the mine and power plant.
Barrick is currently engaged in negotiations regarding the supply of natural gas to the Quisqueya I power plant and the Pueblo Viejo mine. If a supply agreement is successfully negotiated, this initiative to transition to natural gas could be implemented as early as 2017. Barrick anticipates that the conversion of the power plant and lime kilns at the mine site will require only minimal capital investment by Pueblo Viejo and that all capital costs associated with the construction of the natural gas infrastructure including the necessary natural gas pipeline to the power plant would be borne by the natural gas supplier. (Original Source)
Shares of Barrick Gold closed today at $6.54, down $0.26 or 3.82%. ABX has a 1-year high of $19.36 and a 1-year low of $6.52. The stock’s 50-day moving average is $9.38 and its 200-day moving average is $11.43.
On the ratings front, Barrick Gold has been the subject of a number of recent research reports. In a report issued on July 31, Canaccord Genuity analyst Tony Lesiak upgraded ABX to Hold. Separately, on July 16, Barclays’ Farooq Hamed maintained a Sell rating on the stock and has a price target of $11.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Tony Lesiak and Farooq Hamed have a total average return of -11.9% and -13.5% respectively. Lesiak has a success rate of 40.0% and is ranked #3546 out of 3724 analysts, while Hamed has a success rate of 26.1% and is ranked #3652.
Barrick Gold Corp produces and sells gold and copper. The Company business activities also includes exploration and mine development. It holds interests in oil and gas properties located in Canada.