Barrick Gold Corporation (USA) (NYSE:ABX) reported annual results that exceeded the Company’s key targets for the year. In 2016, our mines generated operating cash flow of $2.64 billion, and free cash flow2 of $1.51 billion – a record level of annual free cash flow for the Company. We reduced our cost of sales applicable to gold to $798 per ounce, and our all-in sustaining costs3 fell by 12 percent, to $730 per ounce. We continued to strengthen our balance sheet, cutting our total debt by $2.04 billion, or 20 percent. And we brought greater discipline and rigor to our capital allocation process with the appointment of the Company’s first-ever Chief Investment Officer.

Strategic Framework

Our vision is the generation of wealth through responsible mining – wealth for our owners, our people, and the countries and communities with which we partner. In support of this vision, our overarching objective is to grow our free cash flow per share.

We are cultivating a high-performance culture defined by the following principles: a deep commitment to partnership, consistent execution, operational excellence, disciplined capital allocation, and continual self-improvement. We are obsessed with talent, and seek out fresh perspectives from other industries, challenging ourselves to think differently as we aim to transform Barrick into a leading 21st century company.

We will grow free cash flow per share over the long term by: maintaining and growing industry-leading margins, increasingly driven by innovation and our digital transformation; by managing our portfolio and allocating capital with discipline and rigor; and by leveraging our distinctive partnership culture as a competitive advantage.

Our prospects for growing free cash flow per share build on a foundation of core mines that are among the longest-life, lowest-cost gold operations in the world. We have the largest gold reserves and resources in the industry5, including a deep pipeline of projects that provide extraordinary optionality and leverage to gold prices. Our exploration programs have a demonstrated track record of value creation. And we are evaluating acquisitions and partnerships with the potential to improve the overall quality of our portfolio over the long term.

Growing Free Cash Flow per Share Through Industry-Leading Margins

Through our Best-in-Class approach, we pursue industry-leading margins by continuously improving the productivity and efficiency of existing systems and operations. Equally, we pursue step changes in performance by re-designing those systems and introducing new technologies; and we innovate to redefine what is possible.

As one example, we are pursuing step changes in performance in Nevada by fully integrating the Cortez and Goldstrike operations. Over the past two years, these mines have benefited from increasing collaboration, including joint metal planning to optimize ore processing. By fully integrating the management of their assets, infrastructure, and expertise, we expect to further accelerate improvements in efficiency and productivity. For example, we will fully integrate processing operations and create an integrated digital operations management center that will serve both mines – all under a single, site-based leadership structure. We will also develop an integrated strategic plan for the combined operation that optimizes site resources and capital spending to maximize long-term value creation.

Our digital transformation will be another Best-in-Class priority for 2017. Since announcing our partnership with Cisco in September, we have completed proofs of concept for digital projects at Cortez, our pilot digital operation, and we are now implementing them in the field. This work is supported from our digital innovation center in Elko, Nevada, where frontline operators are working with software programmers and other external partners to develop customized digital solutions.

The integration of Cortez and Goldstrike will also allow us to further accelerate the implementation and impact of digital transformation in Nevada. As we continue to demonstrate value in the field, we intend to expand digital solutions to other Barrick operations, starting at Veladero, with a focus on digital environmental management systems. We will provide further updates on digital projects during our Operations and Technical Update on February 22.

While today’s digital technologies are already helping to improve the productivity and efficiency of our operations, in 2017 we will develop a long-term innovation strategy to redefine what is possible in mining, including an innovation road map for the Company.

Growing Free Cash Flow per Share Through Superior Portfolio Management

In 2016, we continued to strengthen our investment review and capital allocation process with the appointment of Mark Hill as the Company’s first Chief Investment Officer. Mr. Hill was Head of Mining and led the Evaluations group at Waterton Global Resource Management, a private investement firm with an outstanding track record of capital allocation – expertise he combines with earlier experience at Barrick. The Chief Investment Officer is responsible for ensuring that a high degree of consistency and rigor is applied to all capital allocation decisions at the Company – whether at existing operations, development projects, exploration (both near-mine and greenfields), or potential acquisitions and divestments. As part of our revamped capital allocation system, all proposals go through a rigorous, independent peer review process led by our Evaluations team, before they go to the Investment Committee. They are then ranked, prioritized, and sequenced to optimize capital spending over time on a strategic basis, allowing us to anticipate and plan for funding requirements.

We expect our portfolio to deliver a 10-15 percent return on invested capital through metal price cycles and, as such, all new capital spending is measured against a hurdle rate of 15 percent based on the Company’s long-term gold price assumption of $1,200 per ounce. Over time, assets that are unable to meet our return expectations will be divested. We are also continuously evaluating external opportunities to increase the long-term value of our portfolio through acquisitions, joint ventures, and other partnerships.

Growing Free Cash Flow per Share Through Partnerships

We believe an authentic partnership culture is our most distinctive and sustainable competitive advantage. For Barrick, partnership means a trust-based culture, and the currency of trust is transparency. It is a culture of peers. Those who are part of Barrick recognize that in general, the collective is stronger than the aggregation of individuals. By embracing these values, we aim to be the preferred partner of host governments and communities, the most sought-after employer among the world’s best talent, and the natural choice for long-term investors.

Last year, we created a program to make every Barrick employee – from the rock face to the head office – an owner of the Company, with an initial allocation of 25 common shares per person. We expect this to grow over time, in line with Barrick’s performance. Our goal is not simply to be aligned with our owners, we want our people to be owners.

We also created a new partnership with Cisco to drive Barrick’s digital transformation. Working with Cisco and other technology partners, we have begun to develop our flagship digital operation at the Cortez mine in Nevada – embedding digital technology in every dimension of the mine to deliver better, faster, and safer mining. This transformation will improve not only productivity and efficiency, but also environmental and safety performance – which will allow Barrick to build and maintain greater trust with communities, governments, NGOs, and other partners.

We continue to strengthen our relationships with other external partners, including Zijin Mining, Ma’aden, and Antofagasta Plc – our joint venture partners at the Porgera, Jabal Sayid, and Zaldívar mines. And we are working to develop new partnerships with the potential to unlock value across our business, and grow free cash flow per share over the long term.

Outlook 2017-2019

In 2017, we expect to produce 5.60-5.90 million ounces of gold, at a cost of sales applicable to gold of $780-$820 per ounce, and all-in sustaining costs3 of $720-$770 per ounce. This represents an improvement over our previous 2017 guidance of 5.0-5.5 million ounces of gold, at all-in sustaining costs3 of $740-$790 per ounce. As we did last year, our intention is to improve upon our plans as we advance our digital transformation, and other Best-in-Class initiatives.

For 2017, we are once again targeting a free cash flow breakeven gold price of $1,000 per ounce, which should ensure that we can generate cash in periods of lower gold prices, while generating a windfall when gold prices rise.

For 2018, we expect to produce 4.80-5.30 million ounces of gold, at a cost of sales applicable to gold of $790-$840 per ounce, and all-in sustaining costs3 of $710-$770 per ounce.

In 2019, we expect to produce 4.60-5.10 million ounces of gold, at a cost of sales applicable to gold of $800-$870 per ounce, and all-in sustaining costs3 of $700-$770 per ounce.

Based on our current asset mix and subject to potential divestments, we expect to maintain annual production of at least 4.5 million ounces of gold through 2021.

Please see page 11 for detailed operating and capital expenditure guidance. The table found in the appendix at the end of this press release outlines the material assumptions used to develop the forward-looking statements in our outlook and guidance, and provides an economic sensitivity analysis of those assumptions. For certain related risk factors, please see the cautionary statement on forward-looking information at the end of this press release.

Financial Highlights

Full-year net earnings were $655 million ($0.56 per share), compared to a net loss of $2.84 billion ($2.44 per share) in 2015. In 2016, adjusted net earnings1 were $818 million ($0.70 per share), compared to $344 million ($0.30 per share) in 2015.

This significant improvement in earnings was largely due to $3.9 billion of impairment charges recorded in 2015, compared to net impairment reversals of $250 million recorded in 2016. Higher earnings were also driven by higher gold and copper prices, combined with higher sales volumes (excluding the impact of divested sites), lower operating costs, and lower expenses for exploration, evaluation, and projects.

After adjusting for items that are not indicative of future operating earnings, adjusted net earnings1 of $818 million in 2016 were 138 percent higher than in 2015. This improvement was primarily due to higher gold and copper prices, higher gold and copper sales volumes (excluding the impact of divested sites), and lower operating costs.

Significant adjusting items to net earnings (pre-tax and non-controlling interest effects) in 2016 include:

  • $199 million in foreign currency translation losses, including deferred currency translation losses released as a result of the disposal and reorganization of certain Australian entities in the first quarter of 2016, and unrealized foreign currency translation losses related to the devaluation of the Argentine Peso on VAT receivables;
  • $114 million in other expense adjustments primarily relating to losses on debt extinguishment, partly offset by insurance proceeds relating to the 2015 oxygen plant motor failure at Pueblo Viejo;
  • $43 million in significant tax adjustments primarily relating to a tax provision in Acacia in the first quarter of 2016;
  • $42 million in disposition losses primarily relating to the divestment of 50 percent of Zaldívar;
  • The above are partially offset by $250 million in net impairment reversals at Veladero and Lagunas Norte in the fourth quarter of 2016, net of an impairment charge relating to the write down of our retained equity method investment in Zaldívar.

Full-year revenues were $8.56 billion, compared to $9.03 billion in 2015. Operating cash flow in 2016 was $2.64 billion, compared to $2.79 billion in 2015. Free cash flow2 for 2016 was $1.51 billion, compared to $471 million6 in 2015.

Excluding the proceeds of the Pueblo Viejo streaming transaction in 2015, operating cash flow for 2016 was $456 million higher than the prior year, despite a $355 million reduction in operating cash flow associated with the divestment of non-core assets. Strong operating cash flow was driven by higher gold prices and lower direct mining costs, as a result of lower energy and fuel costs (despite being hedged on a significant portion of our fuel consumption), combined with lower labor, consumable, and contractor costs, and improved operating efficiencies driven by Best-in-Class initiatives, as well as lower cash interest paid.

Fourth quarter net earnings were $425 million ($0.36 per share), compared to a net loss of $2.62 billion ($2.25 per share) in the prior-year period. Adjusted net earnings1 for the fourth quarter were $255 million ($0.22 per share), compared to $91 million ($0.08 per share) in the prior-year period.

Net earnings in the fourth quarter reflect an increase in realized gold and copper prices, and lower cost of sales, in addition to $146 million (net of tax effects and non-controlling interests) in net impairment reversals, compared to impairment charges of $2.6 billion (net of tax effects and non-controlling interests) recorded in the fourth quarter of 2015.

Fourth quarter revenues were $2.32 billion, compared to $2.24 billion in the prior-year period. Operating cash flow in the fourth quarter was $711 million, compared to $698 million in the fourth quarter of 2015. Free cash flow2 for the fourth quarter was $385 million, compared to $387 million in the prior year period.

Restoring a Strong Balance Sheet

Achieving and maintaining a strong balance sheet remains a top priority. In 2016, we reduced our total debt by $2.04 billion, or 20 percent, slightly exceeding our $2 billion target for the year.

At the end of the fourth quarter, Barrick had a consolidated cash balance of approximately $2.4 billion.7 Barrick has less than $200 million in debt due before 2019.8 About $5 billion, or 63 percent of our outstanding total debt of $7.9 billion, does not mature until after 2032.

We intend to reduce our total debt by $2.9 billion, to $5 billion, by the end of 2018 – half of which we are targeting in 2017. We will achieve this by using cash flow from operations, selling additional non-core assets, and creating new joint ventures and partnerships.

Operating Highlights

Barrick’s operations delivered progressively-stronger performance over the course of 2016, with three consecutive quarters of improved all-in sustaining cost guidance and gold production at the high end of our annual production forecast. These results reflect our ongoing focus on capital discipline, and Best-in-Class improvements that are driving greater productivity and efficiency.

We also improved our safety performance, achieving a total reportable injury frequency rate (TRIFR)9 of 0.40 – the best result in the Company’s history. Since 2009, we have reduced our TRIFR by 67 percent. Despite these improvements, Meckson Makompe, an employee at our Lumwana mine, lost his life in a workplace accident last year. Subsequently, Williams Garrido, a contractor working at the Pascua-Lama project, was involved in a fatal accident this month. Every person at Barrick must go home safe and healthy every single day, and we will never be satisfied with our performance until we achieve this paramount goal.

In 2016, our mines produced 5.52 million ounces of gold, at a cost of sales applicable to gold of $798 per ounce. All-in sustaining costs3 were $730 per ounce, a reduction of 12 percent compared to 2015. We also reduced our cash costs3 by eight percent, from $596 per ounce in 2015, to $546 per ounce in 2016.

Gold production in the fourth quarter was 1.52 million ounces, at a cost of sales applicable to gold of $784 per ounce, and all-in sustaining costs3 of $732 per ounce, compared to 1.62 million ounces at a cost of sales of $848 per ounce, and all-in sustaining costs3 of $733 per ounce in the prior-year period.

Copper production in 2016 was 415 million pounds, at a cost of sales attribute to copper of $1.43 per pound, and all-in sustaining costs10 of $2.05 per pound, in line with our guidance for the year. This compares to 511 million pounds, at a cost of sales attributable to copper of $1.65 per pound, and all-in sustaining costs10 of $2.33 per pound in 2015.

The Jabal Sayid project, a 50-50 joint venture with Saudi Arabian Mining Company (Ma’aden), commenced commercial production on July 1, 2016. Barrick’s 50 percent share of production in 2017 is expected to be 30-40 million pounds.

In 2016, capital expenditures on a cash basis were $1.12 billion, compared to $1.71 billion in 2015. A decrease of $327 million, excluding the impact of $260 million in capital expenditures associated with divested sites, was primarily due to lower capitalized stripping costs at Veladero, a decrease in leach pad expansion costs at Veladero and Lagunas Norte, and our ongoing focus on capital discipline across the Company. Lower capital costs also reflected lower project spending compared to 2015, mainly relating to the completion of the thiosulfate leaching circuit at Goldstrike, and decreased capital expenditures at Pascua-Lama.

Gold Fourth Quarter 2016 Full Year 2016 2017 Guidance
Production (000s of ounces) 1,516 5,517 5,600-5,900
Cost of sales applicable to gold ($ per ounce) 784 798 780-820
All-in sustaining costs ($ per ounce)3 732 730 720-770
       
Copper      
Production (millions of pounds) 101 415 400-450
Cost of sales applicable to copper ($ per pound) 1.45 1.43 1.50-1.70
All-in sustaining costs ($ per pound)10 2.04 2.05 2.10-2.40
       
Total Attributable Capital Expenditures ($ millions) 357 1,122 1,300-1,500

Mineral Resource Management

Barrick manages the industry’s largest inventory of gold reserves and resources5, with a strong track record of adding reserves and resources at our operations and projects through exploration.

The Company’s five core mines, which are expected to account for approximately 70 percent of our production in 2017, have an average reserve grade of 1.84 grams per tonne – more than double that of our peer group average.5 The majority of our reserves and resources are situated in regions where we have proven operating experience, a critical mass of infrastructure, technical and exploration expertise, and established partnerships with suppliers, host governments, and communities.

To calculate our 2016 reserves, we have applied a short-term gold price assumption of $1,000 per ounce for the next four years, and a long-term gold price of $1,200 per ounce from 2021 onwards, consistent with our approach in 2015.

As of December 31, 2016, Barrick’s proven and probable gold reserves were 85.9 million ounces4, compared to 91.9 million ounces at the end of 2015. Approximately 1.9 million ounces were divested last year, and 6.8 million ounces were depleted through mining and processing. We replaced approximately 60 percent of the ounces we depleted through drilling and cost improvements at our operating mines. Significant additions included 1.1 million ounces at Lagunas Norte, 920,000 ounces at Hemlo, and 640,000 ounces at the Goldstrike underground mine. Reserves at Pascua-Lama declined by 1.3 million ounces as a result of design modifications to enhance safety and environmental mitigation at the project. Reserves at Acacia’s Bulyanhulu mine also declined by 430,000 ounces.

In 2016, measured, indicated, and inferred resources were calculated using a gold price assumption of $1,500 per ounce. This compares to $1,300 per ounce in 2015.

Measured and indicated gold resources decreased to 75.2 million ounces4 at the end of 2016, compared to 79.1 million ounces at the end of 2015. Approximately 4.3 million ounces of measured and indicated gold resources were divested in 2016, and 2.7 million ounces were upgraded to proven and probable gold reserves. Approximately 5.3 million ounces were added to measured and indicated resources as a result of using a $1,500 per ounce gold price assumption.

Inferred gold resources increased to 30.7 million ounces4 at the end of 2016, compared to 27.4 million ounces at the end of 2015. Approximately 3.2 million ounces were upgraded to measured and indicated resources. Approximately 5.3 million ounces were added through drilling, including 2.0 million ounces at Veladero, 1.3 million ounces at Hemlo and 1.1 million ounces at Alturas. Approximately 1.7 million ounces were added to inferred resources as a result of using a $1,500 per ounce gold price assumption. The addition of 5.3 million ounces of inferred gold resources through drilling underscores the value of our investments in near-mine exploration, and sets the stage for replenishing and upgrading our reserve and resource portfolio in future years.

Proven and probable copper reserves were calculated using a short-term copper price of $2.25 per pound, and a long-term price of $2.75 per pound. This compares to a short-term copper price of $2.75 per pound, and a long-term price of $3.00 per pound, in 2015.

Copper reserves, including copper within gold reserves, were 11.1 billion pounds4 at the end of 2016, compared to 11.7 billion pounds, at the end of 2015. Measured and indicated copper resources, including copper within measured and indicated gold resources, increased slightly to 9.7 billion pounds4, compared to 9.6 billion pounds, at the end of 2016.

Exploration and Projects

Barrick has the largest gold reserves and resources in the industry5, including some of the largest undeveloped gold projects in the world, which gives us significant optionality and leverage to gold prices. We have a demonstrated track record of creating value through exploration. Since 1990, we have found 143 million ounces of gold for an overall discovery cost of $25 per ounce, or roughly half the average finding cost across the industry.

After several years of exploration focused primarily on existing core districts and projects, we are increasing our budget and broadening our focus to include new greenfield opportunities.

Approximately 80 percent of our total exploration budget of $185-$225 million is allocated to the Americas. The majority of the remaining budget is allocated to Acacia. Our exploration programs balance high-quality brownfield projects, greenfield exploration, and emerging discoveries that have the potential to become profitable mines.

In the short term, every one of our operating mines has the potential to identify new reserves and resources through near-mine exploration (MINEX). In many cases, these ounces can be quickly incorporated into mine plans, driving improvements in production, cash flow, and earnings.

Over the medium term, we are advancing a pipeline of high-confidence projects at or near our existing operations. These projects remain on track, with the potential to begin contributing new production to our portfolio beginning in 2021. This includes three significant projects in Nevada: the Cortez Deep South underground expansion; the potential development of an underground mine at Goldrush; and a significant expansion of throughput at the Turquoise Ridge mine. At the Lagunas Norte mine in Peru, we are advancing a project to extend the life of the mine by mining the refractory material below the oxide ore body in the current open pit.

At the Alturas project in Chile, we have added an additional 1.1 million ounces of inferred gold resources, bringing the total inferred resource to 6.8 million ounces.4 We expect to complete a scoping study for Alturas in 2017. We have also initiated a prefeasibility study to evaluate the construction of an underground mine at Lama, on the Argentinean side of the Pascua-Lama project. If the study concludes that a phased underground development option meets our risk and financial criteria, and is a more compelling investment proposition than the permitted bi-national open pit plan, we would expect to recalculate reserves and resources at Pascua-Lama to reflect an underground mine plan, likely resulting in a reduction to current reserves and resources at the project.

Our successful track record of greenfield exploration, combined with our existing pipeline of undeveloped projects, represents significant long-term value and optionality for our shareholders.

Highlights of our greenfield exploration program for 2017 include the Fourmile target, adjacent to our Goldrush discovery in Nevada, and the Frontera District on the border of Argentina and Chile. We have also formed new partnerships with Alicanto Minerals in Guyana, and Osisko Mining in the Labrador Trough of Northern Québec, where we see the potential to develop new core mineral districts for Barrick.

Our portfolio also contains a number of the world’s largest undeveloped gold deposits, including Donlin Gold, Cerro Casale, and Pascua-Lama. These projects contain nearly 31.5 million ounces of gold in proven and probable reserves4 (Barrick’s share), and 29.3 million ounces in measured and indicated resources4 (Barrick’s share).

At Donlin Gold, we continue to advance through the permitting process. We are also working with our joint venture partner on strategies to further optimize the project. This includes evaluating alternative development scenarios with the potential to lower capital intensity, as well as incorporating innovation, automation, and other Best-in-Class opportunities to improve overall economics.

At Pascua-Lama, the initiation of a prefeasibility study for an underground mine at Lama in Argentina represents an opportunity to unlock the value of this deposit, and the wider district, through a phased approach that reduces execution risks and upfront capital requirements. Concurrently, the team in Chile remains focused on optimizing the Chilean components of the project.

Filing of Shelf Prospectus

Shortly, Barrick intends to file an MJDS universal shelf prospectus qualifying for distribution of securities with an aggregate offering amount of up to $4 billion with Canadian securities regulators and the United States Securities and Exchange Commission. The filing of a shelf prospectus is consistent with the practice of the majority of issuers included in the S&P/TSX 60 Index. The filing provides the Company with increased financing flexibility over the next 25 month period. We have no current intention to offer securities under the shelf prospectus.

Shares of Barrick Gold are up nearly 2% to $19.75 in after-hours trading Wednesday. ABX has a 1-year high of $23.47 and a 1-year low of $11.50. The stock’s 50-day moving average is $17.65 and its 200-day moving average is $17.41.

On the ratings front, ABX has been the subject of a number of recent research reports. In a report released yesterday, Credit Suisse analyst Ralph M. Profiti maintained a Buy rating on ABX, with a price target of $23, which represents a potential upside of 19% from where the stock is currently trading. On February 2, BMO’s Andrew Kaip reiterated a Buy rating on the stock and has a price target of $20.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Ralph M. Profiti and Andrew Kaip have a yearly average return of 1.6% and 2.3% respectively. Profiti has a success rate of 44% and is ranked #2473 out of 4453 analysts, while Kaip has a success rate of 43% and is ranked #1828.

Overall, one research analyst has rated the stock with a Sell rating, 3 research analysts have assigned a Hold rating and 3 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $19.00 which is -1.7% under where the stock opened today.

Barrick Gold Corp. mines and explores for gold, copper and nickel. It operates through its projects in Canada, the United States, the Dominican Republic, Australia, Papua New Guinea, Peru, Chile, Argentina, Zambia, Saudi Arabia and Tanzania. The company’s gold operating units are: Cortez, Goldstrike, Pueblo Viejo, Lagunas Norte, Veladero, North-America other and Australia Pacific. Barrick Gold was founded by Peter D. Munk in 1983 and is headquartered in Toronto, Canada.