Barrick may close, sell mines after posting US$8.56bn loss

Thursday, August 1, 2013

Canada's Barrick Gold (NYSE, TSX: ABX) will evaluate closing or selling some of its mines after posting a loss of US$8.56bn in the second quarter.

The loss was mainly the result of an US$8.7bn impairment charge, caused by lower metals prices and delays to its Pascua Lama project on the border of Chile and Argentina.

Operations with all-in sustaining costs of more than US$1,000/oz will be under review, according to CEO Jamie Sokalsky.

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"For those operations that are not generating positive cash flow, we will change mine plans, suspend, close or divest them," Sokalsky said in a conference call to discuss the results.

The only South American operation up for review is the Pierina mine in Peru, which is nearing the end of its mine life and is being assessed for closure.

Barrick did see US$663mn in net earnings but these were offset by the US$5.1bn impairment charge at Pascua Lama, US$2.3bn in goodwill impairments and US$1.3bn in other asset impairments.

"We are disappointed with the impairment charges for Pascua Lama and other assets but are confident that these assets, some with mine lives in excess of 25 years, will generate substantially more economic benefits over time," Sokalsky said.


The miner reduced costs by US$1.5bn in the second quarter for a total of US$2bn in H1, according to Sokalsky. The breakdown is US$600mn in operating costs, another US$600mn in project capital, US$200mn in sustaining and mine development capital and US$50mn in exploration and evaluation expenditures.

Capital guidance for 2013 has been reduced to US$4.5-US$5bn from an original estimate of US$5.7-US$6.3bn and cost of sales was cut to US$7.2-US$7.8bn from US$7.9-US$8.4bn.


Barrick, the world's largest gold miner, produced 1.81Moz gold at all-in sustaining costs of US$919/oz. Copper production was 134Mlb at CI cash costs of US$1.75/lb and C3 cash costs of US$2.27/lb.

The average realized gold price in Q2 was US$1,411/oz, with US$3.28/lb for copper.

The company's all-in sustaining costs outlook for gold has been revised down to US$900-US$975/oz from the original US$1,000-US$1,100/oz.

For copper, C1 cash costs have been lowered to US$1.95-US$2.15/lb while C3 cash costs are targeted at US$2.50-2.75/lb.

Barrick's South American operations produced 300,000oz in Q2 at better than expected all-in sustaining cash costs of US$821/oz. Full year output is expected at 1.25-1.35Moz at all-in sustaining cash costs of US$875-US$925/oz.

In its portfolio, 57% of Barrick's mines have all-in sustaining costs of US$650-US$700/oz. Three of these mines are in South America: Veladero (Argentina), Pueblo Viejo (Dominican Republic) and Lagunas Norte (Peru). The other two are Cortez and Goldstrike, both in the US state of Nevada.

Taking all of Barrick's mines into consideration, 75% have all-in sustaining costs of US$1,000/oz.

For the rest of the year, the company will "continue to pursue opportunities to optimize our portfolio through divestitures," the CEO said.

"We're also running our new life of mine plans at US$1,100/oz and this process will run through the fall of this year," he added.

In Latin America, Barrick has operating mines and projects in Argentina, Chile, the Dominican Republic and Peru.