Barrick will honor Placer's agreement to sell its 51 percent stake in the Cerro Casale gold project in Chile to the two other stakeholders, Bema Gold Corp. and Arizona Star Resources Corp.
Placer had backed out of the project last year, calling it uneconomical, and later agreed to sell its interest to Arizona and Bema for contingent payments.
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UPDATE 2-Barrick profit soars on gold prices, Placer deal
Wed May 3, 2006 7:35 PM ET
(Adds details from conference call, analyst comment)
By Rachelle Younglai
TORONTO, May 3 (Reuters) - Barrick Gold Corp. (ABX.TO: Quote, Profile, Research) reported on Wednesday first-quarter profit more than tripled as it benefited from strong gold prices and increased production due to its acquisition of rival Placer Dome.
Barrick, which became the world's biggest gold miner with its takeover of Placer earlier this year, said it earned $224 million, or 29 cents a share, for the quarter. That compared with a profit of $66 million, or 12 cents a share, in the same period a year earlier, an increase of 239 percent.
Analysts were expecting the miner to earn 25 cents a share, according to Reuters Estimates.
"Strong metal prices have finally started to propel earnings and cash flow, and we have seen the margin expansion that we have been waiting for has come through," Barrick Chief Executive Greg Wilkins told analysts on a call to discuss results.
Operating cash flow rose to 48 cents a share from 23 cents, and would have been 3 cents a share higher if not for restructuring costs related to the Placer takeover.
Barrick produced 1.96 million ounces of gold in the quarter at a total cash cost of $283 an ounce. The output included results from Placer Dome mines as of Jan. 20, when Barrick gained control of the company, as well as new Barrick mines such as Lagunas Norte in Peru.
In the year-earlier period, Barrick produced 1.14 million ounces at a cost of $241 per ounce.
"We expect our gold production over the balance of the year to increase over what we see in the first quarter," said Wilkins.
The company, with 26 operating mines and 8 advanced exploration and development projects, maintained its previous forecast to produce between 8.6 million and 8.9 million ounces of gold in 2006. Cash costs also remained the same at between $275 an ounce and $290 an ounce, despite soaring energy costs.
Since Barrick took control of Placer it has been integrating and consolidating Placer's assets around the world "as quickly as possible."
"We have already started eliminating redundancies and we anticipate really completing the integration process by the end of June," said Wilkins.
"We remain confident in our ability to achieve the $200 million in synergies, and we expect to have a full $200 million annual run rate by 2007, not to say we won't achieve some of those synergies in 2006."
"BIG PLUS"
Barrick said it reduced its hedge book, a pile of forward gold sales contracts, by 5.7 million ounces as of Wednesday.
That cost the company about $1.2 billion, of which $814 million was recorded in the first quarter.
The company said it intends to eliminate 2 million more ounces by the end of the year, and 2.8 million ounces from its corporate contracts by the end of 2009.
"They reduced it by almost 6 million ounces," said John Ing, president with Maison Placements. "That's good. We're glad to see it, that's a big plus."
Barrick will honor Placer's agreement to sell its 51 percent stake in the Cerro Casale gold project in Chile to the two other stakeholders, Bema Gold Corp. (BGO.TO: Quote, Profile, Research) and Arizona Star Resources Corp. (AZS.V: Quote, Profile, Research).
Placer had backed out of the project last year, calling it uneconomical, and later agreed to sell its interest to Arizona and Bema for contingent payments.
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