Barrick to increase production 35% in growth strategy
Barrick Gold Corp ABX
Shares issued 395,469,393 Feb 4 close $26.30
Mon 7 Feb 2000 News Release
Mr. Randall Oliphant reports
Barrick Gold has an aggressive growth strategy of increasing profitability,
growing production and reserves and enhanced leverage to rising gold
prices. The company has made key adjustments to its premium gold sales
program that benefit earnings and cash flow beginning at a spot gold price
of $319 (U.S.) for 2000. This upside will be added to its assured floor
price of $360 (U.S.) per ounce.
Barrick previously reported a record 1999 performance, including a
10-per-cent increase in earnings to $331-million (U.S.) and a 30-per-cent
increase in cash flow to $702-million (U.S.).
The company expects to increase production 35 per cent from 3.7 million
ounces to five million ounces in 2003 at a $145 (U.S.) cost level. Barrick
should generate over $1.5-billion (U.S.) in free cash flow over the next
five years, after building three new mines.
"By focusing on our high-quality, low-cost mines, we expect to increase
earnings and cash flow to levels never seen before in the gold industry.
And this dynamic growth strategy will deliver these results based solely on
what we know today," said Randall Oliphant, president and chief executive
officer. "The projects driving our growth have excellent rates of return
and exciting potential for expansion. We are entering a new phase of growth
with 40 per cent of our reserves in development."
Barrick's overall proven and probable gold reserves rose by 15 per cent at
year-end 1999 to 59.3 million ounces, up from 51.5 million ounces in 1998.
The increase was achieved after producing a record 3.7 million ounces. A
major contributor to the growth in reserves was the Pascua project, where
reserves grew 22 per cent to 17.1 million ounces from 14.0 million in 1998.
Pascua's silver reserves increased to 560 million ounces from 440 million
ounces in 1998. As well, the company doubled the reserves at its Bulyanhulu
project to 7.5 million ounces.
To further increase its reserves in 2000, Barrick is planning $90-million
(U.S.) for exploration under its district development program. This
strategy focuses exploration on and around existing properties in order to
take advantage of existing processing facilities and infrastructure.
Barrick also announced new operating parameters for its Pascua mine in
Chile/Argentina, including initial production of 800,000 ounces of gold per
year starting in 2003; production should rise to over 1.0 million ounces
after a phase II expansion in 2005. Pascua's estimated cash costs are now
only $60 (U.S.) per ounce for the first five years, a reduction from last
year's figure of $125 (U.S.) per ounce. Its average life-of-mine cash costs
are estimated to be under $100 (U.S.) per ounce, down from $150 (U.S.) last
year. As part of the $950-million (U.S.) capital cost, the company will
spend $109-million (U.S.) in 2000 to complete its engineering and
infrastructure work.
Pascua is expected to make a 25-per-cent contribution to earnings and cash
flow each year; it currently has a 14-per-cent rate of return based on a
$300 (U.S.) gold price and $5.25 (U.S.) silver price.
"Pascua's robust economics are proving to be tremendously exciting for us.
Our success in increasing gold and silver reserves again this year have
made this project even more compelling -- it should be the world's lowest
cost gold mine," said Alan Hill, executive vice-president, development.
"And its potential is still unfolding. Our district development program
envisions $100-million (U.S.) to $200-million (U.S.) in exploration over
the next decade."
Additional low-cost production is expected to come from two other new mines
in development: Bulyanhulu in Tanzania and Rodeo in Nevada, set to become
the third mine on the Goldstrike property.
The $280-million (U.S.) Bulyanhulu mine, starting in the second quarter of
2001, should produce 400,000 ounces per year at a cost of $130 (U.S.) per
ounce over life-of-mine.
"The Bulyanhulu district is emerging as one with great potential for
reserve and production growth from five reefs on our property as well as
our regional development program," added Mr. Hill.
The $125-million (U.S.) underground Rodeo mine will contribute 350,000
ounces at a cost of $160 (U.S.) per ounce, starting in the second half of
2001. This mine Is the latest example of the potential growth in reserves
and production at the Goldstrike property; its ore will be processed at the
$330-million (U.S.) roaster facility that is scheduled for startup by
mid-2000. The roaster will treat carbonaceous ores at Goldstrike and reduce
processing costs by 10 per cent, a $500-million (U.S.) saving over the
property's known reserves.
Barrick expects 2000 to be a strong year for both earnings and cash flow
with continued outstanding performance from its premium gold sales program.
"We remain committed to our strategy of delivering strong, predictable
earnings through our unique hedge program," said Jamie Sokalsky, senior
vice-president and chief financial officer. "With some key changes to
enhance our leverage to rising gold prices, we will now be able to provide
earlier participation in rallies while maintaining the downside
protection."
Barrick has 84 per cent of its 59.3 million ounces in gold reserves
leveraged to the price of gold and remains assured of downside protection
on 13.6 million ounces sold forward at a minimum average price of $360
(U.S.) per ounce. The company's premium gold sales program provides a floor
of $360 (U.S.) per ounce for 100 per cent of production in 2000 and 2001,
and approximately 25 per cent for subsequent years. The total amount of
ounces committed in the program has been reduced from 18.8 million ounces
at the end of the third quarter to a net 9.8 million ounces at year-end
1999.
Barrick has already enhanced its leverage to the gold price by implementing
three key measures:
Barrick reduced its long-term call options sold from 4.0 million ounces at
the end of the third quarter, to 2.7 million ounces at year end.
The company spread out the delivery schedule of its spot-deferred contracts
over more years, assuring a minimum price of $360 (U.S.) throughout.
Barrick purchased 6.8 million ounces of call options to provide earlier
participation and make more money in gold price rallies.
The purchased call options, an important new dimension, cover 100 per cent
of production from March 1, 2000, through 2001. They give Barrick the
right, but not the obligation, to purchase gold at $319 (U.S.) in 2000 and
$335 (U.S.) in 2001. The calls allow Barrick to realize its floor price of
$360 (U.S.) plus any value over the call strike prices of $319 (U.S.) in
2000 and $335 (U.S.) in 2001.
"Our near-term earnings and cash flow will benefit immediately from these
key adjustments during rising gold prices. Our objective remains the same:
to place a floor on our revenues and also more fully participate in a
rising gold price environment," said Mr. Sokalsky.
Barrick is the most valued gold producer in terms of market capitalization
and has the strongest financial position in the industry with the only
A-rated balance sheet.
WARNING: The company relies upon litigation protection for
"forward-looking" statements.
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