9mo results
Barrick Gold Corp ABX
Shares issued 375,927,171 Nov 4 close $33.30
Thu 5 Nov 98 Company Review
Mr. Paul Melnuk reviews the company
All figures are in U.S. dollars.
Net income increased to $218-million, 58 cents per share, for the nine
months ended Sept. 30, 1998 from $187-million, 50 cents per share, in the
year earlier period, on revenues of $928-million compared to $936-million.
These strong results reflect Barrick's focus on generating consistent and
sustainable growth in earnings and cash flow per share, regardless of the
price of gold. The company continues to benefit from its excellent
operating performance and the premium earned on its gold sales.
Gold production rose 5 per cent to 2.3 million ounces for the nine months
ended Sept. 30, 1998. Barrick's 1998 production target is 3.1 million
ounces.
Cash operating costs declined 14 per cent to $160 per ounce in the
nine-month period, compared to $186 in the same period last year. Barrick's
focus on productivity improvements has resulted in lower unit costs at all
operations. Total cash costs, including royalties and production taxes,
declined to $181 per ounce compared to $209 per ounce in the year earlier
period.
Production at the Goldstrike property increased 10 per cent to 1.7 million
ounces, with the Meikle mine producing nearly 700,000 ounces during the
first nine months of 1998. The property should achieve both record
production and cash operating costs for the year, benefiting from a strong
second-half performance from the Betze-Post mine and continued success at
the Meikle mine.
For the nine-month period ended Sept. 30, 1998, the company realized an
average $400 per ounce, a premium of $105 per ounce over the average spot
price of $295, generating $241-million in additional revenue. Barrick has
10.4 million ounces sold forward, including production through the year
2000, at an average price of $400 per ounce. This allows the company to
enhance revenue for its gold production while maintaining full
participation in a rising gold market.
Barrick's balance sheet is the strongest in the gold industry with cash of
more than $400-million, shareholders' equity of $3.5-billion and a debt to
capitalization ratio of 0.12 to 1, at Sept. 30, 1998. Barrick is the only
gold mining company with an "A" credit rating.
Barrick's next low-cost operation, the Pierina mine in Peru, is on budget
and on schedule to begin production later this month. Pierina is expected
to produce 750,000 ounces of gold annually at a total cash cost of $50 per
ounce.
Production for the first nine months increased 5 per cent to 2,320,895
ounces at an average cash operating cost of $160 per ounce, 14 per cent
lower than the same period of 1997. Total cash costs, including royalties
and production taxes were $181 per ounce a decrease of 13 per cent. All
operations recorded higher production and lower costs over the year earlier
period. In particular, the Meikle mine produced nearly 700,000 ounces of
gold, 20 per cent higher than last year's full year production at 28 per
cent lower costs.
Goldstrike Property
Carlin Trend, Nevada
Goldstrike produced 1,699,704 ounces of gold at an average cash operating
cost of $140 per ounce. The property is on target to achieve record
production and costs in 1998, benefiting from the outstanding year at the
Meikle mine. The overall grade processed during the first three quarters
was 0.41 of an ounce per ton. The average grade for the fourth quarter
should remain above 0.40 of an ounce per ton, with mining in a high-grade
area of the Betze-Post mine and continued high grades from the Meikle mine.
The mills and autoclaves treated nearly 4.5 million tons of ore during the
first nine months of the year to produce 1,683,803 ounces of gold. An
additional 15,901 ounces of gold were produced from leach ore.
A 5,000-foot decline, linking the Meikle mine to the Rodeo exploration
shaft on the North block, was completed in mid-October. The decline
provides a platform for exploration drilling at depth and along the entire
corridor. There are currently two exploration drills working in the decline
and two at Rodeo. The exploration program this year has confirmed and
extended mineralization in the area around the Griffin deposit to the south
of Meikle, as well as at Rodeo.
Construction of the 12,000 ton per day roaster began in early October for
completion in mid-2000. It will be used to treat the 12 million ounces of
carbonaceous and high carbonate reserves identified to date on the
property.
Betze-Post Mine
The Betze-Post open pit produced 1,015,188 ounces of gold during the first
nine months of 1998 at an average grade of 0.30 of an ounce per ton and a
cash operating cost of $183 per ounce. Mining in the high-grade 6th West
Layback began in the third quarter, resulting in higher production and
lower costs. The Betze-Post mine is on target to produce 1,470,000 ounces
of gold at a cash operating cost of $180 per ounce for 1998.
Meikle Mine
The underground Meikle mine produced 684,516 ounces of gold at an average
grade of 1.07 ounces per ton and a cash operating cost of $74 per ounce.
The mine benefited from higher mining rates, lower unit mining costs, and
higher than planned grades and recovery rates. A new raise, which connects
the lower working levels of the mine to the backfill plant, reduces the
number of trucks required to transport backfill material to the stopes. As
a result, the mining rate will not be affected during the second half of
1998 by shaft deepening and expansion activities, as previously reported.
The grade is expected to average 1.0 ounce per ton in the fourth quarter,
resulting in a revised target of 830,000 ounces of gold at a cash operating
cost of $80 per ounce for 1998.
The Meikle shaft deepening and expansion will permit access to deeper,
high-grade reserves and additional exploration drilling at depth. The
project is scheduled to be completed in the second quarter of 1999 at a
cost of $23-million.
Bousquet Mine
Abitibi Belt, Quebec
The Bousquet mine had an excellent first nine months, producing 133,242
ounces of gold at an average grade of 0.26 ounces per ton and a cash
operating cost of $192 per ounce. The rise in production and lower costs
reflect higher mining rates, better grades and improved operating
efficiencies over the previous year. The mine is on track to produce
175,000 ounces at $195 per ounce for the year. Definition drilling and
primary development of the 3-1 zone at depth continues on schedule.
Holt-McDermott Mine
Abitibi Belt, Ontario
The Holt-McDermott mine is having the best year in its history, producing
104,670 ounces of gold for the first nine months at an average grade of
0.26 of an ounce per ton and a cash operating cost of $128 per ounce. The
mine continues to benefit from higher mining rates, better grades and lower
unit costs. The mine is on target to produce 130,000 ounces of gold at $135
per ounce in 1998. A shaft-deepening program was approved during the third
quarter, which will permit access to the deeper reserves and provide the
opportunity to explore the potential of the mine at depth.
Other Properties
Other properties contributed 383,279 ounces of gold at an average cash
operating cost of $244 per ounce for the first three quarters. Bullfrog,
Tambo and El Indio continue to report higher production and lower costs
than both plan and the prior year.
The Pierina mine is on track to become Barrick's lowest cost mine in the
fourth quarter. In addition, drilling at the Pascua project continues to
expand reserves and drilling has recently been resumed to test the
promising exploration targets on the Lama property in Argentina, across the
border from Pascua.
Pierina Development, Peru
The Pierina mine development is on budget and on schedule for commissioning
in November. The mine is expected to produce 750,000 ounces of gold
annually at an average total cash cost of $50 per ounce in the early years.
The 100 per cent-owned Pierina mine has 7.2 million ounces of reserves and
a further 878,000 ounces of resources. It is being developed as a
conventional open pit, valley-fill heap leach operation with a mine life of
at least 11 years.
Ore has been crushed and loaded onto the heap leach pad since its
completion early in the third quarter. The ore is expected to be placed
under leach before the end of October. To achieve the 80 per cent gold
recovery rate, a 50-day leach period is required. The mill and the crushing
and conveying facilities are currently being commissioned. Production of
approximately 50,000 ounces is forecast for this year.
The mine is operating at approximately 23,000 metric tons per day of ore
and waste, and will be at the full mining rate when the additional haul
trucks currently in transit to the mine are received.
Pascua Project, Chile/Argentina
The primary objective for 1998 for this project is to expand the reserve
base and to determine the potential of the Lama property on the Argentinean
side of the border, adjacent to Pascua.
The underground drill program undertaken in the second and third quarters
extended the Brecha Frontera and Pascua ore bodies into Argentina on the
Lama property. A surface drill program of approximately 14,000 metres has
begun to further delineate the extensions into Argentina.
At Penelope, on the Lama property in Argentina two kilometres from Pascua,
a 14,000-metre drill program has begun. The objective of the program is to
expand the zone identified in the second quarter before drilling ceased for
the winter season. The first two drill holes intersected a zone of
high-grade mineralization, which was confirmed by surface sampling.
Pilot tests on Pascua ore were completed in the third quarter. The pilot
plant was the final test required to confirm recovery rates and cost
assumptions for the proposed plant. Based on the results the final plant
specifications are being completed.
Exploration
In Peru, the first of several drill programs scheduled for 1998 should
begin this month. Each of these targets has been chosen for characteristics
similar to the Pierina deposit and all are on the Pierina trend. In
addition, work continues to identify and prioritize drill targets on
several other recently acquired properties.
Barrick has increased its exploration focus in Nevada and is participating
in four exploration joint ventures - a record for the company. These
programs are on properties adjacent to some of the most prolific areas in
Nevada. In September, Barrick completed a joint venture agreement for the
Rossi property three miles north of the Meikle mine. The agreement requires
Barrick to spend $15-million over four years to earn a 60 per cent interest
in the property. The Post fault, which hosts both the Betze-Post and Meikle
deposits, crosses through the property. A compilation of historical data,
as well as geologic mapping, sampling and geochemical and geophysical
surveys, is planned for the fourth quarter to define and prioritize drill
targets.
This agreement, along with the joint venture agreement signed last year for
the adjacent Dee property, more than doubles the company's land holdings on
the Carlin trend.
At the Dee property, a 10-hole, 15,000-foot drill program was recently
completed. Results from the final holes are pending. This year's results,
along with remapping of the area, have identified additional targets for
follow-up drilling.
At Pinson, the 15-hole 30,000-foot drill program has been completed. Based
on the results, a second phase of four to five holes is proposed to follow
up on the earlier encouraging results. The drill program is testing targets
similar to the Turquoise Ridge deposit on the adjacent Getchell property.
Other drill programs at the Gold Bar property in Nevada and the Golden
Summit property in Alaska have been completed and the final results are
pending.
FINANCIAL REVIEW
Earnings for the first nine months were $218-million, 58 cents per share,
16 per cent higher than the year earlier period due to higher production
and a 14 per cent decline in cash operating costs. Operating cash flow for
the nine months ended Sept. 30, 1998 was $390-million, $1.04 per share.
Operating cash flow for the full year should be in excess of $500-million,
the highest in company history.
For the first nine months of 1998, the company realized $400 per ounce, a
premium of $105 per ounce over the average spot price of $295, generating
$241-million in additional revenue. Barrick currently has 10.4 million
ounces sold forward, including production through the year 2000 sold at an
average price of $400 per ounce.
Total depreciation was marginally higher than last year at $146-million due
to a 5 per cent increase in production. Exploration for the first nine
months was $36-million, of which approximately 60 per cent was spent in
South America, primarily in Peru, Chile and Argentina. The balance was
largely spent in North America, the remainder to exploration outside of the
Americas. Deferred exploration for the period was $26-million, most of
which relates to Pascua. The full-year exploration and deferred exploration
target has been increased from $70-million to $90-million, of which half is
to be expensed. This increase reflects additional exploration primarily in
South America along with additional deferred exploration at Pascua.
The higher tax rate in 1998 arises from a portion of the book value of the
Doyon mine sale not being deductible for tax purposes. The effective tax
rate excluding the sale of Doyon, was 25 per cent, in line with the 1997
rate.
The Doyon mine was sold in the first quarter, the pretax book gain was
offset by a deferred tax provision, resulting in no gain or loss after tax.
Of the $95-million in cash proceeds from the sale, $75-million has been
received. The final payment of $20-million is due in December 1998.
Capital expenditures for the nine months were $329-million, excluding
deferred stripping of $40-million and deferred exploration. The principal
expenditures include the Pierina mine development, shaft sinking at Rodeo,
development work at Pascua and engineering for the roaster at the
Goldstrike property. Capital expenditures are expected to be on plan at
$475-million for the full year.
The company continues to maintain a strong balance sheet. The Sept. 30,
1998 cash balance was $402-million and shareholders' equity was
$3.5-billion. The debt to total capitalization ratio remained a low 0.12 to
1.
All of the company's financial systems are expected to be Year 2000
compliant by the end of the first quarter of 1999.
STATEMENT OF EARNINGS
Three months ended Sept. 30
(millions of U.S. dollars)
1998 1997
Revenues
Gold sales $ 324 $ 314
Interest and other
income 3 2
----- -----
327 316
Costs and expenses
Operating 154 151
Depreciation and
amortization 51 44
Administration 8 10
Exploration 12 18
Gain on sale of/
provision for
mining properties - 431
----- -----
225 654
Income (loss)
before taxes 102 (338)
Income taxes (26) 23
----- -----
Net income (loss) $ 76 $ (315)
===== ======
Net income (loss)
per share 20 cents (84 cents)
STATEMENT OF EARNINGS
Nine months ended Sept. 30
(millions of U.S. dollars)
1998 1997
Revenues
Gold sales $ 919 $ 928
Interest and other
income 9 8
----- -----
928 936
Costs and expenses
Operating 430 470
Depreciation and
amortization 146 141
Administration 25 29
Exploration 36 49
Gain on sale of/
provision for
mining properties (42) 431
----- -----
595 1,120
Income (loss)
before taxes 333 (184)
Income taxes (115) (14)
----- -----
Net income (loss) $ 218 $ (198)
===== ======
Net income (loss)
per share 58 cents (53 cents)
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