Barrick gains upper hand on costs
miningweekly.com
By: Liezel Hill
30th July 2009
Updated 3 hours ago
TORONTO (miningweekly.com) – The balance of power is shifting in the wrestling match between gold giant Barrick Gold and its sworn enemy, the cash cost, CEO Aaron Regent indicated on Thursday.
Gold miners around the world have battled rising prices for fuel, equipment and labour over the last few years, which have served to erode the benefits of historically high bullion prices.
Taxes and royalties have also increased in step with metals prices.
However, Regent, who took the helm of the world's biggest gold-miner in January, said the company expects to see costs trending downwards from here on in.
For the second quarter, Barrick reported total cash costs of $452/oz, which, while still higher than the $434/oz reported a year earlier, were better than the first-quarter figure of $484/oz.
“We believe we are at a point where the cost trend will start to reverse,” Regent said.
The company has yet to provide firm cost guidance for 2010, but the general expectation is that the trend will be downwards, he confirmed.
For 2009, the firm maintained its cost forecast at between $450/oz and $475/oz.
Part of the improvement will come from what the company calls its “next generation” of big, lower-cost mines currently under construction, the first of which started production earlier this year.
However, Regent said the group will also benefit from determined efforts to reduce costs and improve efficiencies at existing operations, as well as from lower commodity prices.
On the labour front, which accounts for about 25% to 30% of Barrick's costs, the economic slowdown has lowered turnover rates “considerably”, he said.
The average total turnover in North America is down to 10% from 16% last year, while Australian turnover rates are down to 13%, from 20% last year.
“And while labour costs tend to be sticky, we expect less inflationary pressure in the foreseeable future,” Regent said.
The Toronto-based company has also been renegotiating supply contracts to reflect “current market conditions”.
Already, better terms have been realised for a variety of consumables, including cyanide, sulphuric acid, grinding media and explosives.
The miner's energy costs have also declined, through a combination of lower commodity prices and measures taken by the company, including shifting operations to lower-cost energy sources.
Overall, while some of these gains may take time to filter through, “the trend is in the right direction”, Regent said.
“So, as the gold price increases, we are better positioned to see an increase in our margins, with more of the benefits of higher prices falling to the bottom line.”
NEXT GENERATION
The Buzwagi mine, in Tanzania, which started up in May, is the first of a string of big, low-cost operations that Barrick expects will together add 2,6-million ounces a year to group production, as well as playing a key role in lowering costs.
The other three mines under construction are the $500-million Cortez Hills mine, in Nevada, which will start up in 2010, followed a year later by the first production at Pueblo Viejo, in the Dominican Republic, and the giant Pascua Lama project, straddling the border of Chile and Argentina.
Both Cortez Hills and Pueblo Viejo are progressing within their preproduction budgets, Regent said.
At Pascua Lama, which got the green light in May this year, the cost of production, forecast at just $20 to $50/oz of gold, will make the operation one of the cheapest gold mines in the world.
In fact, if the mine were in operation today, Pascua Lama would reduce Barrick's total costs by $40/oz, Regent said.
The company continues to negotiate a project finance facility for Pueblo Viejo, which it co-owns with fellow Canadian Goldcorp, and expects the facility to be in place in the fourth quarter of this year.
Barrick shares rose 2,6% on Thursday, to C$36,68 apiece by 12:30 in Toronto. |
