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How Barrick Gold Is Beating Inflation

Stocks in this article: ABX GG

HOLLYWOOD, Fla. ( TheStreet ) -- Barrick Gold (ABX) is proving itself to be the leader among miners when it comes to striking the balance between overcoming rising costs and taking advantage of soaring gold prices.

The company recently reported a killer fourth quarter. The company earned 95 cents a share, declared a 12 cent dividend, posted $2.95 billion in revenue, produced 1.7 million ounces of gold for $486 an ounce, (or $326 if you factor in by-products) and grew measured and indicated resources by 24%.Shares have soared almost 6% since the company reported earnings February 17th.

Barrick chief executive officer Aaron Regent sat down wtih TheStreet during this week's BMO Capital Markets Global Metals and Mining conference here to talk about the headwinds facing the industry in 2011 and his company's strategy for continuing to deliver growth.

Barrick Gold CEO Aaron Regent

The biggest hurdle for the gold industry right now is rising costs as inflation heats up. Most companies are seeing it in higher labor and energy expenditures. Barrick is no exception, but it's how it's managing high costs that counts.

Cash costs are expected to be about 10% higher for the company in 2011 at $450-$480 an ounce. Barrick's total costs, that is, factoring in all the company's expenses not just those associated with production, are $750-$800. The industry average is between $900 and $1,050 an ounce.

In terms of labor costs, there are limited actions a gold miner can take aside from firing people, hiring less qualified individuals or shutting down mines, none of which Barrick is planning to do. Of its overall cost increase of 10%, labor costs make up 5%.

Labor is "a tough one," said Regent. "It's a struggle and there are limitations to what you can do." Labor becomes a particularly difficult issue when it comes to dealing with unions in countries like Argentina, where inflation is 20%. Experts in the mining industry are also in short supply, causing a spike in wages as the leading companies compete for top talent.

Barrick is hoping to offset these non-negotiable costs by bringing lower cost mines on stream. Cortez, for example, in North America, produced 1.1 million ounces of gold in 2010 for under $300 an ounce. Regent expects the mine to produce 1.3 million to 1.4 million ounces in 2011 for under $300. "That'll help pull down our overall costs."

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