Barrick Outlook Depends on Cortez

Barrick Gold reports a quarter befogged by the last of its hedge unwindings, and awaits word of whether it can start operations at a controversial Nevada mine.
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(Updated for closing stock prices.)

TORONTO (

TheStreet

) --

Barrick Gold

(ABX)

reported better-than-expected fourth-quarter results Thursday, but the company's prospects remain shadowed by a controversial mine in Nevada.

Barrick, the world's largest gold miner, also announced plans to spin off its African properties into a new public company with shares listed in London.

The company said it expects to price shares in the IPO by late March. The stock will be listed on the London Stock Exchange, as well as the Dar es Salaam Stock Exchange, in Tanzania. Barrick will retain 75% of the equity of the new company, which will have initial cash of about $280 million and be called

African Barrick Gold

.

The company has four active mines in Africa, Barrick said, for which it expects 2010 output of as much as 850,000 ounces of gold. Reserves are estimated at 16.8 million ounces.

Meanwhile, Barrick's fourth-quarter profit leaped 118% to an all-time high for the company: $604 million, or 61 cents a share -- driven by the price of gold, which also reached an all-time high during the period: $1,227.50 on Dec. 3, to be exact. Barrick's per-share number edged out the Wall Street consensus target of 59 cents, according to a survey of analysts by Thomson Reuters.

Barrick's quarter wasn't clean, however. The above profit figures don't include the enormous costs the company has endured to pay for the removal of its gold hedges. Unwinding the positions, which took place last year, effectively wiped out all the earnings Barrick has made over the last two decades, according to the calculations of one analyst, John Doody, founder and editor of the newsletter

Gold Stock Analyst

.

Including the costs of eliminating the hedges, which Barrick completed in December and which amounted to $241 million in the fourth quarter, as well as an asset-impairment writedown and a higher Ontario tax rate, the company said it earned $215 million, or 24 cents a share.

Barrick's revenue rose to $2.4 billion from $2.1 billion a year ago -- matching analysts' estimates.

By the close of trading Thursday, Barrick shares stood at $39.23, gaining $1.37, or 3.6%, on heavier-than-average volume of 17.6 million shares.

Barrick, which issued its results before Thursday's opening bell, is the second of the precious-metal majors

to report fourth-quarter results as gold-mining earnings season kicks into high gear.

Kinross

(KGC) - Get Report

went Wednesday evening,

Newmont Mining

(NEM) - Get Report

reports next week, and

Goldcorp

(GG)

will report in early March.

The all-important cash-cost figure -- typically, the money a miner spends to dig each ounce of yellow metal out of the earth, separate it from its ore body, and melt it into bricks, on average across the company's mines -- came to $474 an ounce for Barrick in its fourth quarter. The Toronto-based concern produced 1.9 million ounces of gold in the period, and sold them for the most it has ever sold an ounce of the metal for in its history: $1,119 per.

As for its 2010 outlook, Barrick expects to mine between 7.6 million and 8 million ounces of gold this year, excluding the metal produced by its spun-off African unit, at an average cash cost of $425 to $455 an ounce. In 2009, the company produced 7.4 million ounces of gold for $466 an ounce.

Those 2010 improvements (more gold, reduced costs) depend to a large degree on what happens at the Cortez Hills mine in Nevada, where a group of environmentalists and Shoshone Indians have filed lawsuits in an attempt to block operations at the site.

In its press release, Barrick briefly discussed its travails at Cortez Hills. A federal district court -- in San Francisco -- has ruled that new environmental impact studies need to be conducted, but Barrick has asked for permission, essentially, to start mining at least a little while the studies continue.

If Barrick gets its way, it expects to produce 1.08 million to 1.12 million ounces of gold at Cortez in 2010, at a cash cost of $295 to $315 an ounce.

But that's a big assumption. Said the company in the press release Thursday, "In the event that the District Court issues a decision that differs substantially from Barrick's motion for a tailored injunction of activities at Cortez Hills, the Company will re-evaluate operating guidance for 2010."

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.