Barrick Gold (ABX)

Q2 2011 Earnings Call

July 28, 2011 9:30 am ET

Executives

Kelvin Dushnisky - Executive Vice President of Corporate and Legal Affairs

Deni Nicoski - Vice President of Investor Relations

Jamie Sokalsky - Chief Financial Officer and Executive Vice President

Peter Kinver - Chief Operating Officer and Executive Vice President

Robert Krcmarov - Senior Vice President of Global Exploration

Aaron Regent - Chief Executive Officer, President, Director and Member of Environmental, Health & Safety Committee

Analysts

John Tumazos - Independent Research

Steven Butler - Canaccord Genuity

Barry Cooper - CIBC World Markets Inc.

Kerry Smith - Haywood Securities Inc.

Patrick Chidley - Barnard Jacob Mellet

Greg Barnes - TD Newcrest Capital Inc.

Anita Soni - Crédit Suisse AG

David Haughton - BMO Capital Markets Canada

Presentation

Operator

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Ladies and gentlemen, thank you for standing by, and welcome to the Barrick Gold Q2 2011 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 28, 2011. I would now like to turn the conference over to Deni Nicoski, Vice President of Investor Relations. You may go ahead, sir.

Deni Nicoski

Thank you, operator, and good morning, everyone. Before we begin, I will bring to your attention the fact that we will be making forward-looking statements during the course of this presentation. For a complete discussion of the risks, uncertainties and factors which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statement, please refer to our year-end report or our most recent AIF filing.

With that, I'll hand it over to Aaron Regent, President and CEO of Barrick.

Aaron Regent

Thanks, Deni, and good morning. And thank you for joining our second quarter conference call. I'm joined here today by Jamie Sokalsky, Peter Kinver, Kelvin Dushnisky and Rob Krcmarov, and there are also other members of our senior management team on hand as well who will be available to answer questions later on in the call.

I'll start by covering some of the highlights of the quarter and provide an update on our projects. And I'll turn the call over to Rob Krcmarov, our Senior Vice President of Global Exploration, to discuss the exploration upside at the recently acquired Lumwana and Jabal Sayid assets. And then Jamie will take you through our results in a bit more detail and our outlook on the gold and copper market, after which we'd be happy to take any questions that you might have.

Turning to the quarter. Operationally and financially, we had a solid quarter but the increased pressure on the capital costs for projects has been a challenge. Metal prices continue to increase underpinned by strong price support of fundamentals. Operationally, we met our production and cost targets. Second quarter gold production was 1.98 million ounces at a cash cost of $445 per ounce. And we remain on track to meet our guidance this year. With the increase in metal prices and good cost control, our margins continue to expand and led to record adjusted net earnings of $1.1 billion or $1.12 per share, which is above consensus estimates. This also equate to annualized 21% return on equity.

We completed the Equinox acquisition and associated long-term financing. The newly acquired assets will add another source of long-term cash flow to the company. The one area where we continue to be challenged is the pressure on the capital cost of our projects. I'll elaborate more in a moment, but it is worth emphasizing that despite the higher capital cost, the returns have also increased due to the leverage these projects have to higher metal prices.

Looking more closely at our operating performance. The North American region continues to perform ahead of expectations, producing around 923,000 ounces in the quarter at a total cash cost of $404 per ounce primarily due to strong performances from Cortez and Goldstrike. Cortez production of 419,000 ounces at a total cash cost of $220 production, reflects a ramp up of leach pad production, increase mill throughput from debottlenecking and the processing of refractory ore at Goldstrike's facilities.

The Goldstrike operation exceeded plan, producing 299,000 ounces at total cash cost of $511 per ounce on better-than-expected grades and more ore than anticipated from the open pit, which is anticipated to transition to a higher stripping phase in the second half of the year, however.

Full year production for North America is expected to be between 3.3 million and 3.46 million ounces at a total cash cost of $425 to $450 per ounce. The South American business unit produced 453,000 ounces at total cash cost of $373 per ounce. Lagunas Norte mine exceeded expectations producing 176,000 ounces at total cash cost of $267 per ounce on positive grade reconciliations. Veladero contributed 241,000 ounces at a total cash cost of $364 per ounce and is on track to produce nearly 1 million ounces this year. Full year production for the South American region is expected to be between 1.8 million and 1.935 million ounces at total cash cost of between $350 and $380 per ounce.

The Australia Pacific business unit produced 463 ounces at total cash cost of $611 per ounce, and attributable production from African Barrick was 127,000 ounces at a total cash cost of $652 per ounce. Australia Pacific is expected to produce between 1.85 million and 2 million ounces at cash cost of $610 to $635 this year. And Barrick share of ABG's production is anticipated to be between 515,000 and 560,000 ounces at total cash cost of $590 to $650 per ounce.

Organizationally, the Lumwana mine and Jabal Sayid project will be managed by our Australia Pacific regional business unit. Looking at the copper production for the quarter, we produced 93 million pounds at a total cash cost of $1.56 per pound and this includes one month of production for the Lumwana mine in June. And for the year, we expect copper production to be between 455 million and 475 million pounds at total cash cost of between $1.55 and $1.75 per pound.

So in summary, our second quarter production was on plan and the outlook for the balance of the year remains within our guidance of between 7.6 million and 8 million ounces of gold at a total cash cost of between $450 and $480 per ounce and lower net cash cost of $290 to $320 per ounce.

Turning to our projects. At the Pueblo Viejo project in the Dominican Republic, overall construction is now more than 70% complete. A major rainfall event that occurred in May damaged the partially constructed starter tailings dam facility and as a result, due to the required remediation work, first production has been delayed and is now anticipated in mid-2012. The start date is however, predicated on the timing of approval of a new tailings permit.

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