Barrick Gold Sees Some Sparkles

Barrick Gold Corporation (ABX: 37.27 0.00 0.00%) reported a $604 million or 60 cents per share profit in the fourth quarter of 2009, almost double last year’s earnings of $277 million or 32 cents. Reported earnings were also ahead of the Zacks Consensus Estimate of 57 cents. The Canadian gold miner generated revenues of $2.4 billion, 13% higher than the year-ago level.

The realized gold price for the quarter was $1,119 per ounce, up 38% from the year-ago level. Gold production reached 1.90 million ounces at a cash cost of $474 per ounce. The improved figures reflected a strong operating performance in North and South America. Full-year gold production of 7.42 million ounces at a cash cost of $466 per ounce was within the original guidance of 7.2−7.6 million ounces of gold at a cash costs of $450−$475 per ounce.

Barrick’s North American business produced 600,000 ounces of gold at a cash cost of $523 per ounce. This was driven by the Goldstrike operation, which produced 210,000 ounces at $528 per ounce as higher-grade ore continued to be mined in the open pit and underground. The Cortez mine contributed 170,000 million ounces at $382 per ounce. Barrick expects higher production as a result of higher grades from the Cortez property once the Cortez Hills mine is in operation.

Its South American business produced 540,000 ounces of gold at a cash cost of $253 per ounce. The Lagunas Norte mine produced 210,000 ounces at cash costs of $164 per ounce on lower grades. Despite its low grades, Lagunas Norte is expected to deliver another strong performance in 2010 with an expected production of 820,000−850,000 ounces at $180−$200 per ounce.

South America

As anticipated, the Veladero mine in South America had a strong quarter with production of 280,000 ounces at $296 per ounce due to access to higher grades from both the Amable and Federico pits and the completion of the crusher expansion in the third quarter, which is expected to increase output from 50,000 to 85,000 tons per day. 

Production at Veladero is expected to increase to 109,000−116,000 ounces at $270−$310 per ounce in 2010 as a result of this higher expected throughput and higher grades. Successful in-fill drilling results at the Pierina mine have extended its expected life through to mid-2013.

Australia Pacific

The Australia Pacific business unit contributed 540,000 ounces at cash costs of $607 per ounce. Production of 150,000 ounces of gold at Porgera, the region’s largest operation, for $532 per ounce was impacted by power supply issues in December.

Africa

Quarterly production from the African business unit was 210,000 ounces at cash costs of $617 per ounce. Higher production and lower cash costs as compared to the prior-year quarter were due to the new Buzwagi mine, which produced 66,000 ounces at cash costs of $511 per ounce. By the end of the quarter, the mine had successfully ramped up and is expected to produce 240,000−260,000 ounces at an average of $310−$350 per ounce in 2010.

Copper Production

Copper production was 98 million pounds at lower-than-expected cash costs of $1.08 per pound, driven by a higher relative contribution from the lower cost Zaldívar operation in South America. The company benefited from its copper hedge position, realizing $3.44 per pound, 43 cents per pound higher than the average spot price in the reported quarter.

Gold Hedge Position

During the quarter, Barrick completed the elimination of its gold hedges based on an increasingly positive outlook for gold, using net proceeds from both equity and long-term debt offerings. In the last two years, Barrick has eliminated its legacy project gold hedge position of 9.5 million ounces at a average gold price of about $930 per ounce.

At year-end 2009, Barrick grew the industry’s largest unhedged proven and probable reserve base for the fourth consecutive year to 139.8 million ounces, based on an $825 per ounce gold price. Net cash margin increased to about 71% or $798 per ounce from about 53% or $427 per ounce in the fourth quarter of 2008. Operating cash flow was negative $4.30 billion, primarily reflecting the $5.22 billion cash settlement related to the Gold Sales Contracts.

At December 31, 2009, Barrick had the gold industry’s highest credit rating, a cash balance of $2.6 billion and a net-debt-to-total-capitalization ratio of approximately 0.18. The company is positioned to generate significant operating cash flow in 2010 in what we expect to be a positive gold price environment.

Barrick has agreed to acquire an additional 25% interest in the Cerro Casale project in Chile from Kinross Gold Corporation (KGC: 17.66 0.00 0.00%) for a consideration of $475 million, thereby gaining control of the project with a total stake of 75%. Barrick’s production is expected to increase to 7.6−8.0 million ounces in 2010 (compared with 7.9 million ounces in 2009) at lower average cash costs of $425−$455 per ounce.