TORONTO, July 26, 2017
PDF | Supplemental Information | All amounts expressed in U.S. dollars unless otherwise indicated
•Barrick reported second quarter net earnings attributable to equity holders ("net earnings") of $1.084 billion ($0.93 per share), and adjusted net earnings(1) of $261 million ($0.22 per share).
•The Company reported second quarter revenues of $2.160 billion, net cash provided by operating activities ("operating cash flow") of $448 million, and free cash flow(2) of $43 million.
•Gold production in the second quarter was 1.432 million ounces, at a cost of sales applicable to gold(3) of $726 per ounce, and all-in sustaining costs(4) of $710 per ounce.
•Total debt was reduced by $309 million in the second quarter.
•We continue to expect full-year gold production of 5.3-5.6 million ounces, at a cost of sales(3) of $780-$820 per ounce, and all-in sustaining costs(4) of $720-$770 per ounce.
•Normal leaching operations, including the addition of cyanide, have resumed at the Veladero mine in Argentina, following the anticipated ramp up and testing of upgraded leach pad systems.
•We completed the formation of our strategic partnership with Shandong Gold, a landmark agreement with the potential to create fundamental long-term value for our respective owners, as well as our community and government partners in Argentina.
•Barrick will begin discussions with the Government of Tanzania next week concerning the concentrate export ban and other issues impacting Acacia Mining plc's operations in the country.
Barrick Gold Corporation ("Barrick" or the "Company") today reported second quarter results for the period ending June 30, 2017.
Our portfolio delivered higher gold production and a 10 percent decrease in direct mining costs compared to the prior-year period, resulting in lower cost of sales and all-in sustaining costs for the second quarter. A number of factors contributed to lower cash flow over the same period, including higher cash taxes paid, an increase in working capital, and a planned increase in capital expenditures focused on sustaining and growing the value of our operations over the long term. We expect higher cash flow in the second half of the year as a number of these factors abate.
Reflecting our drive to maximize the productivity and efficiency of our operations, we have completed the unification of our Cortez and Goldstrike operations, and we are accelerating the implementation of our digital transformation in Nevada, which will support unit cost improvements, increased throughput, and expanding margins. During the quarter we continued to optimize our portfolio for long-term value creation, completing the formation of a strategic partnership with Shandong that has the potential to unlock the untapped mineral wealth of the El Indio Belt-a highly prospective district on the border of Argentina and Chile that is home to the Veladero mine, Pascua-Lama, Alturas, and other projects.
By applying strict capital discipline, leveraging innovation and digital technologies, and building distinctive partnerships, we are positioning Barrick to grow free cash flow per share over the long term. We continue to advance a deep organic project pipeline that provides our owners with exceptional leverage to gold prices, built on a foundation of core mines that are among the longest-life, lowest-cost gold operations in the industry.
Second quarter net earnings were $1.084 billion ($0.93 per share), compared to $138 million ($0.12 per share) in the prior-year period. This significant increase in net earnings was primarily due to $882 million in gains related to the sale of a 50 percent interest in the Veladero mine, and the sale of a 25 percent interest in the Cerro Casale project.
Adjusted net earnings(1) for the second quarter were $261 million ($0.22 per share), compared to $158 million ($0.14 per share) in the prior-year period. Higher adjusted net earnings were primarily the result of a 10 percent decrease in direct mining costs, driven by lower costs at Barrick Nevada and Pueblo Viejo, higher sales from our low-cost operations at Barrick Nevada, and lower relative sales from Acacia and Turquoise Ridge compared to the prior-year period. Higher gold and copper sales volumes and higher copper prices also contributed to stronger adjusted net earnings. This was partially offset by an increase in tax expense, higher depreciation, and an increase in exploration and evaluation costs.
Significant adjusting items (pre-tax and non-controlling interest effects) in the second quarter of 2017 include:
$689 million in a gain relating to the sale of a 50 percent interest in the Veladero mine;
•$193 million in a gain relating to the sale of a 25 percent interest in the Cerro Casale project; partially offset by
•$32 million in foreign currency translation losses primarily related to the devaluation of the Argentine Peso on VAT receivables; and
•$26 million in losses on debt extinguishment.
Refer to page 48 of Barrick's second quarter MD&A for a full list of reconciling items between net earnings and adjusted net earnings for the current and prior-year periods.
Operating cash flow was $448 million, compared to $527 million in the second quarter of 2016. Lower operating cash flow was primarily due to higher cash taxes paid at Pueblo Viejo. During the quarter we made our final 2016 tax payment in the Dominican Republic, in addition to our first tax payment for 2017. Based on our current estimates, this should result in nominal tax payments at Pueblo Viejo for the remainder of the year. Operating cash flow was further impacted by the concentrate export ban affecting Acacia's operations in Tanzania, an increase in working capital primarily related to leach pad inventories at Veladero, and an increase in exploration, evaluation, and project costs. These decreases were partially offset by higher gold and copper sales volumes and higher copper prices, combined with lower direct mining costs, as described above.
Free cash flow(2) for the second quarter was $43 million, compared to $274 million in the second quarter of 2016. The decrease primarily reflects higher capital expenditures, combined with lower operating cash flows. On a cash basis, capital expenditures for the second quarter were $405 million, compared to $253 million in the second quarter of 2016. This primarily reflects a planned increase in minesite sustaining capital expenditures at Barrick Nevada, relating to higher capitalized stripping costs and the timing of minesite sustaining projects in the current period, as well as greater spending at Veladero relating to phase 4B and 5B of the leach pad expansion and equipment purchases. The increase in capital expenditures also includes a $31 million increase in project capital, primarily at Barrick Nevada. This includes the Robertson property acquisition, development of Crossroads and the Cortez Hills Lower Zone, and the Goldrush project, partially offset by a decrease in pre-production stripping at the Arturo pit, which entered commercial production in August 2016. These increases reflect high-confidence investments in our most attractive opportunities to sustain and grow the value of our operations over
the long term.
RESTORING A STRONG BALANCE SHEET
Achieving and maintaining a strong balance sheet remains a top priority. We intend to reduce our total debt from $7.9 billion at the start of 2017, to $5 billion by the end of 2018-at least half of which we are targeting this year. We will achieve this by using cash flow from operations, further portfolio optimization, and the creation of new joint ventures and partnerships. We will continue to pursue debt reduction with discipline, taking only those actions that make sense for the business, on terms we consider favorable to our shareholders.
We reduced our total debt by $309 million in the second quarter, or a total of $487 million year to date. On June 30, the Company completed the sale of a 50 percent interest in the Veladero mine in Argentina to Shandong for $960 million, which will be allocated to debt reduction.
At the end of the second quarter, Barrick had a consolidated cash balance of approximately $2.9 billion.(5) The Company has less than $200 million(6) in debt due before 2020. About $5 billion, or two-thirds of our outstanding total debt of $7.4 billion, does not mature until after 2032.
OPERATING HIGHLIGHTS AND OUTLOOK
Barrick produced 1.432 million ounces of gold in the second quarter at a cost of sales(3) of $726 per ounce. This compares to 1.340 million ounces at a cost of sales(3) of $836 per ounce in the prior-year period. After removing non-controlling interests, cost of sales declined by 13 percent on a per-ounce basis compared to the second quarter of 2016, primarily driven by a 10 percent reduction in direct mining costs, and higher ounces sold.
All-in sustaining costs(4) in the second quarter were $710 per ounce, compared to $782 per ounce in the second quarter of 2016. A nine percent reduction in all-in sustaining costs was primarily driven by lower cost of sales per ounce, combined with lower general and administrative expenses, partially offset by an increase in minesite sustaining capital expenditures. Cash costs(3) also decreased by 18 percent, from $578 per ounce in the second quarter of 2016, to $474 per ounce in the second quarter of 2017.
We continue to expect full-year gold production of 5.3-5.6 million ounces, at a cost of sales(3) of $780-$820 per ounce, and all-in sustaining costs(4) of $720-$770 per ounce. This does not include any revisions to Acacia's annual output as a result of the export ban on concentrates currently impacting Acacia's operations (see "Tanzania Concentrate Export Ban Update" on below for additional details). We expect production for the remainder of the year to be weighted towards the fourth quarter. Based on sales mix and our current expectations for the timing of capital expenditures, we expect costs to be higher in the third quarter.
The Company produced 104 million pounds of copper in the second quarter, at a cost of sales(3) of $1.85 per pound, and all-in sustaining costs(7) of $2.38 per pound. This compares to 103 million pounds, at a cost of sales(3) of $1.43 per pound, and all-in sustaining costs(7) of $2.14 per pound in the second quarter of 2016.
Cost of sales applicable to copper increased by 28 percent compared to the prior-year period, primarily due to higher depreciation expense, and higher power and processing costs at Lumwana. Copper all-in sustaining costs, adjusted to include our proportionate share of equity method investments at Zaldívar and Jabal Sayid, were 10 percent higher in the second quarter. This primarily reflects the higher cost of sales applicable to copper combined with higher minesite sustaining capital expenditures at Jabal Sayid, which only began incurring sustaining capital expenditures upon entering commercial production in July 2016, as well as higher capitalized stripping at Lumwana.
We continue to expect full-year copper production of 400-450 million pounds, at a cost of sales(3) of $1.50-$1.70 per pound, and all-in sustaining costs(7) of $2.10-$2.40 per pound.
As part of our ongoing efforts to increase transparency and strengthen our disclosures, we intend to pre-release production and sales figures ahead of our quarterly earnings releases, beginning in the third quarter of 2017.
Please see page 32 of Barrick's second quarter MD&A for individual operating segment performance details. Detailed mine site guidance information can be found in Appendix 1 of this press release.
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