Barrick Reports Fourth Quarter and Full Year 2013 Results

February 13, 2014

TORONTO, ONTARIO--(Marketwired - Feb 13, 2014) - Barrick Gold Corporation ( ABX )( ABX.TO ) (Barrick or the company) today reported a fourth quarter net loss of $2.83 billion ($2.61 per share), including after-tax impairment charges of $2.82 billion. Adjusted net earnings were $0.41 billion ($0.37 per share). Operating cash flow was $1.02 billion and adjusted operating cash flow was $1.09 billion.

For the full year 2013, Barrick reported a net loss of $10.37 billion ($10.14 per share), including after-tax impairment charges of $11.54 billion. Adjusted net earnings were $2.57 billion ($2.51 per share). Operating cash flow of $4.24 billion and adjusted operating cash flow of $4.36 billion reflect the underlying strength of the company's high-quality mining operations.

OPERATING HIGHLIGHTS AND GUIDANCE
2013 Actuals
Gold Fourth
Quarter
Full
Year
2014
Guidance
Production (000s of ounces) 1,713 7,166 6,000-6,500
All-in sustaining costs ($ per ounce) 899 915 920-980
Copper
Production (millions of pounds) 139 539 470-500
C1 cash costs ($ per pound) 1.81 1.92 1.90-2.10
TOTAL CAPITAL EXPENDITURES ($ millions) 1,294 5,000 2,400-2,700

"The disciplined capital allocation framework that we adopted in mid-2012 has been at the core of every decision we've made in the last year and half, and has put us in a much stronger position to deal with the challenging gold price environment our industry is facing today. Under a comprehensive plan to strengthen the company, we have become a leaner, more agile organization, better protected against further downside price risk and well positioned to take advantage of attractive investment opportunities going forward," said Jamie Sokalsky, Barrick's President and CEO. "We have increased our focus on free cash flow and risk-adjusted returns, and successfully executed on our key priorities, which include operational excellence, a stronger balance sheet and the ongoing optimization of our asset portfolio. This required decisive action, including the temporary suspension of Pascua-Lama, and an even greater focus on generating higher returns even if that means producing fewer ounces. These were the right decisions for our shareholders and for the company, and we are now seeing the tangible benefits of our efforts."

Operational Excellence is a Top Priority

  • Met improved gold and copper operating guidance for 2013
  • Maintained the lowest all-in sustaining costs (AISC) (1) of our peer group in 2013 and expect to retain this position in 2014
  • Significantly improved Lumwana's performance in 2013 and expect to reduce costs further in 2014
  • Five core mines met expectations in 2013, producing about 4.0 million ounces or 55 percent of total production at AISC of $668 per ounce; these mines are expected to produce about 60 percent of total production in 2014 at AISC of $750-$800 per ounce
  • Implemented a flatter, more streamlined organizational model that supports operational excellence; appointed Jim Gowans as Chief Operating Officer in December 2013, an experienced executive who brings four decades of global mining operations experience to Barrick
  • Reduced 2013 general and administrative costs
  • Targeting $500 million in annual cost savings from the new operating model, reduced procurement costs and other initiatives

Strengthened Balance Sheet and Financial Flexibility

  • Termed out $3.0 billion in debt in the second quarter of 2013
  • Reduced 2013 capital and operating costs by about $2.0 billion
  • Improved near-term cash flow through temporary suspension of Pascua-Lama
  • Raised $3.0 billion in a bought equity deal in the fourth quarter of 2013 to repay debt, reducing maturities over the next four years to $1.0 billion

Continued Progress on Portfolio Optimization

  • In the last six months, announced agreements to divest Barrick Energy, six high-cost, non-core mines and other assets for a total consideration of almost $1.0 billion
  • Completed mine plans and reserve estimates using a conservative gold price assumption of $1,100 per ounce in order to prioritize profitable production and returns, while retaining the option to access the metal in the future when prices and returns improve

"2013 was a tough year for Barrick by any measure, but with a renewed focus on capital discipline and operational excellence across the board, we have reset our focus and revitalized the company's prospects," Mr. Sokalsky said. "We will not veer from this course, which has delivered solid results, reduced costs and improved financial flexibility."

FINANCIAL DISCUSSION

Fourth quarter 2013 adjusted net earnings were $0.41 billion ($0.37 per share) (1) compared to $1.16 billion ($1.16 per share) in the prior-year period. The decrease reflects lower realized gold and copper prices and a decline in gold and copper sales volumes. The net loss for the fourth quarter was $2.83 billion ($2.61 per share) compared to a net loss of $3.01 billion ($3.01 per share) in the prior-year quarter. Significant adjusting items for the quarter include:

  • $2.82 billion in impairment charges, primarily related to Pascua-Lama, Porgera, Veladero and the Australia Pacific gold segment; and
  • $176 million in suspension-related costs at Pascua-Lama.

The company recorded an impairment charge for the Pascua-Lama project of $896 million (2) due to the decision to temporarily suspend construction in the fourth quarter. At the Porgera mine, the company recorded an impairment charge of $595 million based on changes to the mine plan to focus primarily on higher grade underground ore. As a result, Porgera's estimated mine life has decreased from 13 years to nine years. Lower gold price assumptions and the impact of sustained inflationary pressures on operating and capital costs led to a reduction of reserves and life-of-mine production at the Veladero mine in Argentina, resulting in an impairment charge of $300 million. At Jabal Sayid, the annual update to the life-of-mine plan showed a decrease in net present value. In addition, the project's fair value was impacted by a delay in first production. As a result, the company recorded an impairment charge of $303 million. As part of its annual goodwill impairment test, the company recognized a goodwill impairment charge of $551 million for its Australia Pacific gold segment, primarily related to the lower estimated fair value of Porgera.

Fourth quarter operating cash flow of $1.02 billion compares to $1.85 billion in the prior-year period. The decline reflects lower realized gold and copper prices and increased income tax payments. Adjusted operating cash flow of $1.09 billion (3) compares to $1.93 billion in the prior-year period and removes the impact of foreign currency and commodity derivative contract settlements.

RESERVES AND RESOURCES

Barrick calculated its reserves for 2013 using a conservative gold price assumption of $1,100 per ounce, compared to $1,500 per ounce in 2012. While this is well below the company's outlook for the gold price and below current spot prices, it reflects Barrick's focus on producing profitable ounces with a solid rate of return and the ability to generate free cash flow. Gold reserves declined to 104.1 million ounces (4) at the end of 2013 from 140.2 million ounces at the end of 2012. Excluding ounces mined and processed in 2013 and divestitures, all of these ounces have transferred to resources, preserving the option to access them in the future at higher gold prices.

The 26 percent decline in reserves breaks down as follows (approximations):

Percentage
13 - conservative gold price assumption of $1,100 per ounce
6 - ounces mined and processed in 2013
4 - ounces that are economic at $1,100 per ounce, but do not meet hurdle rates of return on invested capital
2 - ounces no longer economic due to increased costs
2 - divestitures of non-core, high-cost mines as part of the company's portfolio optimization strategy
(1) - additions

Measured and indicated gold resources increased to 99.4 million ounces at the end of 2013 from 83.0 million ounces at the end of 2012. Resources were calculated based on a gold price assumption of $1,500 per ounce compared to $1,650 per ounce for 2012. Inferred gold resources decreased to 31.9 million ounces at the end of 2013 from 35.6 million ounces at the end of 2012.

Copper reserves increased slightly to 14.0 billion pounds based on a copper price assumption of $3.00 per pound. Measured and indicated copper resources decreased to 6.9 billion pounds from 10.3 billion pounds at the end of 2012 based on a copper price assumption of $3.50 per pound, primarily as a result of further optimization of the Lumwana mine plan. Inferred copper resources decreased to 0.2 billion pounds from 0.5 billion pounds at the end of 2012.

2014 OUTLOOK

Barrick's 2014 gold cost guidance is the lowest among senior producers, with AISC expected to be $920-$980 per ounce and adjusted operating costs projected to be $590-$640 per ounce.

The company anticipates 2014 gold production of 6.0-6.5 million ounces. Lower production in 2014 reflects the company's strategy to maximize free cash flow and returns over ounces, the divestment of high-cost, short-life mines, lower production from Cortez, and the decision to close Pierina. These declines will be partially offset by an increase in production at Pueblo Viejo.

Detailed 2014 operating guidance, based on the company's new operating model, and capital expenditure guidance is as follows:

...
GOLD PRODUCTION AND COSTS
Production
(millions of
ounces)
AISC
($ per ounce)
Adj. Operating
Costs
($ per ounce)
Cortez 0.925-0.975 750-780 350-380
Goldstrike 0.865-0.915 920-950 600-640
Pueblo Viejo 0.600-0.700 510-610 385-445
Lagunas Norte 0.570-0.610 640-680 390-430
Veladero 0.650-0.700 940-990 620-670
Sub-total 3.800-4.000 750-800 450-500
North America - Other 0.795-0.845 1,075-1,100 780-805
Australia Pacific 1.000-1.080 1,050-1,100 825-875
African Barrick Gold