Barrick’s Q3 earnings slide 42%

True to its word, Barrick Gold has posted lower third-quarter earnings of US$34 million owing to lower-than-anticipated grades and recovery rates at a handful of its operations.

The earnings translate to US6 per share, and lie at the high end of Barrick’s recently revised third-quarter earnings guidance of US5-6 per share. A year earlier, the company made US$59 million, or US11 per share. Revenue climbed to US$473 million from US$466 million on higher realized gold prices. Cash flow from operations slipped to US$156 from US$181 million.

In late September, Barrick issued a surprise warning that third-quarter earnings would ring in around US5-6 per share, before recovering to US10-11 per share in the fourth quarter. Full-year earnings were cut to US33-35 per share, well off the previous guidance of US42-47 a share. Both revised estimates are based on a gold price of US$315 per oz.

For the first 9 months of the year, Barrick’s earnings came to US$139 million (or 26 a share) on revenue of US$1.4 billion, compared with year-ago net income of US$204 million (38 per share) on about US$1.5 billion. Including US$38 million in costs associated with its Homestake acquisition, cash flow was US$484 million, well off the year-ago US$579 million generated.

Barrick’s chief executive officer Randall Oliphant said in a prepared statement, "A variety of unrelated operating issues from first half 2002 proved more stubborn than we’d expected and resulted in a disappointing quarter.”

“But we’ve got the issues in hand, we’ve got our focus on change, and we’ve got a plan in place to make changes happen. These issues in no way detract from the fundamental quality of our asset base – or the growth pipeline we have in place,” he added.

Barrick’s quarterly gold production tallied to 1.38 million oz., down from 1.53 million oz. During the first three quarters of 2002, Barrick poured just fewer than 4.1 million oz. of gold, down from 4.6 million during the corresponding period of 2001. The company averaged US$342 and US$338 per oz. for each of its quarterly and nine-month production, respectively. That’s US$26 and US$19 per oz. higher, respectively, from a year ago.

During the quarter, operating costs and total cash costs rang in at US$173 and US$180 per oz., respectively, up from US$158 and US$165 per oz. the previous year. The nine-month period saw operating and total cash costs each climb US$15 to US$171 and US$178 per oz., respectively.

John Carrington, the company’s chief operating officer said, ” We’re working on mine sequencing and processing issues at these operations with one aim in mind: producing more gold at lower cash costs.”

Despite its operational problem’s Barrick still expects to meet its 2002 production target of 5.7 million oz. at US$178 per oz., up US$11 per oz. from the original plan. Through 2006, the company is looking at averaging 5.5 million oz. at US$$175 apiece. The company reiterated its full-year earnings estimate of US33-35 per share.

At quarter’s end, Barrick’s forward sales position amounted to 16.9 million oz. The company plans to trim that to 12 million oz. by the end of 2003. Variable price sales and call option contracts fell about 900,000 oz. to 2.2 million oz.; the company is aiming to shed another 700,000 oz.

At the end of September, the mark-to-market value of the gold contracts was minus US$301 million, at a spot gold price of US$324 an oz. The company notes that the mark- to-market value would approach zero, or breakeven at a gold price of US$307 per oz.

Barrick ended the quarter with US$988 million in cash, working capital of US$773 million and no net debt.

Barrick shares were 7 higher at $23.05 in late-afternoon trade in Toronto on Thursday. Most of the country’s other gold miners were in the red. Investors seemed to be encouraged by the company’s brighter outlook and its previously outlined US$2-billion growth strategy.

Barrick plans to bring four wholly owned projects — Alto Chicama in Peru, Cowal in Australia, Veladero in Argentina, and Pascua-Lama in Chile – on-stream in the next five years. The projects are expected to churn out 2 million oz. of attributable gold at a combined cash cost of US$125 per oz.

By 2006, net production is expected to rise by 1.2 million oz., or 21%, to 6.9 million oz. at lower costs.