Barrick takes US$159M Q1 loss to clear hedges

Vancouver – Swallowing some bitter medicine, Barrick Gold (ABX-T, ABX-N) lodged a US$159-million (US18 per share) first quarter loss resulting from the elimination of its gold sale contracts.

The move to clear its hedge book cost Barrick US$557 million off its net income, offsetting an otherwise strong quarter that saw the worlds top gold miner produce 2.03 million oz. of bullion at total cash costs of US$313 per oz. plus about 100 million lbs. (over 45,000 tonnes) of copper at total cash costs of US81 per lb.

Adjusted earnings US$398 million (US45 per share) were tabled when the impact of the elimination of the corporate gold sales contracts were excluded.

“Going forward (as of May 1st), our operating mines are completely unhedged, able to sell production at spot prices and thereby enjoy expanded margins in this strong gold price environment,” stated Barrick president and CEO Greg Wilkins.

Illustrating the point is that in the first quarter of this year the average spot price of gold was about US$650 per oz. while Barrick realized an average sale price of just US$386 per oz.

The companys North American business unit contributed about 800,000 oz. of gold in Q1 (an average total cash cost of US$145 per oz.), down from the first quarter of last year due to mine sequencing and processing of lower grade ore at Goldstrike in Nevada. The Ruby Hill mine, also in Nevada, was brought on-stream during the quarter.

South American operations kicked in about 600,000 oz. of gold at an average total cash cost of US$145 per oz. with Lagunas Norte in north-central Peru contributing half that total and Veladero in northwestern Argentina delivering quarterly output of 200,000 oz. Additionally, Zaldivar in Chile produced about 80 million lbs. of copper in Q1.

Operations in the Australia-Pacific division produced a half-million oz. of gold in this years initial three months averaging a total cash cost of US$426 per oz. Both Porgera in Papua New Guinea and Granny Smith in Australia saw lagging output due to power issues and slower ramp up of underground operations respectively. The Australian gold mine Cowal improved its performance as it processed softer oxide ore.

Following Q1, Barrick entered into a purchase agreement to acquire Emperor Mines‘ (EMP-A) 20% interest in Porgera for US$250 million to give it a 95% interest in the mine.

The African unit saw a number of issues contributing to weaker gold output of just 200,000 oz. of gold (at a total average cash cost of US$328 per oz.) from its trio of mines in Tanzania. Tulawaka and Bulyanhulu were effected by heavy rainfall issues and processing of lower grade ores respectively. Additionally, a pit wall failure at North Mara forced changes to the mining plan and dropper production.

Barrick remains confident it will meet its forecast annual output of 8.1-to-8.4 million oz. gold this year along with about 400 million lbs. of copper.

The gold giant currently has half a dozen significant projects in the development and review stage, namely: Cortez Hills in Nevada, Pascua-Lama on the Chile-Argentina border, Pueblo Viejo in the Dominican Republic, Buzwagi in Tanzania, Donlin Creek in Alaska and Reko Diq in Pakistan.

Despite the Q1 loss, investors were big fans of Barricks move to wipe out its hedge book and rallied the stock up 5% for a gain of $1.56 to close at $32.71 per share in May 2nd TSX trading.