Barrick trims hedge book, earnings (May 03, 2004)

Barrick Gold (abx-t) earned about 10% less in the recent first quarter than in the comparable period of 2003, as a US$10-million after-tax derivative loss offset higher gold prices and increased production.

The world’s third-largest gold producer earned US$26 million (or US5 per share) in the January-to-March period, compared with US$29 million (US5 per share) a year earlier. Revenue between the two periods climbed by US$18 million, to US$477 million, as the company realized US$27 more for each ounce of gold sold. Conversely, cash flow from operations dropped US$5 million to US$126 million, owing to higher cash costs.

The recent quarter’s earnings include an after-tax non-hedge derivative loss of US$10 million, due mostly to “the impact of higher market silver prices on silver derivative instruments not eligible for hedge accounting treatment.” A year earlier, the company recorded a non-hedge derivative gain of US$38 million, which was partially offset by a one-time charge of US$17 million related to accounting changes.

Gold production totalled 1.28 million oz. at a cash cost of US$199 per oz., up from 1.26 million oz. at US$194 per oz. a year earlier.

Cash costs jumped 48%, to US$208 per oz., at Darlot in Australia as mining of lower-grade material caused output to fall 21%. Similarly, lower grades at Bulyanhulu in Tanzania caused production to fall 10%, while cash costs rose 44% to US$276 per oz.

Cash costs at the 33%-owned Marigold mine in Nevada jumped 47% to US$248 per oz. Glamis Gold (glg-t) holds a 66.7% stake in Marigold.

Barrick realized US$382 for each ounce sold, US$26 below the quarter’s average spot price, but US$27 per oz. better than the corresponding period of 2003. The average realized gold price suffered as Barrick delivered 800,000 oz. against its hedge contracts at prices below spot.

By quarter’s end, Barrick’s hedge position had been reduced to 14.7 million ounces, or 17% of its reserves at the end of 2003. The company plans to trim at least another 1.5 million oz. from its hedge book in 2004. The unrealized mark-to-market value of Barrick’s fixed-price forward gold sales contracts rose to minus US$1.8 billion by the end of March, up from just more than US$1.7 billion at the end of 2003.

The major expects to meet its 2004 production forecast of 4.9-5 million oz. gold at an average cash cost of US$205-215 per oz.

Among North American operations, the Eskay Creek mine in British Columbia led the way, with cash costs falling significantly in response to increased silver byproduct credits. Overall, the region produced slightly more gold than in the first quarter of 2003.

Production at the Pierina mine in Peru increased as a result of better recoveries on the leach pad.

In the Australian and African regions, production rose, as did cash costs. At Bulyanhulu in Tanzania, mining and production targets were met, but total cash costs came in higher than predicted. During the quarter, the operation processed lower-grade development ore. Grades, recoveries, and cash costs improved steadily over the quarter.

At the end of March, Barrick had US$850 million in cash and equivalents, down from US$970 million at the end of 2003; long-term debt climbed by US$2 million to US$721 million.