Barrick updates 10-year plan

Barrick Gold (TSE: ABX; NYSE: GOLD) has unveiled a 10-year gold production plan in which it aims to maintain production levels of approximately 5 million oz. gold per year between 2020 and 2029. The plan is based on its current operating asset portfolio, sustaining projects in progress, and implementing exploration and mineral resource management initiatives. It does not include additional asset optimization, further exploration growth, new project initiatives and divestitures.

Barrick says 2.5 million oz. gold per year will come from its North American mines, 1 million oz. gold per year from Latin America and the Asia Pacific, and 1.5 million oz. per year from Africa and the Middle East.

Barrick’s North American projects include three of the company’s ‘tier one’ assets that are 61.5% owned and operated by the company — Carlin, Cortez and Turquoise Ridge — located in the Nevada gold mines complex, the single-largest gold-mining complex in the world.

The company’s other North American project, Hemlo, in Ontario, Canada, is being modernized and refocussed to ensure its continued viability, Barrick said.

Publication of the 10-year plan follows announcements earlier this month that Barrick intends to extend the mine life of its Veladero gold mine in Argentina and its Pueblo Viejo mine in the Dominican Republic.

At Veladero, 374 km northwest of the city of San Juan, Barrick announced that it has expanded the life of the mine to at least 10 years following a review of its strategy and business plan.

“Our review included the reinterpretation of the mine’s geology and an ongoing infill drilling campaign,” Mark Bristow, Barrick’s president and CEO, said in a press release on March 16. “We established exploration and resource management teams to identify satellite orebodies with the potential to deliver an increase in resources and reserves. Our aim is to extend Veladero’s life of mine beyond 2030 and elevate it to a tier one asset.”

Barrick Gold’s Cortez gold mine, 100 km southwest of Elko, Nevada. Credit: Barrick Gold.

A new and updated geological model that included improvements in the geology and global reconciliation was developed after Barrick re-logged 150,000 metres of core. Mining at Veladero is now expected to be extended from 2024 to 2027 and residual leaching from 2028 to 2031.

A tier one mine, as defined by Barrick, produces over 500,000 oz. gold per year and has a life of at least 10 years and total cash cost per ounce over the life of the mine in the lower half of the industry cost curve.

The Veladero gold mine (a 50-50 joint venture operation between Barrick and China’s Shandong Gold) is a large open pit, heap leach gold and silver mine with operations at an elevation of 3,900-4,800 metres in the high Andes Cordillera of Argentina. It is located in the highly prospective Frontera district, which is part of the El Indio gold belt, a mineral-rich region spanning the border between Argentina and Chile that contains large amounts of gold, silver and copper.

According to Bristow, the mine will be connected to the Chilean electricity network in the second half of 2020, with the supply of cleaner and cheaper electricity from Chile potentially halving the mine’s carbon footprint as well as reducing its cut-off grade, leading to a potential increase in the mine’s mineral reserves.

Veladero has contributed around US$9.5 billion to the Argentinian economy from taxes, royalties, salaries and payments to local suppliers. The company has also established a fund that is expected to raise more than US$88 million for local infrastructure development over the next decade.

“Argentina has the potential to rebuild its economy for its people and Veladero can make a significant contribution to that process. Realizing that potential requires the government and the industry to work together towards long-term goals and to guard against short-term fiscal measures which could destroy this opportunity,” Bristow said.

In addition to the Veladero life-of-mine extension, Barrick plans to expand the Pueblo Viejo gold mine in the Dominican Republic, 100 km northwest of the capital city, Santo Domingo.

The mine is a 60-40 joint venture between Barrick and Newmont (TSX: NEM; NYSE: NEM). An initial investment of US$1.3 billion will be used to expand the process plant and tailings facility. The expansion will help exploit the lower grades in the orebody and is not intended to process ore from outside the concession, he added.

Between 2013 and 2016, the mine paid US$1.8 billion in taxes. Last year, the mine accounted for more than 38% of the country’s total exports. Extending the mine’s life would potentially increase the country’s exports by US$22 billion and generate US$4 billion in taxes, at a gold price of US$1,500 per oz., Barrick estimates.

Announcing the expansion plan on March 11, Bristow noted that the conversion of the mine’s Quisqueya 1 power plant to natural gas had been successfully commissioned and would lead to a 30% cut in the mine’s greenhouse gas emissions. In addition, the company has plans for an agribusiness project as an added benefit for the communities impacted by the expansion.

“Our aim is to continue contributing to the social and economic development of the Dominican Republic by applying our sustainability philosophy to create long-term value for all our stakeholders, especially the governments and people of our host countries. Without this project, mining at Pueblo Viejo would have ceased in the next two years,” he said.

Barrick also announced the release of its 2019 annual report highlighting gold production of 5.5 million oz. – the top end of its guidance range; an increase of 14.5% in proven and probable reserves to 71 million oz. gold; a share price rise of 78% to $24.12; an adjusted net earnings per share jump of 46%; a halving of net debt to $2.2 billion; and three increases in its quarterly dividend.

Other highlights include production of 432 million lb. copper, which exceeded guidance; the establishment of the Nevada Gold Mines joint venture with Newmont that is majority-owned and operated by Barrick; consolidation of the company’s Tanzanian mines; and disposal of two non-core assets (Kalgoorlie and Massawa).

“The work we did in 2019 has equipped us well to take Barrick to the next level,” Bristow said in a press release on March 26. “We stand on the strong foundation of our enormous organic growth potential, which will support a positive production profile and a very robust business, capable of generating a substantial cash flow for at least the next decade. There are also opportunities for growth outside our current ambit, which we continue to explore.”

Barrick has budgeted US$210-$230 million for exploration in 2020.

Kerry Smith of Haywood Securities raised his target price on Barrick from $28 per share to $31 per share.

In the analyst’s model, Barrick “will generate significant free cash flow before working capital changes, averaging about US$2.0 billion per year for the next five years at our long-term gold price of US$1,475 per oz. gold.”

“With a strong balance sheet, globally diversified operations, a sightline on 10 years of production at 5 million oz. and generation of significant free cash flow, Barrick is a go-to name for all gold investors,” Smith wrote in a Mar. 26 research note to clients.

At press time in Toronto, Barrick was trading at $27.13 per share within a 52-week range of $15.73 and $29.94.