Barrick Clears Hedge, Takes US$159M Loss

Vancouver — Swallowing some bitter medicine, Barrick Gold (ABX-T, ABX-N) reported 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 from its net income, offsetting an otherwise strong quarter that saw the world’s 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.

Excluding the impact of eliminating the hedges, adjusted earnings came to US$398 million (US45 per share).

“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,” said Barrick president and CEO Greg Wilkins in a statement.

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 company’s North American business unit contributed about 800,000 oz. gold during the period (at 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 Barrick’s Goldstrike mine 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. 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 200,000 oz. The Zaldivar mine, in Chile, produced about 80 million lbs. of copper during the quarter.

Operations in the Australia-Pacific division produced 500,000 oz. gold during the period, averaging a total cash cost of US$426 per oz. Both Porgera, in Papua New Guinea, and Granny Smith, in Australia, saw lagging output; the former, due to power issues and the latter to slower ramp-up of underground operations. The Australian gold mine Cowal improved its performance as it processed softer oxide ore.

Following the quarter, Barrick agreed to purchase Emperor Mines’ (EMPMY-O, EMP-A) 20% interest in Porgera for US$250 million to give it a 95% stake in the mine.

The African unit saw a number of issues contributing to weaker gold output of just 200,000 oz. (at a total average cash cost of US$328 per oz.) from its trio of mines in Tanzania. Tulawaka was affected by heavy rainfall, while Bulyanhulu saw lower-grade ore being processed. A pit wall failure at North Mara forced changes to the mining plan and decreased production, as well.

Barrick remains confident it will meet its forecast annual output of 8.1-8.4 million oz. gold this year, along with about 400 million lbs. 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 first-quarter loss, investors were big fans of Barrick’s move to wipe out its hedge book. The stock rallied 5% for a gain of $1.56 to close at $32.71 per share.