Barrick sees 2003 production decline

Barrick Gold (ABX-T) still expects to produce almost 5.7 million oz. of gold at around US$178 apiece this year, but sees the pace slipping next year.

Speaking at an investor conference in Toronto on Tuesday, Randal Oliphant, Barrick’s chief executive officer, said, “as a result of the planned closure of five mines this year we’re estimating 2003 production to be slightly lower with cash costs much like we’ve seen in 2002.”

Production has already been halted at four mines — Agua de la Falda and El Indio in Chile, Bousquet near Val d’Or, Quebec, and the McLaughlin mine in California. Ruby Hill near Eureka Cty., Nevada, is also slated to soon close.

Barrick plans on offsetting the closures with an ambitious US$2-billion growth plan aimed at doubling earnings by 2006. The scheme calls for four wholly owned projects — Alto Chicama in Peru, Cowal in Australia, Veladero in Argentina, and Pascua-Lama in Chile – to come on-stream over the next five years.

Barrick expects the plan will add 2 million new ounces of annual production at an average cash cost of US$125 per oz. for the first ten years. The plan’s estimated rate of return is 14% at a gold price of US$325 per oz. and 11% at $300 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.

The plan also includes trimming the company’s forward sales position to 12 million oz. by the end of 2003, down from 17.9 million oz. at the end of June. By 2004, 15% of reserves will be hedged, compared with 22% at present. Proven and probable reserves stand at 82.3 million oz. gold. The reduction will come via the fulfilment of existing contracts.

Barrick also expects 2003 administrative and exploration cost to run about the same as in 2002, which are estimated at US$65 million and US$$100 million, respectively. Depreciation is expected to eclipse this year’s estimate of US$520 million, mostly due to changes in the production mix. Reclamation costs are also expected to rise owing to changes in accounting rules.

Despite the accounting changes, Oliphant says, “Our fundamentals going forward – the underlying assets that drive the valuation of this company – are just as sound, and just as strong. Our reserves are intact. Our mine lives are the same. Our cash flow is strong. Our growth pipeline is in place.

The latest gloomy news from Barrick comes after a late-September announcement that third-quarter profits had been lowered to US5-6 per share. Full-year earnings estimates 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.

Barrick said t plans on issuing further guidance for 2003 at its year-end presentation in February.

In other news, Barrick has declared a dividend of US11 per share payable Dec. 20, to shareholders of record at the end of business on Dec. 6.

Barrick’s shares were off 19 to $22.96 in late-afternoon trade in Toronto on Nov. 26.