Charges ravage Barrick fourth-quarter earnings

A US$117-million charge related to its takeover of Homestake Mining coupled with a US$59-million provision related to the court ruling over the sale of the Troilus gold mine in 1997 sent Barrick Gold (ABX-T) deep into the red in the fourth quarter.

During the three months ended Dec. 31, the company recorded a net loss of US$94 million or 17 per share. Before the charges, Barrick’s net income tallied to US$55 million (11 per share).

For all of 2001, net income amounted to US$96 million (18 per share), compared with a year-ago loss of US$1.2 billion ($2.22 per share) in 2000. Excluding the charges, 2001 earnings were US$245 million (46 per share), compared with earnings of US$168 million (32 per share) in 2000. Revenue from gold sales climbed slightly to US$1.99 billion from US$1.94 billion. Cash flow from operations fell to US$721 million from US$940 million in 2000.

During the year, Barrick met its production target with record output of 6.1 million oz. of gold at US$162 per oz. During all of 2000, Barrick poured more than 5.9 million oz. at US$155 per oz.

Barrick benefited from record production and costs at Pierina (in Peru), Round Mountain (Nevada) and from the Yilgarn operations (Western Australia), as well as strong contributions from Goldstrike (Nevada) and Eskay Creek (B.C.) and production from the company’s newest mine, Bulyanhulu in Tanzania.

Looking ahead, the company expects to pump out 5.7 million oz. of gold at US$167 per oz. in 2002. The decrease in production is due mostly to the planned closure of several mines. Two of the mines were closed in 2001 — Homestake (South Dakota) and Mount Charlotte (Australia); five others are slated to close in 2002 — El Indio (on the Chile-Argentina border), Bousquet (Quebec), McLaughlin (California), Ruby Hill (Nevada) and Agua de la Falda (Chile).

Barrick expects half of 2002 production to be sold at US$365 per oz. under its premium gold sales program. The remainder will be sold on the spot market. The gold miner said in a statement, "Considering current market conditions and the larger production base with the merger, the company lowered the percentage of production delivered into the program to 50%."

At the end of 2001, Barrick’s forward sales contracts covered 18.2 million oz., including 1.9 million oz. from Homestake, equal to 22% of reserves. The company’s proven and probable gold reserves increased to 82.3 million oz. during 2001, from 79.3 million oz. for Barrick and Homestake combined in 2000.

In mid-January, a British Columbia court awarded US$59 million to Inmet Mining (IMN-T) for breach of contract in the aborted sale of the Troilus gold mine in north-central Quebec. The damages awarded is equal to the difference between the companies originally agreed upon sale price and an estimate of the mine’s value at the time of trial. The decision was against Homestake Canada, now a wholly-owned subsidiary of Barrick. Barrick has appealed the decision.

Barrick completed its merger with Homestake Mining in mid-December to create the world’s second-largest gold producer. Under the deal, Barrick issued about 140 million shares a total cost of US$2.3 billion. Annual merger-related cost savings are pegged at about US$55 million in 2002, rising to US$60 million during 2003 and 2004.

Barrick’s CEO Randall Oliphant said, "With the Homestake merger completed we have eight major properties on four continents, a promising exploration portfolio and — with our strong balance sheet — we have the ability to grow organically or through disciplined acquisitions.”

At year-end 2001, Barrick had US$574 million in cash and equivalents, down from US$816 million at the end of 2000. The company’s long-term debt fell to US$793 million from US901 million.