Barrick boasts record Q1 profit

Higher production and sales, lower cash costs and strong gold and copper prices pushed up Barrick Gold’s (ABX-T, ABX-N) adjusted first quarter net income by 149% to US$741 million (US75¢ per share), significantly higher than the US$298 million (US34¢ per share) the gold major posted in the same quarter a year ago.

Operating cash flow more than tripled to US$1.05 billion from US$349 million in the year-earlier quarter. Gold production jumped 19% to 2.08 million oz. at total cash costs of US$442 per oz., or net cash costs of US$342 per oz., US$42 per oz. and US$62 per oz. lower, respectively, than those in the year-earlier quarter.

The realized gold price for the quarter was US$1,114 per oz., US$5 per oz. above the average spot price of US$1,109 per oz. Cash margins increased to 60% or US$672 per oz. from 47% or US$431 per oz. in the first quarter of 2009.

Barrick says it is on track to boost production this year to 7.6-8 million oz. gold at lower total cash costs of US$425-US$455 per oz. or net cash costs of US$345-US$375 per oz.

Brian MacArthur, an analyst at UBS Investment Research, noted that Barrick’s adjusted earnings per share of US75¢ was higher than UBS’s own estimate of US67¢ and above the consensus of US63¢, due to strong production at Goldstrike, Cortez Hills and Lagunas Norte.

MacArthur has a “buy” recommendation on the stock and a 12- month target price of US$50 per share. At presstime in New York, Barrick was trading at US$44.02 per share.

Key events in the first quarter included the US$474-million acquisition of an additional 25% interest in the Cerro Casale project in Chile, bringing Barrick’s total share in the copper-gold deposit to 75%.

Also in the first quarter was the initial public offering of African Barrick Gold (ABG-L). ABG holds Barrick’s previously held African gold mining operations and exploration properties. The offering closed in March, bringing in net proceeds of US$882 million. Barrick has a 74% stake in ABG.

Looking ahead, the Torontobased gold giant says its projects are on track and on budget. The Cortez property, for example, can achieve its original production guidance of 1.08-1.12 million oz. gold this year at total cash costs of US$295-US$315 per oz., the company asserts.

In mid-April, the U.S. District Court ruled that mining could continue at Cortez Hills (subject to certain restrictions on ore transportation and dewatering) pending the completion of a supplemental environmental impact statement. The company believes the Bureau of Land Management will issue a decision by the end of the year, “at which point it is expected that the operation will revert to its original scope.”

Meanwhile, construction at Pueblo Viejo and Pascua-Lama is on schedule. At full capacity, Pueblo Viejo, Pascua-Lama and Cortez Hills are forecast to contribute about 2.4 million oz. of annual production at low cash costs.

Pueblo Viejo in the Dominican Republic is advancing on schedule and in line with its US$3 billion – pre-production capital budget (100% basis), with overall construction nearly 20% complete and initial production anticipated in the fourth quarter of 2011, the company says.

At the end of the first quarter, roughly two-thirds of the capital had been committed, and engineering and procurement by major contractors were more than 90% complete.

Barrick’s 60% share of annual gold production in the first full five years of operation is expected to average 625,000-675,000 oz. at total cash costs of US$250-US$275 per oz.

At the Pascua-Lama project on the border of Chile and Argentina, detailed engineering is roughly 95% complete and the project is on track to enter production in the first quarter of 2013.

The project remains in line with its pre-production capital budget of US$2.8-US$3 billion with about one third of the capital committed. Average annual gold production is expected to be 750,000-800,000 oz. in the first full five years of operation at total cash costs of US$20- US$50 per oz. assuming a silver price of US$12 per oz.

In terms of copper, Barrick believes it can meet its full-year copper production guidance of 340- 365 million lbs. at total cash costs of US$1.10-US$1.20 per lb. Copper production in the first quarter reached 100 million lbs. at total cash costs of US$1.05 per lb., 20% lower than the prior year period.

At March 31, Barrick’s cash balance stood at US$3.5 billion, it had a US$1.5-billion undrawn credit facility, and its net debt to total capitalization ratio was 0.14.