TORONTO, ONTARIO--(Marketwired - Aug. 1, 2013) - Barrick Gold Corporation (NYSE:ABX)(News - Market indicators) (Barrick or the "company") today reported a second quarter net loss of $8.56 billion ($8.55 per share), reflecting $8.7 billion in after-tax impairment charges largely driven by significant decreases in long-term metal price assumptions following the sharp declines in spot prices in the second quarter. The total charge is comprised of: $5.1 billion for the Pascua-Lama project, $2.3 billion in goodwill impairments and $1.3 billion in other asset impairment charges.

Second quarter financial highlights include:

• Adjusted net earnings of $663 million ($0.66 per share)⁽¹⁾
• Operating cash flow of $896 million
• Adjusted operating cash flow of $804 million⁽¹⁾

"We are pleased with our second quarter operating performance and our improved 2013 guidance. These results reflect the high quality of Barrick's portfolio of assets and our increasingly effective efforts at controlling costs. We are disappointed with the impairment charges for Pascua-Lama and other assets but are confident that these assets, some with mine lives in excess of 25 years, will generate substantially more economic benefits over time," said Jamie Sokalsky, Barrick's President and CEO.

"Over the past year, we have taken and are continuing to take a series of steps to reduce costs as part of our disciplined capital allocation framework, which allowed us to respond quickly to the new metal price environment. We have reduced 2013 budgeted capital and costs by about $2.0 billion which has offset the cash flow impact of the drop in gold and copper prices that has occurred this year. We have reduced all-in sustaining cost guidance by about $100 per ounce this year from levels which are the lowest of our peers. The bulk of our expected 2013 gold production is at all-in sustaining costs well below current spot levels, and for those operations that are not generating positive cash flow, we will change mine plans, suspend, close or divest them.

"We have sold Barrick Energy and are well advanced in a process to divest certain Australian assets as part of our portfolio optimization strategy. We are progressing the Pascua-Lama project by extending the overall construction schedule over a longer period, which substantially alleviates near-term capital spend, and we are also working to meet regulatory requirements. We also termed out $3.0 billion of debt at attractive rates to reduce near-term maturities. And finally, in light of the current environment, we have also made a decision to lower the quarterly dividend to improve liquidity. We recognize the importance of dividends to our shareholders, and it is our goal to return more capital to investors in the future, but at this time, this is the prudent course of action."

POSITIONING BARRICK IN A LOWER METAL PRICE ENVIRONMENT

High Quality Asset Base and Aggressive Cost Reductions Provide Operational Flexibility

Barrick's strategy prioritizes shareholder value creation by focusing on maximizing risk-adjusted rates of return and free cash flow based on the principle that returns will drive production, production will not drive returns. In today's environment, Barrick has no plans to build new mines.

As part of our increased focus on disciplined capital allocation adopted a year ago, we have reduced costs and improved cash flow, initially cutting or deferring about $4.0 billion of previously budgeted capital expenditures over a four year period, shelving certain major projects and launching a portfolio optimization process.

Barrick's comprehensive cost reductions and high quality asset base provide the company with significant operational flexibility. Its superior group of five key mines - Cortez, Goldstrike, Pueblo Viejo, Veladero and Lagunas Norte - are expected to generate some 60 percent of 2013 production at average all-in sustaining costs (AISC) of $650-$700 per ounce. An additional seven mines have AISC below $1,000 per ounce, bringing the total amount of expected 2013 production with costs below this level to about 75 percent.

Developing Plans to Maximize Cash Flow

For the remaining operations with expected 2013 AISC above $1,000 per ounce, we will either change mine plans, suspend, close or divest these assets to improve cash flow. Actions currently being considered as part of an ongoing process include:

• Bald Mountain (US) - mine plan changes to reduce the number of pits and focus on the most profitable ounces, while retaining the option to access other ore in the future
• Round Mountain and Marigold (US) - working with our joint venture partners to optimize mine plans
• Hemlo (Canada) - defer the open pit expansion and optimize the underground mine plan
• Porgera (Papua New Guinea) - evaluate mine plan changes and explore other alternatives
• Plutonic, Yilgarn South (Australia) - optimize the mine plans and/or divest
• African Barrick Gold (ABG) (Tanzania) - finalizing a detailed operational review to aggressively optimize mine plans and improve operations
• Pierina (Peru) - assessing closure options

Under the direction of the new leadership appointed last year, a turnaround team of functional experts and site management have been working to improve operations and reduce costs at the Lumwana copper mine. Lumwana delivered a substantially improved performance this quarter. We have made changes to the mine plan to decrease costs and maximize cash flow. The changes include a reduction to waste stripping as a result of mine re-sequencing and significant labor reductions, including termination of a major mining contractor. A number of further business improvement initiatives continue to be implemented at site to enhance the productivity of the core mining fleet and build upon the cost reductions achieved so far. We continue to see positive results from these actions, and the improvements at Lumwana have allowed us to significantly improve 2013 copper cost guidance.

Long-Term Production Targets Will Be Aligned with Portfolio Optimization and Mine Planning Changes

We are developing mine plans to maximize cash flows at every mine. The outcome of this process could have an impact on our year-end 2013 proven and probable reserves and expected future production levels; however, where possible, we will maintain the option to access the metal in the future. As a result of the schedule delay at Pascua-Lama, expected mine plan changes to maximize cash flow and the likelihood of further asset divestitures, we are no longer targeting eight million ounces of gold production in 2016.

2013 Guidance Improvements Reflect Ongoing Cost Reductions Totalling $2.0 Billion in First Half

Total reductions to budgeted capital and costs for 2013 of about $2.0 billion have offset the cash flow impact of the declines in metal prices that have occurred this year. During the first quarter of 2013, Barrick reduced budgeted 2013 capital and costs by approximately $500 million and lowered 2013 cost guidance for total capex and exploration. In the second quarter, the company has accelerated actions to improve cash flow. Operating cost reductions also reflect the softening of input costs such as steel and tires, as well as the weakening Australian dollar, and we continue to evaluate additional ways to reduce costs.

As a result of the strong measures taken in the second quarter alone, reductions to budgeted 2013 capital expenditures and costs include approximately:

• $600 million in operating costs;
• $200 million in sustaining, development and mine expansion capital;
• $600 million in project capital, primarily related to Pascua-Lama; and,
• $50 million in exploration and evaluation expenditures.

In addition, the company has reduced its corporate office staff by approximately 30 percent and made other significant job reductions at regional locations. As part of the ongoing company-wide overhead and operational review initiated in the first quarter, Barrick is also evaluating further changes and cost reductions to make the organization more efficient by simplifying the management structure and placing a greater emphasis on clearly defined responsibilities and accountabilities.

FINANCIAL RESULTS DISCUSSION

The second quarter net loss and adjusted net earnings of $8.56 billion ($8.55 per share) and $663 million ($0.66 per share), respectively, compare to net earnings and adjusted net earnings of $787 million ($0.79 per share) and $821 million ($0.82 per share), respectively, in the same prior year period. The net loss reflects after-tax impairment charges of $8.7 billion and a $0.5 billion loss on the sale of Barrick Energy.

The fair values in the impairment assessment were calculated as at June 30 assuming metal prices that were influenced by only recent spot price declines, yet which are then applied and held constant over mine lives that in some instances are in excess of 25 years. As a result of these significant price declines, we have revised our gold, copper and silver price assumptions utilized for impairment testing to $1,300 per ounce, $3.25 per pound and $23 per ounce, respectively. We are confident our assets will generate substantially more economic benefits over time for our shareholders than these current valuation levels imply. Although Barrick does not rely on higher prices to drive its business plans, we remain positive on long term price fundamentals for these metals. With higher prices in the future, we would reassess the fair value of our high quality, long-life assets such as Pascua-Lama, and could potentially reverse some of the impairment charges recorded. 

Significant adjusting items (net of tax and non-controlling interest effects) for the quarter include:

• $5.1 billion in asset impairment charges against the carrying value of the Pascua-Lama project;
• $2.3 billion in goodwill impairments to the Global Copper, Australia Pacific, Capital Projects and ABG segments;
• $1.3 billion in other asset impairment charges, including $423 million for Buzwagi, $401 million for Jabal Sayid and $107 million for Kanowna; and,
• $0.5 billion loss related to the sale of Barrick Energy.

Second quarter 2013 operating cash flow of $896 million compares to $919 million in the second quarter of 2012. Adjusted operating cash flow of $804 million removes the impact of the settlement of foreign currency and commodity derivative contracts and non-recurring tax payments, and compares to $919 million in the same prior year period. Realized gold and copper prices for the quarter were $1,411 per ounce and $3.28 per pound, respectively, both in line with the spot averages.

LIQUIDITY AND FINANCIAL FLEXIBILITY

At June 30, Barrick had cash and equivalents of $2.4 billion and $4.0 billion available under its five-year credit facility. The company generated strong operating cash flow of $2.0 billion in the first half of 2013 and is on track to meet 2013 production guidance at costs well below original guidance. Barrick's consolidated tangible net worth at June 30 was $6.3 billion. In addition to the reductions to budgeted 2013 capital and costs, Barrick further strengthened its liquidity in the second quarter by terming out $3.0 billion in debt at attractive interest rates to reduce near-term maturities. The company has approximately only $1.8 billion of cumulative debt maturing through to the end of 2015.

Subsequent to the second quarter, the company divested Barrick Energy for total consideration of $442 million, including cash of $394 million plus a royalty on certain assets valued at $48 million. The proceeds will be recorded in the third quarter of 2013. In addition, a process to divest certain Australian assets is well advanced, and the company continues to actively pursue other portfolio optimization opportunities, including the divestiture of other non-core assets. The company's Board of Directors has reduced the quarterly dividend to $0.05 per share as a further prudent step to improve liquidity. The dividend is payable on September 16, 2013 to shareholders of record at the close of business on August 30, 2013⁽²⁾.

OPERATING RESULTS DISCUSSION

Second quarter 2013 gold production was 1.81 million ounces, benefiting from strong performances at Cortez, Veladero and Lagunas Norte. In June 2013, the World Gold Council (WGC) finalized its definition of adjusted operating costs (previously called total cash costs), all-in sustaining costs and all-in costs. Barrick has revised its disclosure to align with these definitions and is voluntarily adopting the all-in cost measure. The manner in which the adjusted operating cost measure is calculated has not been changed from the total cash cost measure. The revised AISC measure is similar to our prior measure with the exception of the classification of sustaining capital; certain capital expenditures which had previously not been reported as sustaining capital are now included in this category. The all-in cost measure starts with AISC and adds non-sustaining capital expenditures at new operations and existing operations which will significantly increase production. For Barrick this consists primarily of capital for the Pascua-Lama and Goldstrike thiosulphate projects. For the second quarter, Barrick's adjusted operating costs, AISC and all-in costs were $552 per ounce, $919 per ounce and $1,276 per ounce⁽³⁾, respectively.

North America Regional Business Unit

North America produced 0.93 million ounces at AISC of $797 per ounce, ahead of expectations. Barrick's 60 percent share of production from the Pueblo Viejo mine was 0.12 million ounces at AISC of $635 per ounce. Production at Pueblo Viejo increased from the first quarter of 2013 primarily due to higher tons processed as the mine ramps up to full capacity, expected in the second half of this year. The new 215 megawatt power plant is expected to be commissioned on schedule in the third quarter. Barrick's share of 2013 production from Pueblo Viejo is anticipated to be 500,000-600,000 ounces at AISC of $525-$575 per ounce. During the quarter, Pueblo Viejo Dominicana Corporation reached an agreement in principle with the Government of the Dominican Republic concerning amendments to the Pueblo Viejo Special Lease Agreement (SLA). Discussions to finalize a Definitive Agreement continue, but to date the parties have not concluded an agreement. The proposed amendments will require the approval of the Boards of Directors of Barrick and Goldcorp, the project lenders, and the Congress of the Dominican Republic. The SLA will remain in effect according to its present terms unless and until the Definitive Agreement is executed and approved. The Government has reaffirmed its support for this world class mine.

The Cortez mine delivered a strong performance, producing 0.42 million ounces at AISC of $376 per ounce on higher grade oxide ore. Goldstrike produced 0.19 million ounces at AISC of $1,226 per ounce, reflecting processing of lower grade ore at the autoclave facility, which is currently undergoing modifications to enable about 3.5 million ounces to be brought forward in the mine plan through the thiosulphate project. The project is on track to enter production in the third quarter of 2014 and contribute average annual production of 350,000-400,000 ounces over its first full five years of operation. We expect production to increase and AISC to significantly decrease at Goldstrike in the second half of 2013.

We continue to expect full year production to be in the range of 3.55-3.70 million ounces and now expect AISC to be in the range of $750-$800 per ounce, lower than our previous range of $820-$870 per ounce.

South America Regional Business Unit

South America produced 0.30 million ounces at better than expected AISC of $821 per ounce. The Veladero mine had a strong quarter, contributing 0.14 million ounces at AISC of $768 per ounce on higher silver recoveries. Lagunas Norte produced 0.13 million ounces at AISC of $663 per ounce, reflecting positive grade reconciliations and a build-up of ounces placed on the leach pad. The new carbon-in-column plant at Lagunas Norte, which is designed to de-bottleneck ore feed from the expanded leach pad to the Merrill Crowe plant, is on track to start up in Q4. 

We continue to expect full year production to be in the range of 1.25-1.35 million ounces and AISC to be in the range of $875-$925 per ounce.

Australia Pacific Regional Business Unit

Australia Pacific produced 0.47 million ounces at AISC of $1,033 per ounce. Porgera, the region's largest mine, contributed 0.12 million ounces at AISC of $1,306 per ounce.

We continue to expect full year production to be in the range of 1.70-1.85 million ounces and now expect AISC to be in the range of $1,100-$1,200 per ounce, lower than our previous range of $1,200-$1,300 per ounce.

African Barrick Gold plc

Second quarter attributable production from ABG was 0.12 million ounces at AISC of $1,416 per ounce. We continue to expect Barrick's share of 2013 production from ABG to be 0.40-0.45 million ounces at AISC of $1,550-$1,600 per ounce. Our AISC guidance does not take into account the implementation of ABG's Operational Review.

Global Copper Business Unit

Copper production in Q2 was 134 million pounds at C1 cash costs of $1.75 per pound and C3 fully allocated costs of $2.27 per pound. Performance from the Lumwana mine improved significantly this quarter with production of 65 million pounds at C1 cash costs of $1.96 per pound, primarily due to changes to the mine plan and a number of business improvement initiatives which continue to enhance productivity. The improved costs in the second quarter primarily reflect a major reduction in contract mining costs due to the termination of one of the main mining contractors. The Zaldívar mine produced 69 million pounds at C1 cash costs of $1.60 per pound.

We now expect full year copper production to be 500-540 million pounds, within our original guidance range of 480-540 million pounds, at C1 cash costs of $1.95-$2.15 per pound and C3 fully allocated costs of $2.50-$2.75 per pound, both lower than our previous ranges of $2.10-$2.30 per pound and $2.60-$2.85 per pound, respectively.

Utilizing option collar hedging strategies, the company has protected the downside on approximately half of its remaining 2013 copper production at an average floor price of $3.50 per pound and can participate on the same amount up to an average price of $4.25 per pound⁽⁴⁾. As of June 30, 60 million pounds of copper sales were subject to final settlement at an average provisional price of $3.06 per pound.

PASCUA-LAMA PROJECT UPDATE

Pascua-Lama is one of the world's largest gold and silver resources with nearly 18 million ounces of proven and probable gold reserves(5), 676 million ounces of silver contained within the gold reserves⁽⁵⁾, and an anticipated mine life of 25 years. It is expected to produce an average of 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of operation at very low costs. While we recorded a significant impairment to this asset in the second quarter, we fully expect this mine to be one of the best in the world when in operation, and to contribute substantial economic value to the company. Pascua-Lama has significant value for Barrick shareholders and the project's host jurisdictions of San Juan Province, Argentina and the Atacama Region of Chile. We continue to work closely with the governments of both countries to ensure Pascua-Lama is on the right path to deliver value for all of our stakeholders.

In the second quarter, the company received a resolution from Chile's Superintendence of the Environment (Superintendencia del Medio Ambiente or "SMA") that required completion of the project's water management system in accordance with previously granted environmental permits before other construction activities in Chile could resume. Barrick is committed to operating at the highest environmental standards at all of its operations around the world, including at Pascua-Lama, and is working to meet all regulatory requirements at the project. The company has submitted a compliance plan for approval by Chilean regulatory authorities to complete the water management system by the end of 2014, subject to regulatory approval of specific permit applications. Following completion of the water management system to the satisfaction of the SMA, we expect to be in a position to resume construction in Chile, including pre-stripping. Under this scenario, ore from Chile is expected to be available for processing by mid-2016. In line with this timeframe and in light of materially lower metal prices, the company has decided to re-sequence construction of the process plant and other facilities in Argentina to target production by this date. 

The decision to re-sequence the project, which entails a major reduction in project staffing levels over the extended schedule, will result in a significant deferral of planned capital spending in 2013-2014. Capital expenditures at Pascua-Lama over this period are expected to be reduced by a total of $1.5-$1.8 billion(6). For 2013, capital expenditures are expected to be reduced by approximately $0.7-$0.8 billion (including $300 million in previously announced deferrals) to approximately $1.8-$2.0 billion. Capital expenditures in 2014 are expected to be reduced by approximately $0.8-$1.0 billion to approximately $1.0-$1.2 billion. The company is targeting to provide an updated total capital cost estimate for the project with third quarter 2013 results which is expected to reflect an increase from the latest capital cost estimate. This is subject to obtaining greater clarity on timing of regulatory approvals and completing the re-sequenced construction schedule. As of June 30, 2013, approximately $5.4 billion had been spent on the project.

Subsequent to the quarter end, the Copiapo Court of Appeals in Chile issued its ruling on a constitutional rights protection action filed in September 2012 on behalf of four indigenous communities, on the basis of which a preliminary injunction suspending construction activities had been granted in April 2013. In its ruling, the Court stated that Barrick must complete construction of the water management system in compliance with applicable environmental permits to the satisfaction of the SMA before resuming construction activities in Chile. The Court's ruling is consistent with the earlier SMA resolution which Barrick has been implementing. The water management design and construction scope has been awarded to Fluor, who has already mobilized a team of industry experts to the site.

Our Chief Operating Officer, Igor Gonzales, retired in the second quarter and the company is in the process of a global search to fill this position. In the interim, the Regional Presidents are reporting directly to the CEO. Barrick thanks Igor for his significant contributions to Barrick over the past 15 years.