UPDATE 2-Barrick's Pascua-Lama costs rise again, shares dive

Thu Nov 1, 2012 10:08am EDT

Related Topics

* Q3 adj EPS $0.85 v Street view $0.98

* Revenue falls 13.5 percent as gold sales, prices sag

* Capital costs at Pascua-Lama rise again

* 2012 copper outlook lowered to 450 million pounds

* Shares fall 7.1 percent to C$37.49 on TSX (Releads, adds details)

Nov 1 (Reuters) - Barrick Gold Corp reported a sharp drop in third-quarter profit on Thursday, while again increasing its cost estimate for building the massive Pascua-Lama mine and pushing back the date when production at the project will begin.

Shares of the world's top gold miner dropped 7 percent after it bumped up the cost of building Pascua-Lama, located high in the Andes mountains on the border between Chile and Argentina, to $8 billion to $8.5 billion from an earlier budget of $7.5 billion to $8 billion.

The company blamed the increase on delays and higher labor and project-management costs.

This is the second time Barrick has boosted its cost estimate. Three months ago it raised the Pascua-Lama budget by 50 to 60 percent from a previous estimate of $4.7 billion to $5 billion.

In June, Jamie Sokalsky, the company's long-time chief financial officer, replaced Aaron Regent as chief executive and said he would take a more disciplined approach to spending.

Making good on that promise even as costs at Pascua-Lama climbed, Barrick on Thursday said it had deferred some $3 billion in capital spending over four years as part of a review of its projects, with about $1 billion lopped off 2013 spending.

Next year's capital expenditures are now expected to be largely in line with 2012 spending.

"Our increased emphasis on free cash flow will position the company, in the future, with the potential to return more capital to shareholders, repay debt, and make additional attractive return investments to upgrade our portfolio," the company said in a statement.

PROJECT WOES

Barrick lowered its full year outlook for copper production to 450 million pounds in 2012 as production was delayed at its Jabal Sayid project in Saudi Arabia.

While construction is complete at the Saudi copper mine, the project, designed to Australian standards, does not meet Saudi safety and security rules. With compliance work under way, the mine is now expected to start up in 2014.

Barrick maintained its total capital budget for Jabal Sayid at about $400 million, with the mine set to produce 100 million-130 million pounds of copper a year once in commercial production.

The company's gold production took a slight hit from lower output at its African Barrick Gold subsidiary. Even so, it is expected to be within an earlier forecast range of 7.3 million to 7.5 million ounces for the year.

The company nudged its estimate for total cash costs higher to $575-$585 an ounce from $550-$575 an ounce.

Barrick is in talks with China National Gold on selling its 73.9 percent stake in African Barrick.

At Pascua-Lama, production is now expected to begin in the second half of 2014, a slight push-back from an earlier mid-2014 target.

Barrick has spent about $3.7 billion on the project to date. Pascua-Lama is expected to produce 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of production.

SALES FALL

The company's net profit fell to $618 million, or 62 cents per share, in the quarter ended Sept. 30, down from $1.37 billion, or $1.37 per share, a year earlier.

On an adjusted basis, Barrick earned 85 cents per share, down from $1.38 per share a year earlier. Analysts, on average, had expected earnings of 98 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 13.5 percent to $3.4 billion on lower gold sales and a lower realized gold price in the third quarter.

The average realized gold price fell 5 percent to $1,655 per ounce, while gold sales dropped 6 percent to 1.8 million ounces. Total cash costs rose 31 percent to $592 per ounce in the quarter.

Shares of Barrick dropped C$2.90 to C$37.49 shortly after trading opened on the Toronto Stock Exchange on Thursday.

($1=$1.00 Canadian) (Reporting by Julie Gordon in Toronto and Bhaswati Mukhopadhyay in Bangalore; Editing by Editing by Frank McGurty and Peter Galloway)

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