TORONTO Barrick Gold Corp (ABX.TO) reported a sharp drop in third-quarter profit on Thursday, nudged back the production date for its massive Pascua-Lama gold and silver mine and increased its estimate on costs.
Shares of the world's top gold miner dropped more than 9 percent after Barrick delayed the mine's start date to the second half of 2014 from a previous target of mid 2014.
The cost of building the mine, on the border between Chile and Argentina, rose to $8 billion to $8.5 billion from an earlier estimate of $7.5 billion to $8 billion, reflecting construction delays and higher labor and project-management costs.
It is the second time this year that Barrick has boosted its cost estimate for Pascua-Lama. Three months ago it raised the budget by 50 to 60 percent and delayed start-up by a year.
"There's some doubt whether that's the final change or whether there's even more to come. So that is disappointing," said George Topping, a mining analyst at Stifel Nicolaus in Toronto. "It's a significant bet to make," he added. "They're betting the company (on Pascua-Lama)."
Once complete, Pascua-Lama will be one of the largest and lowest-cost gold mines in the world. The mine is expected to produce some 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of production.
But the high-altitude project has proved more difficult than Barrick anticipated and the harsh climate and cross-border negotiations with the Chilean and Argentine governments repeatedly held up development over the last decade.
Shares of Barrick dropped C$3.76 to C$36.63 on Thursday afternoon on the Toronto Stock Exchange. The stock is down more than 20 percent this year, as uncertainty over Pascua-Lama kept investors away from the world's No.1 gold miner.
The price of gold is up more than fivefold in the last 10 years, from about $300 an ounce in 2002 to around $1,700, pushing top gold miners to seek growth at any cost.
But with capital and operating costs slicing into profits, restraint is the new mantra of the mining industry -- new Chief Executive Jamie Sokalsky said in June he would take a more disciplined approach to spending.
Making good on that promise even as Pascua-Lama costs climbed, Barrick said on Thursday it had deferred some $3 billion in capital spending over four years, with about $1 billion lopped off 2013 spending.
Next year's capital expenditures are now expected to be largely in line with 2012 spending.
"We will run this company with a goal of optimizing our overall investment portfolio," Sokalsky said in a conference call with investors. "Assets that don't generate target returns or significantly impact our ability to generate long-term cash flow will be deferred, shelved or divested."
Barrick is in talks with China National Gold Group Corporation over the sale of its 74 percent stake in African Barrick Gold ABGL.L, which has struggled with soaring production costs and lower output.
Barrick lowered its full year outlook for copper production to 450 million pounds as production was delayed at its Jabal Sayid project in Saudi Arabia.
Construction is complete at the Saudi mine, but the project, designed to Australian standards, does not meet Saudi safety and security rules. The mine is now expected to start up in 2014, instead of in the second-half of 2012 as originally expected.
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.
The company's gold production took a slight hit from lower output at African Barrick, but Barrick stuck to a 2012 production range of 7.3 million to 7.5 million ounces.
The company nudged up its estimate for total cash costs to $575 to $585 an ounce from $550 to $575 an ounce.
Barrick's net profit fell to $618 million, or 62 cents per share, in the quarter ended September 30, from $1.37 billion, or $1.37 per share, a year earlier.
Adjusted to exclude one-off items, 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.
(Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Frank McGurty, Peter Galloway, Andrew Hay and M.D. Golan)