UPDATE 3-Barrick results soothe investors despite huge charge

Thu Feb 14, 2013 2:44pm EST

* Barrick says no new mine builds now; costs too high

* Earnings before charges beat Wall Street estimates

* Revenue up 11 percent to $4.19 billion

* Shares rise 3.25 percent to C$32.75 by Thursday afternoon

By Julie Gordon

TORONTO, Feb 14 (Reuters) - Barrick Gold Corp posted stronger-than-expected results on Thursday and boosted confidence in its troubled South American project even as it booked a $3.8 billion charge to write down the value of an African mine.

The world's largest gold miner's shares climbed as much as 5 percent as it offered evidence that it may have turned a page after a year of struggling with rising costs, project delays and long-term production cuts as the gold price flattened.

"It's just a company that's been disappointing for several quarters in terms of expectations," Morningstar analyst Elizabeth Collins said, explaining the rise in a stock that had fallen more than 36 percent from the beginning of 2012 until Wednesday's close. "It's a reversal of the trend."

The writedown on Lumwana, the Zambian copper mine Barrick acquired in 2011, is the latest in a series of huge charges taken by miners around the world that spent heavily on boom-year takeovers that soured as metal prices stagnated and costs climbed.

Barrick also said that it will not proceed with an expansion that would have doubled output at Lumwana, touted as the crown jewel in the hugely unpopular C$7.3 billion ($7.28 billion) takeover of Equinox Minerals.

"It's been a disaster from a due diligence point of view. It's not the copper price - the copper price is doing fine, thank you very much - but the actual assets that were bought are not as advertised," said George Topping, an analyst with Stifel Nicolaus.

Indeed, Barrick said it had no immediate plans to build any more mines. A notable - and expensive - exception is the massive Pascua-Lama mine on the border of Argentina and Chile, where production is targeted for the second half of 2014.

The company confirmed that development costs there are still expected to be $8 billion to $8.5 billion, soothing investor fears of another cost overrun at the embattled mine.

Barrick reported massive capital cost increases at Pascua-Lama in 2012 and twice delayed the start-up of the mine, which is expected to be a major new source of gold and silver.

The Lumwana copper writedown was broadly expected by analysts, and Barrick shares rose 3.25 percent to C$32.75 on Thursday afternoon on the Toronto Stock Exchange.

FOCUS ON HIGH QUALITY

Over the last three years, gold miners went on an acquisition tear as rising bullion prices led to soaring profits, pushing them to seek out new ounces at almost any cost.

But as miners poured money into expansions and new mines, capital costs soared to the point where shareholders began to demand companies return more cash flows to them instead of wasting money on bloated construction budgets.

Barrick, which cut some $4 billion in planned capital spending last year, has recast its long-term goals to focus on a higher-quality, more profitable production base of some 8 million ounces of gold a year by 2016.

"The new mantra of trying to repair balance sheets and not waste shareholder money - it's across the board now," Topping said. "That's real change in strategy from last year."

FUTURE GROWTH

While Barrick is putting a new mines development on hold for now, Pascua-Lama remains a key driver for future growth.

The company said construction at the project was about 40 percent complete. The complex mine requires a 2.5-mile tunnel to transport ore between Chile to Argentina and has been in development for more than decade.

While costs are on track, Barrick warned that the suspension of pre-stripping activities at the site had added some uncertainty to the second-half 2014 production timeline.

Barrick's fourth-quarter net loss amounted to $3.06 billion or $3.06 a share, compared with a year-earlier profit of $959 million, or 96 cents a share.

In addition to the huge Lumwana writedown, Barrick booked a $400 million charge to write down the value of its oil and natural gas unit and its investment in the Reko Diq project in Pakistan.

Excluding the charges and other one-time items, earnings per share fell to $1.11 from $1.17, beating the analysts' average estimate of $1.05, according to Thomson Reuters I/B/E/S.

Revenue rose 11 percent to $4.19 billion on higher production and a slightly stronger gold price.

TOUGH SALE

Barrick is now combing through its portfolio of assets around the world to find those that fail to meet its investment criteria, with a eye toward potential divestment.

Last month, the company started an auction process to sell its energy unit, and it has long searched for a buyer for its struggling African Barrick Gold subsidiary.

Barrick's talks with China National Gold Group Corp on the possible sale of its 74 percent stake in the Tanzania-focused miner fell apart earlier this year after the two parties failed to agree on a price.

The company said the Pueblo Viejo mine in the Dominican Republic, a joint venture with rival Goldcorp Inc, is on track to ramp up to full capacity in the second half of 2013.

Barrick produced some 7.42 million ounces of gold in 2012, down 3 percent from 2011. The company expects 2013 gold production to be in the range of 7 million to 7.4 million ounces.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.