UPDATE 5-Barrick Gold reins in costs; could suspend Chile project

Wed Apr 24, 2013 7:04pm EDT

* Q1 EPS $0.85 vs $1.04 year earlier, revenue falls 6 percent

* Barrick warns of possible suspension at Pascua-Lama

* 85.2 percent of shareholders oppose compensation resolution

* Shares close up 7.6 percent at C$19.38 in Toronto

* Quarterly dividend unchanged at 20 cents a share (Adds Moody's downgrade)

By Julie Gordon and Euan Rocha

TORONTO, April 24 (Reuters) - Barrick Gold Corp, making a painful adjustment to a sustained slump in bullion prices, reported progress in controlling costs on Wednesday and said it planned further cuts in capital spending, sending its shares higher.

The world's No. 1 gold producer also said it may suspend development at Pascua-Lama, its newest gold mine, located high in the Andes Mountains. A Chilean court has halted some work at the project, which straddles the border of Chile and Argentina.

The Toronto-based miner warned on Pascua-Lama as it reported an 18 percent drop in first-quarter profit. The decline, attributed to a slump in gold and copper prices and volumes, was not as severe as analysts had expected.

Speaking at Barrick's annual general meeting in Toronto, Chief Executive Jamie Sokalsky said the company could stop spending on Pascua-Lama if the timetable for resolving regulatory issues at the project remains unclear.

"We're serious about disciplined capital allocation," he said. "That means we need to consider all options, including the possibility of suspending the project."

Sokalsky later told analysts on a conference call that he expects to have more clarity on a decision in "weeks or months, as opposed to much longer than that."

Barrick's shares closed up 7.6 percent at C$19.38 on the Toronto Stock Exchange on Wednesday. The stock has dropped more than 48 percent this year as the company struggled with setbacks at Pascua-Lama, the fall of gold prices, and a shareholder revolt over executive compensation.

Barrick left its quarterly dividend unchanged at 20 cents a share, helping lift the stock by easing concerns it would cut the payout in a bid to conserve capital.

While Barrick's move to control costs and cut spending were welcome, investors may want to see more evidence that the company is on the mend before making a bigger jump back into the stock.

"The market needs to better calibrate Barrick's progress at Pascua and how management will navigate capital and operating decisions at lower than anticipated gold prices," said Sterne Agee analyst Michael Dudas in a note to clients.

Credit rating agency Moody's downgraded Barrick's senior unsecured ratings to Baa2 from Baa1, citing the challenges the miner faces at its Pascua-Lama project and the uncertainty as to when and how the regulatory issues may be resolved.

PASCUA UNCLEAR

A local court suspended work on the Chilean side of Pascua-Lama earlier this month to allow time to weigh community claims the development is destroying glaciers and harming the water supply.

Barrick gave no update on estimated costs on Wednesday or on the development timetable for the $8.5 billion project. It said it was evaluating its options, including a plan to develop only a smaller pit on the Argentine side for initial production. If that proves infeasible, it said the mine plan could change, affecting costs and the production schedule.

George Topping, a mining analyst at Stifel Nicolaus, said Barrick ought to suspend spending at Pascua-Lama sooner rather than later.

"You really have to minimize the amount of money you're putting into Pascua-Lama, which they're not doing," he said. Topping added that the project also faces political risks on the Argentine side as a congressional election approaches.

Barrick has so far poured $4.8 billion into Pascua-Lama, which is expected to produce 800,000 to 850,000 ounces of gold a year in its first five years of full production.

The complex project, on Barrick's books for more than a decade, has encountered repeated delays in the face of political wrangling and the challenges of building a mine that is 3,800 meters to 5,200 meters above sea level.

Even so, Barrick is hungry to finish Pascua-Lama to replace depleted assets at a time when gold miners have little choice but to tackle deposits in remote and inhospitable areas.

COST CONTROLS

Like its rivals, Barrick is under heavy pressure to cut costs. Margins have narrowed in recent quarters as gold prices have dropped and operating and capital costs have risen.

To that end, the company reduced its full-year outlook for all-in sustaining costs to $950-$1,050 per ounce of gold, down from a previous forecast of $1,000 to $1,100. Its forecast for total cash costs, a more traditional measure, remained at $600-$660 an ounce for 2013.

All-in sustaining costs in the first quarter came in at $919 an ounce, while total cash costs rose slightly to $561, up from $540 in the year-before period, but down from a full-year average of $584 in 2012.

Barrick reduced its capital spending outlook for 2013 by about 10 percent to $5.2 billion to $5.7 billion, down from its previous forecast of $5.7 billion to $6.3 billion.

The company previously cut some $4 billion in planned capital spending and 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 company said in February that it would not build any new mines for now, with the notable exception of Pascua-Lama.

"SIX MORE SHOVELS"

At Barrick's annual meeting in Toronto, held in a packed downtown convention center, shareholders voted down a nonbinding company resolution on executive compensation, underscoring broad opposition to generous bonuses.

A group of Canada's top pension funds rallied last week against Barrick's $11.9 million signing bonus for co-Chairman John Thornton, the man tipped as Barrick's next chairman.

Barrick's founder and chairman, Peter Munk, defended the package, saying the company could spend that much on a handful of shovels, but that Thornton would "do more for Barrick than six more shovels".

In a regulatory filing late on Wednesday, Barrick said 85.2 percent of shareholders voted against the resolution. Both of North America's leading proxy advisory firms, ISS and Glass Lewis, had advised their clients to vote against the resolution.

While the compensation vote did not pass, the company was successful in electing all 13 of its nominees to the board. Outside the conference center, police held off a few dozen protesters who chanted against Barrick and beat drums.

BY THE NUMBERS

Net profit fell to $847 million, or 85 cents a share, in the first quarter from $1.04 billion, or $1.04, a year earlier.

On an adjusted basis, it earned $923 million, or 92 cents a share, ahead of the average analyst estimate of 88 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 6 percent to $3.44 billion as gold production dropped about 4 percent to 1.8 million ounces in the quarter.

Spot gold slipped into a bear market earlier this month, plunging to a two-year low below $1,400 per ounce for the first time in two years. Barrick's average realized gold price in the first quarter was $1,629 per ounce. (Additional reporting by Rod Nickel in Winnipeg, Allison Martell in Toronto and Bhaswati Mukhopadhyay in Bangalore; Editing by Frank McGurty, Chris Reese, Peter Galloway and Andrew Hay)

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