UPDATE 3-Barrick posts loss on impairment charge, cuts dividend

Thu Aug 1, 2013 1:55pm EDT

By Julie Gordon

TORONTO Aug 1 (Reuters) - Barrick Gold Corp posted an $8.7 billion writedown on Thursday, the largest yet in a series of charges taken by gold miners, but results were above expectations, sending its beaten-down shares higher.

The world's largest gold producer also slashed its dividend by 75 percent on the falling gold price, although cost cutting paid off as it lowered capital spending forecasts for the year and cut its production cost estimates.

Gold miners have announced billions in writedowns over the last two years, as ill-advised deals, underperforming projects and plunging prices for the metal wreaked havoc on their books.

In the second quarter alone, Barrick rivals Goldcorp Inc , Newmont Mining Corp and Kinross Gold Corp have posted a combined $6 billion in impairment charges linked to the plunging gold price.

But Barrick's charge, just months after it posted a $4.2 billion writedown linked mainly to its Lumwana mine in Zambia, is the largest for a gold miner in recent years.

About $5.1 billion of the latest charge stems from the company's delayed Pascua-Lama gold mine in South America, with the rest linked to other assets and goodwill.

Toronto-based Barrick said in June that Pascua-Lama, on the border between Chile and Argentina, had been delayed until mid-2016. Regulators have halted work on the Chilean side until Barrick completes a new water management system.

The delay helped Barrick reduce capital spending for the year by about 20 percent, to between $4.5 billion and $5.0 billion, although it warned that the cost of building Pascua-Lama would likely rise over the current budget of $8.5 billion.

It has already spent $5.4 billion on the gold-silver mine, which is its only new development. The cost update is expected in the third quarter.

Barrick shares were up 3.1 percent at C$17.52 in afternoon trading after rising as high as C$17.95 shortly after markets opened. The stock is down more than 50 percent this year and near its lowest point since mid-1992.

COST-CUTTING

Barrick and other miners are under intense pressure to reduce capital and operating costs because gold prices have fallen more than 20 percent so far this year, hitting a nearly three-year low around $1,180 an ounce in late June.

Barrick's average realized gold price fell 12 percent to $1,411 an ounce in the second quarter. That offset higher output and a 13 percent decline in all-in sustaining costs to $919 an ounce. The all-in sustaining metric includes sustaining capital, exploration costs and general expenses to better show the true cost of mining an ounce of gold.

The miner now expects its all-in sustaining costs to average $900 to $975 per ounce for the year. Spot gold was around $1,310 an ounce on Thursday afternoon.

Barrick said it is reviewing its higher-cost operations and could change mine plans, suspend or close operations, or divest assets.

The company announced a deal to sell its energy unit in July and chief executive Jamie Sokalsky noted efforts to sell certain Australian mines were "well-advanced."

"Clearly, this is not as good a market to sell in than we've seen in previous years. It's more of a buyers market than a sellers market," he said on a conference call. "Having said that, we are seeing multiple bidders on some of our assets."

Sokalsky was optimistic Barrick would be able to make deals, although analysts were less upbeat.

"That's going to be a crowded move because most mega-miners are trying to divest assets now," said Elizabeth Collins, an analyst with Morningstar. "It's not surprising that they're not seeing eye-to-eye with buyers on prices."

Barrick's talks to sell its 74 percent stake in African Barrick Gold Plc to a Chinese buyer fell apart earlier this year after the parties failed to agree on a price.

As a result of potential asset sales or changes, and the delay at Pascua-Lama, Barrick said it was no longer targeting annual production of 8 million ounces of gold by 2016. It gave no new target.

EARNINGS BEAT

Barrick reported a loss of $8.56 billion, or $8.55 per share, in the second quarter, compared with a year-earlier profit of $787 million, or 79 cents per share.

Excluding one-time items such as the impairment charge, earnings were 66 cents a share, above the analysts' average estimate of 56 cents, according to Thomson Reuters I/B/E/S.

Revenue fell 1.3 percent to $3.20 billion.

Gold sales rose 7 percent to 1.8 million ounces in the second quarter, while copper sales were up 16 percent at 135 million pounds.

Barrick said the performance at the Lumwana copper project had improved. It now expects copper costs to average $1.95 to $2.15 a pound in 2013, down from a previous estimate of $2.10 to $2.30.

The company cut its quarterly dividend to 5 cents from 20 cents a share.