UPDATE 3-Barrick posts big loss, slashes gold reserves

Thu Feb 13, 2014 2:33pm EST

By Allison Martell

TORONTO Feb 13 (Reuters) - Barrick Gold Corp, the world's largest gold miner, reported a big fourth-quarter loss on Thursday as it took a hefty impairment charge, cut its gold reserve estimate by 26 percent and said costs per ounce would likely rise this year.

The results fell short of analysts' expectations but that didn't stop Barrick's shares from rising as the spot gold price hit a three-month high on Thursday.

Dundee Capital Markets analyst Josh Wolfson said Barrick's shares have underperformed so far this year. "It would appear the underperformance had factored in some of this disappointment," he wrote in an email. Still, he called the market reaction to the results "unusual".

Barrick's shares were up 4.8 percent at C$21.81 on the Toronto Stock Exchange.

Barrick lowered its estimated gold reserves to 104.1 million ounces from 140.2 million ounces a year earlier.

Reserves are the amount of gold it is economically feasible to mine. About half Barrick's decline came because it used a gold price assumption of $1,100 an ounce, down from $1,500.

"The surprise was really at some of the higher quality assets, the core assets, that the reserves were down as dramatically as they were," said Canaccord Genuity analyst Tony Lesiak, pointing to Barrick's Cortez and Goldstrike mines in Nevada, Pueblo Viejo in the Dominican Republic, and Veladero in Argentina.

The gold price dropped 28 percent in 2013 to just above $1,200 an ounce at yearend. When prices fall, reserves typically drop, because some lower-quality ore can no longer be profitably mined, but how much depends on the deposit, and price and other assumptions.

The market had expected Barrick and many of its peers to lower their reserve estimates concurrently with their fourth-quarter results following years of increases.

Barrick said its net loss narrowed to $2.83 billion, or $2.61 a share, from $3.01 billion, or $3.01 a share, a year earlier, when it also took a large impairment charge.

In total, Barrick took $11.54 billion in impairment charges in 2013, linked in large part to its troubled Pascua-Lama project on the Chile-Argentina border in the Andes as well as to the gold price. It took $4.4 billion in charges through 2012.

Gold miners have announced billions in writedowns over the last two years following pricey acquisitions made during boom times and because of the decline in the gold price.

ALL-IN COSTS TO RISE

Barrick forecast its all-in sustaining costs, a measure meant to capture the effective day-to-day cost of producing an ounce of gold, of between $920 and $980 an ounce in 2014, up from $915 in 2013.

The company cut its estimate of the mine life of its Porgera project in Papua New Guinea to nine years from 13 years, citing a new plan that focuses on higher-quality underground ore. It took a $595 million impairment charge on the mine.

The miner said it expects gold production in 2014 of 6.0 million to 6.5 million ounces, down from 7.2 million ounces in 2013, largely due to lower output from Cortez and the recent sale of some high-cost, short-life mines.

Barrick sees costs per ounce rising sharply at Cortez, one of its biggest mines, where grades are expected to fall this year, as forecast in the mine plan. All-in sustaining costs at Cortez are expected to jump to between $750 and $780 an ounce, from $498 an ounce in the fourth quarter.

Barrick took $2.82 billion in after-tax impairment charges in the fourth quarter. They include $896 million for the Pascua-Lama project, which it suspended indefinitely in the autumn.

The company has been clear that it will forge ahead with Pascua-Lama when the time is right, despite the permitting problems, delays and huge cost overruns that have plagued the project.

Excluding the charges and other items, Barrick's earnings dropped to $410 million, or 37 cents a share, in the fourth quarter from $1.16 billion, or $1.16 a share, a year earlier. Revenue dropped to $2.93 billion from $4.15 billion.

Analysts, on average, had expected earnings of 41 cents a share on revenue of $2.8 billion, according to Thomson Reuters I/B/E/S.

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