* Operation review to focus on cutting operating costs,
* 2012 EBITDA down 39 pct vs 2011, misses expectations
* Guides that 2013 production will come in lower, costs
* Shares fall 8.7 pct
By Sarah Young
LONDON, Feb 13 Miner African Barrick Gold
forecast production would shrink for a fifth straight
year and said it would focus on cutting soaring costs, after
talks over a possible takeover of the firm collapsed in January.
The Tanzania-focused FTSE 250 company forecast on Wednesday
that gold output could fall as much as 14 percent this year,
sending its shares down over 9 percent, after 2012 earnings
missed market expectations.
"Another disappointing result from a serial disappointer,"
Numis analyst Cailey Barker said.
Detailing the first findings of an operational review,
initiated in the wake of parent Barrick Gold's failed
attempt to sell the company, African Barrick said it plans to
cut back on spending. It will investigate ways of reducing power
and other operational costs as it seeks to work its assets
harder to boost cash generation through this year.
The miner's 2012 core earnings, or earnings before interest,
tax, depreciation and amortisation (EBITDA), came in at $331
million, down almost 40 percent and below forecasts.
The crash was a result of lower production - hit by a strike
at its flagship Bulyanhulu mine and illegal mining at North Mara
- but also cash costs, which soared 37 percent from their 2011
level to $949 per ounce.
While the battle against inflation is a being fought across
the mining industry, African Barrick's problems exemplify the
particular difficulties of the gold sector where poor community
relations and power woes have added to costs. Global gold
production has remained flat despite the price of gold rocketing
500 percent since 2000.
"During 2012 the increases in our operating expenses and in
the level of capital we invested in our assets meant that the
business consumed capital which is not sustainable over the
longer term," Chief Executive Greg Hawkins said.
African Barrick's operational review, which will run for six
months until mid-2013, will not help drive a big cost reduction
this year, however, the company said, guiding that costs per
ounce sold would be in the range of $925 and $975 and laying on
the pressure for a stronger control of costs in 2014.
In addition to planning to axe $50 million from the 2012
sustaining capital expenditure bill, Hawkins said that the
company would seek to cut costs in labour, energy and consumable
goods at its three main mines in Tanzania.
But some analysts were sceptical about the company's ability
to deliver on its cost cuts. Liberum called its cost guidance
"ambitious" given the lower production base.
Canada's Barrick Gold, which owns 74 percent of African
Barrick, ended talks over a possible $3 billion deal to sell its
stake in African Barrick to China National Gold this month and
analysts said that a downgrade to 2012 production during
discussions could have hindered negotiations.
Since being spun out of Barrick in 2010, African Barrick has
been hit by power woes and fuel thefts among other difficulties
and downgraded production a number of times, and its stock has
frequently traded well below its 575 pence listing price.
Shares in African Barrick were trading at 311.4 pence in
morning trading, a drop of around 30 percent since the beginning
of the year, lagging the European mining index which is
around 1.2 percent lower and far outpacing a 1.7 percent drop in
the U.S. dollar gold price.
Hawkins, who has led African Barrick since its listing,
shrugged off questions about his future, at a time when some
high profile heads have rolled in the mining industry with the
departures of the chief executives of Anglo American and
Rio Tinto. He denied there were any management changes
in the pipeline.