Barrick Reports Second Quarter 2016 Results

TORONTO, ONTARIO--(Marketwired - July 27, 2016) - Barrick Gold Corporation (NYSE:ABX)(TSX:ABX)

All amounts expressed in US dollars

• Barrick reported net earnings of $138 million ($0.12 per share), and adjusted net earnings¹ of $158 million ($0.14 per share) for the second quarter. Second quarter EBITDA² was $881 million.
  
  
• The company reported revenues of $2.01 billion in the second quarter, and net cash provided by operating activities ("operating cash flow") was $527 million. Barrick generated $274 million in free cash flow³ in the second quarter, marking five consecutive quarters of positive free cash flow.
  
  
• Gold production in the second quarter was 1.34 million ounces at a cost of sales applicable to gold of $1.23 billion, and all-in sustaining costs⁴ of $782 per ounce.
  
  
• Compared to the first half of 2015, cost of sales applicable to gold has declined by 14 percent to $2.43 billion. Over the same period, we have reduced our all-in sustaining costs⁴ by 19 percent.
  
  
• For the full year, we expect cost of sales applicable to gold to be in the range of $5.2-$5.5 billion. All-in sustaining cost⁴ guidance for 2016 has been reduced to $750-$790 per ounce, down from $760-$810 per ounce at the end of the first quarter, and below our original 2016 guidance of $775-$825 per ounce. We continue to expect gold production of 5.0-5.5 million ounces for the year.
  
  
• We have reduced total debt by $968 million year-to-date, and remain on track to achieve our $2 billion debt reduction target for the year.
  
  
• Commercial production has commenced at the Jabal Sayid copper mine in Saudi Arabia. Reflecting this milestone, we have increased our 2016 copper guidance to 380-430 million pounds, up from our original guidance of 370-410 million pounds.
  
  

Barrick Gold Corporation (NYSE:ABX)(TSX:ABX) (Barrick or the company) today reported net earnings of $138 million ($0.12 per share) for the second quarter, and adjusted net earnings¹of $158 million ($0.14 per share). Second quarter EBITDA² was $881 million. Second quarter revenues were $2.01 billion and operating cash flow was $527 million. The company generated $274 million in free cash flow³ in the second quarter, marking five consecutive quarters of positive free cash flow.

Second quarter cost of sales applicable to gold was $1.23 billion, a reduction of 13 percent compared to the prior-year period. Production in the quarter was 1.34 million ounces of gold at all-in sustaining costs⁴ of $782 per ounce. We continue to expect full-year production of 5.0-5.5 million ounces of gold. We expect cost of sales applicable to gold for 2016 to be in the range of $5.2-$5.5 billion. We have reduced our all-in sustaining cost⁴guidance to $750-$790 per ounce, down from our most recent range of $760-$810 per ounce.

Our operations continued to deliver robust performance in the second quarter, demonstrating capital discipline, improved operational efficiency and productivity, and stronger cost management as we target Best-in-Class performance. This is driving growing margins and profitability across the entire business, in support of our overriding objective to grow free cash flow per share. At the same time, we continue to strengthen our balance sheet with nearly $1 billion in debt repayments completed so far this year, or roughly half of our $2 billion debt reduction target for 2016. Lower debt levels have better positioned the company to withstand gold price volatility while setting us up to invest in future growth. 

Barrick has the industry's largest gold reserves and resources, with an average reserve grade significantly higher than our peer group average.⁵ This represents an immense source of value and optionality for the company. Our Growth Group is actively advancing a strategy to grow our free cash flow per share by allocating capital to the opportunities with the best returns. We are pursuing a multi-faceted approach that will optimize the development of our existing reserves and resources, invest in exploration to discover the next major deposit, and assess external opportunities for acquisitions, seed financing, earn-ins, and other partnerships and joint ventures. Ultimately, the investments we make will be focused on growing our free cash flow per share while maintaining strict capital discipline, such that we are continuously upgrading the long-term value of our portfolio. Our existing operations will also contribute to growth by achieving step changes in performance that will drive down our cost structure and expand margins. We will do this by leveraging innovation and new technology, which is a core pillar of our Best-in-Class philosophy.

FINANCIAL HIGHLIGHTS

Second quarter net earnings were $138 million ($0.12 per share) compared to a net loss of $9 million ($0.01 per share) in the prior year period. Adjusted net earnings¹ for the second quarter were $158 million ($0.14 per share), compared to $60 million ($0.05 per share) in the prior year period. Higher net earnings reflect a decrease in operating costs, particularly lower fuel and energy prices (even when factoring in fuel hedges above spot prices), favorable foreign exchange movements, reduced royalty expense, and the impact of Best-in-Class initiatives, including lower labor, contractor, and consumable costs, and other operating efficiencies. In addition, earnings benefited from lower exploration, evaluation, and project expenses. The company generated $881 million of EBITDA² in the second quarter compared to $690 million in the prior year period.

Second quarter revenues were $2.01 billion, compared to $2.23 billion in the prior year period. Operating cash flow in the second quarter was $527 million, compared to $525 million in the second quarter of 2015. Despite lower production as a result of non-core asset sales, operating cash flow remained in line with the prior year period. This was driven by higher gold prices and lower operating costs, as a result of lower energy and fuel costs, combined with lower labor, consumable, and contractor costs, and improved operating efficiencies driven by Best-in-Class initiatives. These gains were partially offset by an increase in working capital, combined with the impact of higher income taxes paid, compared to the prior year period. 

Free cash flow³ for the second quarter was $274 million, marking five consecutive quarters of positive free cash flow. This reflects our driving focus on maximizing free cash flow per share through capital discipline, improved operational efficiency and productivity, and stronger cost management.

RESTORING A STRONG BALANCE SHEET

Strengthening our balance sheet remains a top priority. In 2016, we intend to reduce our total debt by at least $2 billion by drawing on our existing cash balance, and by maximizing free cash flow from operations, as well as potential non-core asset sales.

So far this year, we have reduced our total debt by $968 million, representing approximately half of our debt reduction target for the year.

We will continue to pursue non-core asset sales with discipline, and will only proceed with transactions that make sense for the business, on terms we consider favorable to our shareholders.

In this regard, we intend to initiate a process to explore the sale of our 50 percent stake in the KCGM operation in Western Australia.

The company's liquidity position is strong and continues to improve, underpinned by free cash flow generation across the business, and modest near-term debt repayment obligations. At the end of the second quarter, Barrick had a consolidated cash balance of approximately $2.4 billion.⁶ The company now has less than $150 million⁷ in debt due before 2018, and about $5 billion of our outstanding debt of $9 billion does not mature until after 2032. Over the medium term, we aim to reduce our total debt to below $5 billion.

OPERATING HIGHLIGHTS AND OUTLOOK

Our over-arching objective as a business is to grow our free cash flow per share. In support of this objective, we are focused on driving industry-leading margins by improving the productivity and efficiency of our operations. This means a continuous, relentless cycle of improvement and innovation, underpinned by our Best-in-Class program. Our aspiration is to achieve all-in sustaining costs below $700 per ounce by 2019.

Barrick produced 1.34 million ounces of gold in the second quarter at a cost of sales of $1.23 billion, compared to 1.45 million ounces at a cost of sales of $1.41 billion in the prior year period. All-in sustaining costs⁴ in the second quarter were $782 per ounce, compared to $895 per ounce in the second quarter of 2015. Excluding the impact of divested mines, production for the second quarter increased by 126,000 ounces.

Compared to the first half of 2015, cost of sales applicable to gold declined by 14 percent to $2.43 billion, primarily due to fewer ounces sold as a result of divestments. Cost of sales at our remaining operations was in line with the prior-year period, with higher grades and sales volumes offset by a decrease in direct mining costs. Compared to the first half of 2015, all-in sustaining costs⁴ have fallen by 19 percent. These reductions reflect decreased direct mining costs, particularly lower fuel and energy prices, reduced royalty expense, and the impact of Best-in-Class initiatives, including lower labor, contractor, and consumable costs, and more predictive and precise maintenance. Lower mine site sustaining capital expenditures and a higher proportion of production from lower cost operations also contributed to lower all-in sustaining costs.

Please see page 31 of Barrick's Second Quarter 2016 Management Discussion and Analysis for individual operating segment performance details.

We continue to expect full-year gold production of 5.0-5.5 million ounces. For the full year, we expect cost of sales applicable to gold to be in the range of $5.2-$5.5 billion. We have reduced our all-in sustaining cost⁴ guidance for 2016 to $750-$790 per ounce, down from $760-$810 per ounce at the end of the first quarter, and below our original 2016 guidance of $775-$825 per ounce. All-in sustaining costs are now expected to be highest in the third quarter, reflecting a shift in the timing of certain sustaining capital expenditures to the second half of the year.

Capital expenditures for 2016 are now expected to be $1.25-$1.40 billion, down from $1.35-$1.55 billion at the end of the first quarter, and below our original 2016 guidance range of $1.35-$1.65 billion.

As we continue to embed Best-in-Class across the portfolio, we expect to identify additional savings opportunities over the course of the year.

Mine Site Guidance Updates

Based on improved operational performance, we now anticipate higher production and lower costs at both Cortez and Turquoise Ridge. Cortez is now expected to produce 980,000-1,050,000 ounces of gold at all-in sustaining costs⁴ of $520-$550 per ounce, compared to our previous guidance range of 900,000-1,000,000 ounces at all-in sustaining costs of $580-$640 per ounce. At Turquoise Ridge, our share of production is now anticipated to be in the range of 240,000-260,000 ounces of gold at all-in sustaining costs of $640-$700 per ounce, compared to our previous guidance range of 200,000-220,000 ounces at all-in sustaining costs of $770-$850 per ounce.

Reflecting the impact of severe winter weather conditions in the first half of 2016, we now expect full year gold production at Veladero to be in the range of 580,000-640,000 ounces, down from our previous guidance of 630,000-690,000 ounces. All-in sustaining cost⁴ guidance remains unchanged at $790-$860 per ounce.

Copper

Copper production in the second quarter was 103 million pounds at a cost of sales of $79 million, and all-in sustaining costs⁹of $2.14 per pound. The Jabal Sayid project, a 50-50 joint venture with Saudi Arabian Mining Company (Ma'aden), commenced commercial production on July 1. Barrick's share of 2016 copper production from Jabal Sayid is expected to be 10-20 million pounds at all-in sustaining costs of $2.80-$3.10 per pound. The mine is expected to ramp up to a production rate of about 100 million pounds per year in the second half of 2017, as additional underground development is completed.

Reflecting the start of commercial production at Jabal Sayid, we have increased our copper production guidance for 2016 to 380-430 million pounds, up from our original guidance of 370-410 million pounds. For the full year, we expect cost of sales applicable to copper to be in the range of $275-$320 million. Copper all-in sustaining cost⁹ guidance remains unchanged at $1.95-$2.25 per pound.

In June 2016, the Zambian government passed legislation to amend the royalty tax for mining operations to a variable rate based on the prevailing copper price, effective June 1, 2016. These rates are four percent at copper prices below $2.04; five percent at copper prices between $2.04 and $2.72; and six percent at copper prices of $2.72 and above. Legislation was also passed to remove the 15 percent variable profit tax on income from mining companies. Our 2016 copper guidance takes into consideration the revised royalty rates commencing June 1.

BEST-IN-CLASS IN ACTION

Pueblo Viejo Autoclaves Case Study

Applying Creative Thinking and Knowledge to Unlock Potential

The key to unlocking the massive refractory ore body at Pueblo Viejo rests within four giant autoclaves-the largest ever used in the gold mining industry. Each autoclave weighs 780 tonnes, and is roughly 38 meters long and six meters in diameter-about as wide as a Boeing 747 fuselage. Improving the availability and throughput of the autoclaves has the potential to unlock substantial value for the mine.

Until recently, each autoclave has required, on average, a 22-day maintenance shutdown every six months. Large metal walls that separate the compartments inside each autoclave begin to fail as a result of the forces generated by continuous agitation of the ore slurry. A buckled or failed wall can interfere with normal operation, damaging the agitator blades and shafts, and accelerating the build-up of scale and sand, thereby requiring frequent maintenance.

Challenging and pushing past technical limits is a critical component of our Best-in-Class philosophy. Faced with this challenge, the team at Pueblo Viejo came up with a plan to increase autoclave availability and throughput by extending the period between maintenance shutdowns-from every six months, to every seven or potentially eight months.

To achieve this, the team applied Barrick's extensive autoclave operating experience to propose a number of critical modifications to the autoclaves. High oxidization rates inside the autoclaves implied the number of interior compartments could be reduced, thereby mitigating the build-up of scale, and the associated maintenance requirements. However, the remaining compartment walls would continue to fail at a similar rate, limiting the potential gains. To solve this problem, the team worked with an engineering partner to develop a new design for the interior compartment walls. The design better integrates the walls into the autoclaves using stronger titanium structure sections, improved bracing, and larger bolts.

The new walls have been successfully installed in two of the mine's four autoclaves. Initial results have been positive, indicating that increased run-time between shutdown maintenance is achievable. If successful in all four autoclaves, this initiative has the potential to increase throughput at Pueblo Viejo by 240,000 tonnes per year (100 percent basis), increasing autoclave availability from 84 percent to 86.5 percent-driving increased production, lower unit costs, and additional free cash flow from the operation. Other benefits include reducing materials cost for autoclave maintenance work (spare parts, valves, and ancillary equipment), and reducing contractor costs, due to fewer shutdowns per year.

Goldstrike Open Pit Haulage Case Study

When Challenging Conventional Wisdom Pays Off

Over nearly 30 years of managing one of the largest open pit gold mines in the world, conventional wisdom at Goldstrike suggested that the technical limit for open pit haul truck utilization was 79 percent, taking into account the mine runs two open pits seven miles apart. In simple terms, for every hour of potential operating time, the average truck achieved about 48 minutes of productive work time. At the end of 2015, the mine was operating a fleet of 29 Komatsu 930 haul trucks.

Motivated by a desire to challenge conventional wisdom in pursuit of Best-in-Class performance, the open pit team at Goldstrike evaluated how to increase haul truck availability to a level the mine had never achieved. Drawing on other experiences from across the industry, they came up with a concept that allows some haul trucks to be parked, while significantly increasing utilization of the trucks remaining in service. The secret was breaks-but not the brakes on the trucks. Typically, when haul truck drivers at Goldstrike were scheduled to take a break, they simply pulled over in a safe location and enjoyed a rest, usually spent inside the cab of the truck itself. This had trucks idling, rather than engaging in productive work.

Earlier this year, Goldstrike began testing a new system. The mine is in the process of installing a series of modular break rooms at strategic locations around the open pit where drivers can rest. While drivers are on break, relief drivers take over operation of the trucks. In just six months, the results have been impressive: a six percent improvement in haul truck utilization in the open pit, moving from 79 percent to 85 percent; and six haul trucks taken out of the fleet. Today, the mine is moving the same amount of material in the open pit, with fewer trucks. This initiative, combined with other improvement projects, has helped to reduce open pit mining costs at Goldstrike from $1.40 per tonne at the start of the year to $1.25 per tonne today. The shift to using properly-configured break rooms also increases safety, by promoting a more restful environment for operators.

As often happens, when you remove one bottleneck, other opportunities for improvement present themselves. The open pit team is now evaluating how to further optimize shovel use at the mine, matching the right shovels with the right haulage plans and ore types.

TECHNICAL INFORMATION

The scientific and technical information contained in this press release has been reviewed and approved by Steven Haggarty, P. Eng., Senior Director, Metallurgy of Barrick who is a "Qualified Person" as defined in National Instrument 43-101 - Standards of Disclosure for Mineral Projects.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

Certain information contained or incorporated by reference in this Second Quarter Report 2016, including any information as to our strategy, projects, plans or future financial or operating performance, constitutes "forward-looking statements". All statements, other than statements of historical fact, are forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "objective", "aspiration", "aim", "intend", "project", "goal", "continue", "budget", "estimate", "potential", "may", "will", "can", "should", "could", "would", and similar expressions identify forward-looking statements. In particular, this Second Quarter Report 2016 contains forward-looking statements including, without limitation, with respect to: (i) Barrick's forward-looking production guidance; (ii) estimates of future cost of sales for gold and copper; all-in-sustaining costs per ounce/pound, cash costs per ounce and C1 cash costs per pound; (iii) cash flow forecasts; (iv) projected capital, operating and exploration expenditures; (v) targeted debt and cost reductions; (vi) targeted investments by Barrick's Growth Group; (vii) mine life and production rates; (viii) potential mineralization and metal or mineral recoveries; (ix) Barrick's Best-in-Class program (including potential improvements to financial and operating performance at Barrick's Pueblo Viejo and Goldstrike mines that may result from certain Best-in-Class initiatives); (x) timing and completion of acquisitions; (xi) non-core asset sales or joint ventures; and (xii) expectations regarding future price assumptions, financial performance and other outlook or guidance.

Forward-looking statements are necessarily based upon a number of estimates and assumptions; including material estimates and assumptions related to the factors set forth below that, while considered reasonable by the company as at the date of this press release in light of management's experience and perception of current conditions and expected developments, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements and undue reliance should not be placed on such statements and information. Such factors include, but are not limited to: fluctuations in the spot and forward price of gold, copper or certain other commodities (such as silver, diesel fuel, natural gas and electricity); the speculative nature of mineral exploration and development; changes in mineral production performance, exploitation and exploration successes; risks associated with the fact that certain Best-in-Class initiatives are still in the early stages of evaluation and additional engineering and other analysis is required to fully assess their impact; diminishing quantities or grades of reserves; increased costs, delays, suspensions and technical challenges associated with the construction of capital projects; operating or technical difficulties in connection with mining or development activities, including geotechnical challenges and disruptions in the maintenance or provision of required infrastructure and information technology systems; failure to comply with environmental and health and safety laws and regulations; timing of receipt of, or failure to comply with, necessary permits and approvals; uncertainty whether some or all of the Best-in-Class initiatives and investments targeted by the Growth Group will meet the company's capital allocation objectives; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; adverse changes in our credit ratings; the impact of inflation; fluctuations in the currency markets;
changes in U.S. dollar interest rates; risks arising from holding derivative instruments; changes in national and local government legislation, taxation, controls or regulations and/or changes in the administration of laws, policies and practices, expropriation or nationalization of property and political or economic developments in Canada, the United States and other jurisdictions in which the company does or may carry on business in the future; lack of certainty with respect to foreign legal systems, corruption and other factors that are inconsistent with the rule of law; damage to the company's reputation due to the actual or perceived occurrence of any number of events, including negative publicity with respect to the company's handling of environmental matters or dealings with community groups, whether true or not; risk of loss due to acts of war, terrorism, sabotage and civil disturbances; litigation; contests over title to properties, particularly title to undeveloped properties, or over access to water, power and other required infrastructure; business opportunities that may be presented to, or pursued by, the company; our ability to successfully integrate acquisitions or complete divestitures; risks associated with working with partners in jointly controlled assets; employee relations including loss of key employees; increased costs and physical risks, including extreme weather events and resource shortage, related to climate change; availability and increased costs associated with mining inputs and labor; and the organization of our previously held African gold operations and properties under a separate listed company. In addition, there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion, copper cathode or gold or copper concentrate losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks).

Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this Second Quarter Report 2016 are qualified by these cautionary statements. Specific reference is made to the most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities for a more detailed discussion of some of the factors underlying forward-looking statements and the risks that may affect Barrick's ability to achieve the expectations set forth in the forward-looking statements contained in this press release.

The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.