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News May 2008

Tops Estimates as Gold Reaches Record (Update5)

By Stewart Bailey

May 6 (Bloomberg) -- Barrick Gold Corp., the world's largest gold producer, reported first-quarter profit that topped analyst estimates as bullion prices rose to a record and the company got rid of money-losing sales contracts.

The net income of $514 million, or 58 cents a share, compares with a net loss of $159 million, or 18 cents, a year earlier, Toronto-based Barrick said today in a statement. Profit before one-time items was a record 62 cents a share, topping the 61-cent average estimate of 19 analysts surveyed by Bloomberg. Sales rose 80 percent to $1.96 billion.

Chairman Peter Munk, who took over the company's operations in March after Chief Executive Officer Greg Wilkins fell ill, is overseeing construction of new mines in Africa, the Americas and Asia to boost output. The company had $557 million in costs in the year-earlier quarter to exit some sales agreements so it can take full advantage of gold prices that are gaining for an eighth straight year.

``The upside for Barrick comes as they bring in the new projects that can grow their cash flow per share,'' Kerry Smith, an analyst at Haywood Securities Inc. who rates the shares ``sector outperform,'' said in an interview from Toronto. ``All of those new projects will help lower average cash costs.''

Barrick fell 2 cents to C$39.39 as of 3:29 p.m. in Toronto Stock Exchange trading. The shares rose 17 percent in the year through yesterday, trailing the 23 percent gain in the 16-member Philadelphia Stock Exchange Gold & Silver Index.

Production Forecast

The company maintained its forecast for annual production of 7.6 million to 8.1 million ounces in 2008, with cash costs at the ``higher end'' of a range of $390 to $415 an ounce. The company had output of 8.06 million ounces at a cash cost of $350 an ounce last year.

Gold production in the quarter fell 14 percent to 1.74 million ounces as the company mined lower-grade ore and experienced disruptions at some of its larger operations. Cash costs increased 27 percent to $393 an ounce, the company said.

Performance will improve in the current quarter as equipment at the Goldstrike operation in the U.S. is repaired and richer ore is mined there, Barrick said.

Metal producers worldwide are fighting to rein in costs amid record prices for the fuel needed to drive dump trucks, higher wages for skilled workers and surging expenses for mining equipment and steel.

Gold averaged $928.61 an ounce in the first quarter, 42 percent more than a year earlier. Copper, a byproduct of some of the company's mines, was 30 percent higher, on average.

Barrick today increased its quarterly dividend 33 percent to 20 cents a share, citing increased cash flow from the higher metal prices.

South African Project

Barrick said it completed a feasibility study on the Sedibelo platinum project in South Africa and expects to decide whether to pursue the project ``in due course.'' The study estimates potential total production of 4.76 million ounces of platinum, palladium, rhodium and gold. Annual output in the first five years would be about 240,000 ounces. Pre-production costs will be around $700 million.

Barrick has the right to a 10 percent stake in the Sedibelo project, with the right to an additional 40 percent on a decision to mine, the company said in the statement. Production in the first five years likely will cost $700 per ounce.

Goldcorp Inc., the world's second-largest gold producer by market value, yesterday reported first-quarter profit of $229.5 million. Newmont Mining Corp., the third-largest, posted a $370 million profit on April 24. Both topped analyst estimates.

Gold Earnings

Gold producers ``had a good fourth quarter, and I expect that to continue in the first quarter and hopefully into the rest of the year,'' Joe Foster, who manages gold stocks at Van Eck Associates in New York, said yesterday in an interview. ``We should see some decent margin expansion on the higher gold price.''

Copper output in 2008 is expected to be 380 million to 400 million pounds at a cost of $1.15 to $1.25 a pound. That compares with production of 402 million pounds at a cash cost of 83 cents a pound last year. Copper production in the quarter declined 13 percent to 87 million pounds.

Barrick has 27 mines in eight countries, including the U.S., Chile, Australia, Peru and Tanzania. It is developing or exploring an additional 11 properties, including the Donlin Creek deposit in Alaska, Pueblo Viejo in the Dominican Republic, Cerro Casale in Chile and Pascua Lama, which straddles the border between Chile and Argentina.

`Strong Prices'

``We've positioned ourselves to benefit from today's strong metal prices and our efforts are now being realized in expanding margins and strong earnings and cash flow,'' Munk, 80, said in the statement.

The projects may cost about $7.2 billion in the next five to seven years and yield as much as 2 million ounces of additional gold, Greg Barnes, an analyst at TD Newcrest in Toronto, said in February.

Barrick has forecast capital expenditures this year of $2.1 billion to $2.5 billion for its new projects and maintenance and expansion of existing mines.

To contact the reporter on this story: Stewart Bailey in New York at sbailey7@bloomberg.net.

Last Updated: May 6, 2008 15:32 EDT