Barrick Gold Production Seen Hitting Nine-Year Low

Barrick Gold Corp. (ABX) is poised to cut output to a nine-year low, a sign the world’s largest gold miner is making headway on its plan to put profits before growth.

Barrick may produce 6.3 million ounces of gold this year, based on the average of four analysts’ estimates compiled by Bloomberg. That would be as much as 15 percent less than last year and the lowest since the company became the gold industry leader in 2006.

The Toronto-based miner, which is expected to issue 2014 forecasts when it reports fourth-quarter earnings Feb. 13, isn’t alone in its strategy. Gold producers have cut budgets, sold mines and curtailed operations after the metal plunged last year by the most in more than three decades.

“Barrick represents a turnaround situation,” Robert Gill, who helps manage C$3.3 billion ($3 billion) including Barrick shares at Lincluden Investment Management, said yesterday by phone. “It’s a different company now than what it was for much of its existence.”

The miner led an industrywide pursuit of expansion over the past decade as gold producers sought to capitalize on prices that rose for 12 straight years. A shift began in 2012 after money-losing multibillion-dollar takeovers, overbudget projects and relentlessly rising costs pushed the companies to focus on returns.

Changing Landscape

Gold futures in New York fell 28 percent in 2013, the biggest annual decline since 1981. The metal has pared some losses this year, increasing 6 percent to settle at $1,274.70 an ounce yesterday.

The changing industry landscape will be further delineated this week as four of Canada’s five largest gold miners report earnings. Producers will probably announce further writedowns -- potentially $2 billion to $3.5 billion in Barrick’s case -- and declines in gold-reserve estimates as they adjust assumptions, Royal Bank of Canada analysts led by Stephen Walker said in a Feb. 5 note.

Barrick may report fourth-quarter earnings excluding one-time items of 41 cents a share, the average of 21 analysts’ estimates compiled by Bloomberg. That compares with adjusted profit of $1.11 a year earlier.

‘Better Company’

Barrick, which fell 46 percent in Toronto last year, has increased 14 percent since the start of 2014 while the Philadelphia Stock Exchange Gold and Silver Index of 30 companies has risen 13 percent.

Andy Lloyd, a Barrick spokesman, declined to comment on the production outlook or potential writedowns ahead of the earnings report.

Changing priorities is the right approach for gold producers, said David Christensen, chief executive officer of San Mateo, California-based ASA Gold & Precious Metals Ltd., which manages about $300 million.

“Qualitatively you end up with a better company than you would have had last year at this time,” Christensen said Feb. 5 in a telephone interview.

Barrick has agreed to sell more than $850 million of assets in the past seven months, including its oil and gas unit, five Australian mines and a minority interest in a Nevada gold operation. The company also suspended construction of its delayed and overbudget Pascua-Lama project in the Andes, started closing its Pierina mine in Peru last year and cut its dividend 75 percent.

Annual Decline

Barrick has forecast 2013 output of 7 million to 7.4 million ounces of gold, which would represent the fourth annual decline, according to data compiled by Bloomberg, and compares with a peak of 8.64 million ounces in 2006, when Barrick completed its acquisition of Placer Dome Inc. for $10.2 billion including debt.

Production will fall in 2014 following the sales and as the company adjusts mine plans to focus on the most profitable production, CEO Jamie Sokalsky said at a conference in Whistler, British Columbia.

“The company has been transformed into a much stronger and leaner company,” he said Jan. 23. A decision to focus on free cash flow and returns rather than production represents a “sea change” for Barrick and the industry, Sokalsky said.

Barrick became the No. 1 producer when it bought Placer Dome. Barrick had targeted an increase to 9 million ounces by 2016 when the company fired CEO Aaron Regent in June 2012 and replaced him with Sokalsky.

Increasing Production

Less than two months after taking the helm, Sokalsky lowered the goal to 8 million by 2015, and then abandoned the target altogether a year later, saying that returns would drive production growth, not the other way around.

Not all gold miners are shrinking. Goldcorp Inc. (G), the second-largest Canadian producer, expects production will increase as much as 18 percent this year as the company starts up new mines in Canada and Argentina. Output will increase further if the Vancouver-based miner succeeds in its C$2.84 billion hostile cash-and-stock bid for Osisko Mining Corp.

While Goldcorp is increasing production, growth isn’t a goal in itself, CEO Chuck Jeannes said at the same Whistler conference.

“The way you improve an overall portfolio is to both add high-quality things and sell off your non-core things,” Jeannes said. “We’ve done that several times in the past, and we’ll continue to do it.”

To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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