Barrick Profit Tops Estimates as Costs Beat Expectations

Barrick Gold Corp., the largest producer of the metal, reported first-quarter profit that beat analysts’ estimates after costs were better than expected. The company also said it may suspend a Latin American project.

Earnings excluding foreign-currency losses and other one-time items were 92 cents a share, Toronto-based Barrick said today in a statement. That beat the 86-cent average of 21 estimates compiled by Bloomberg. The company’s so-called total cash cost to produce an ounce of gold was $561, compared with $540 a year earlier and the $654 average of six estimates.

Chief Executive Officer Jamie Sokalsky has sought to contain soaring costs and curb spending following a jump in the estimated price to build Pascua-Lama, an $8.5 billion mine on the Chile-Argentina border. Barrick’s share price has plunged 66 percent in the past two years, while gold prices have fallen 15 percent in 2013 after 12 consecutive annual increases.

“Our cost reduction efforts have begun to take effect,” Sokalsky said in the statement. “While we remain positive on the long-term fundamentals for gold and copper, we don’t rely on higher metal prices to be the only driver of shareholder returns.”

Spending Cuts

The company reduced its forecasts for capital spending this year to $5.2 billion to $5.7 billion, from as much as $6.3 billion. Barrick said all-in sustaining costs, a metric recently introduced by gold producers, are now expected to be $950 to $1,050 an ounce, compared with a Feb. 14 forecast of $1,000 to $1,100.

Barrick rose 7.6 percent to C$19.38 at the close in Toronto, the biggest gain in more than three years. The shares plunged 48 percent this year before today.

“Barrick management is doing what is necessary in a difficult gold price environment,” Greg Barnes, a Toronto-based analyst at TD Securities Inc., said in a note today. “The cost cuts announced today go some way to addressing the challenges facing the company over the next two years as it builds Pascua-Lama.”

Barrick said it’s evaluating alternatives for Pascua-Lama, including suspending the gold and silver project. The company halted construction on the Chilean side this month after a court accepted an injunction filed by indigenous communities concerned about water supplies. Barrick already increased the project’s estimated cost twice last year and suspended some other work at the mine last year because of concerns about dust thrown up by strong winds.

Alternative Plan

“Until we have clarity on the regulatory and legal aspects, we are unable to fully assess the impact on the capital budget, operating costs and schedule of the project,” Barrick said today. The company said it’s at the early stage of studying an alternative development plan to start producing from a smaller pit in Argentina.

A suspension at Pascua-Lama “could be positive,” Brian Yu, a San Francisco-based analyst at Citigroup Inc., said in a note today.

“Pascua is now viewed as a liability rather than an asset by investors due to the liquidity strain it places” on the company, he said.

Barrick’s first-quarter net income declined 19 percent to $847 million, or 85 cents a share, from $1.04 billion, or $1.04, a year earlier. Sales fell 5.7 percent to $3.44 billion, trailing the $3.49 billion average of eight estimates.

Output Declines

Gold production fell to 1.8 million ounces from 1.88 million ounces a year earlier. The average of eight analysts’ estimates compiled by Bloomberg was for 1.74 million ounces of gold. Copper output rose 8.5 percent to 127 million pounds.

Gold averaged $1,631.24 an ounce in the first quarter on the Comex in New York, 3.7 percent less than a year earlier and 5.1 percent lower than in the previous three months. The metal reached a two-year low on April 16.

Barrick said it continues to pursue the potential sale of its energy unit and its 50 percent stake in the Kabanga nickel project in Tanzania. The company, which reiterated its 2013 gold output forecast of 7 million to 7.4 million, said it has no plans to build any new mines.

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