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Barrick Cuts Gold Output Forecast for Eighth Potential Drop

Updated on
  • Toronto miner sees 2018 output at midpoint of 4.75 million oz
  • Miner’s $700 AISC goal slowed by falling production, inflation

Barrick Gold Corp., the bullion producer that once towered over rivals, continues to shrink.

The Toronto-based miner is predicting its eighth straight decline in annual production as it takes 300,000 fewer ounces out of the ground in 2018 than it had previously forecast. It now projects total production will be 4.5 million to 5 million ounces this year, compared with a previous forecast of 4.8 million to 5.3 million ounces.

Barrick also raised its forecast for all-in-sustaining costs to a range of $765 to $815 an ounce this year, compared with previous guidance of $710 to $770.

“Higher cost guidance for 2018 primarily reflects lower anticipated gold production from Barrick Nevada, Pueblo Viejo and Veladero, increased processing of higher-cost inventory, and higher costs at Acacia,” the company said Wednesday in a statement.

In an analyst call Thursday, Chief Operating Officer Richard Williams said widespread input inflation and the need to reinvest to replenish its pipeline with new high-margin ounces, were also driving up costs.

In 2016, Barrick announced the “ambitious aspiration” of pushing all-in-sustaining-costs below $700 an ounce. Progress towards that goal has not been sufficient to offset falling production, Williams said, while inflation is a headwind. “It’s not that the $700 aspiration isn’t still there, and driving the way in which we’re operating and thinking. It’s that we’re taking into account all these factors.”

Also affecting production, Barrick’s Nevada operations will experience lower grades in 2018, the company said Wednesday. Meanwhile, Pueblo Viejo in the Dominican Republic will be affected by planned maintenance and previous 2018 guidance didn’t take into account the sale last year of half of Barrick’s Veladero mine in Argentina to China’s Shandong Gold Mining Co.

Barrick’s shares were down 4.3 percent at 12:29 p.m. in Toronto Thursday. Other producers such as Kinross Gold Corp. also fell.

The market is concerned that the $700 target will be pushed further out and is focused on Barrick’s declining production profile, Kerry Smith, an analyst with Haywood Securities Inc., said by telephone. That said, focusing on quality over quantity will have longer-term benefits. “If you’re growing your production at higher costs, that doesn’t make any sense. So Barrick is doing the right thing,” Smith said.

Impairment Charges

The company booked $908 million in net impairment charges in 2017, partly related to a protracted dispute between the Tanzanian government and Acacia Mining Plc, of which Barrick is a majority shareholder. Shares of Acacia plunged earlier this week after the London-based company said production will fall sharply this year.

The almost $1 billion impairment also included a charge related to Barrick’s Pascua-Lama gold-and-silver deposit which it reclassified. Barrick’s total proven and probably gold reserves dropped to 64.5 million ounces, from 86 million ounces at the end of 2016, largely as a result.

Catching Up

Competitor Newmont Mining Corp., which has already moved ahead of Barrick in terms of market value, said in December it expects to produce 4.9 million to 5.4 million ounces of gold this year, meaning there is now only a narrow margin by which Barrick can maintain its title of world’s largest miner. Newmont is scheduled to release its fourth-quarter and full-year earnings and production guidance Feb. 22.

Barrick also cut its 2019 gold production guidance, saying it will produce 4.2 million to 4.6 million ounces a year from 2019 to 2022. It’s advancing a pipeline of projects “with the potential to contribute more than 1 million ounces of annual production to Barrick, at costs well below our current portfolio average,” but did not give a timeline.

(Updates with comments from COO from fifth paragraph.)
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