Barrick Reports Second Quarter 2015 Results
- Company reported a net loss of $9 million ($0.01 per share) in the second quarter; adjusted net earnings were $60 million ($0.05 per share)1.
- Free cash flow was $26 million1 and operating cash flow was $525 million.
- Production in the second quarter was 1.45 million ounces of gold at all-in sustaining costs (AISC) of $895 per ounce1.
- Full-year gold production is now expected to be 6.1-6.4 million ounces, reflecting the impact of asset sales.
- All-in sustaining cost guidance for 2015 has been reduced to $840-$880 per ounce.
- Total debt reduced by approximately $250 million in first half.
- $2.45 billion in asset sales and joint ventures announced to date.
- Targeting $2 billion in reduced expenditures across the company by the end of 2016.
- Capital and other expenditures reduced by $240 million in the second quarter.
- Lowered quarterly dividend to two cents per share.
- Scenario planning completed for gold prices down to $900 per ounce.
- On track to achieve approximately $50 million in G&A cost savings in 2015, exceeding original $30 million target for the year. Targeting $90 million in annualized savings in 2016, up from original target of $70 million.
- Completed Preliminary Economic Assessments on projects with the potential to significantly extend mine life at Lagunas Norte and Pueblo Viejo.
TORONTO, August, 2015 — Barrick Gold Corporation (NYSE:ABX) (TSX:ABX) (Barrick or the “company”) reported a net loss of $9 million ($0.01 per share) for the second quarter, with adjusted net earnings of $60 million ($0.05 per share). Free cash flow was $26 million, compared to negative free cash flow of $128 million in the prior year period. Operating cash flow in the second quarter was $525 million. Second quarter adjusted EBITDA was $725 million1. On an unadjusted basis, EBITDA was $690 million1.
Gold production guidance for 2015 has been adjusted to 6.1-6.4 million ounces to reflect the impact of divestments, with production 55 percent weighted to the second half of the year. Costs are expected to be 10 percent lower in the second half of 2015. Full-year all-in sustaining cost guidance is $840-$880 per ounce, down from $860-$895 per ounce.
The implementation of a lean, decentralized operating model designed to maximize free cash flow and take costs out of the business has helped to mitigate the impact of recent gold price declines. We have cut $300 million in capital spending so far this year and are on track to achieve $90 million in reduced general and administrative (G&A) expenditures by 2016. We have also made significant progress on our debt reduction target. Our current focus is on improving productivity and reducing operating costs to ensure our business is robust enough to generate a 10-15 percent return on invested capital through the metal price cycle.
STRENGTHENING THE BALANCE SHEET
Earlier this year, we set a debt reduction target of $3 billion for 2015. Thus far, we have announced agreements representing $2.45 billion from asset sales, joint ventures and streaming. In addition, we have also retired approximately $250 million in debt using cash on hand in the first half of this year. Collectively, these actions represent $2.7 billion, or 90 percent of our target. Transactions announced to date include:
- Sale of 100 percent of the Cowal mine for $550 million in cash, further focusing the geographic footprint of our portfolio by divesting the last Barrick-operated mine in Australia.
- Sale of a 50 percent interest in Barrick (Niugini) Ltd. for $298 million in cash2, establishing a long-term strategic partnership with China’s Zijin Mining.
- Sale of a 50 percent interest in the Zaldívar copper mine for $1.005 billion in cash2, realizing significant value from a non-core operation while maintaining a sizeable stake in this cash-generating asset. This transaction has also resulted in a new partnership with Antofagasta Plc, one of the world’s leading copper companies, with significant opportunities to collaborate on potential projects in the future.
- Streaming agreement on a portion of Barrick’s share of gold and silver production from Pueblo Viejo for $610 million in cash2, structured to maintain significant exposure to higher metal prices.
With a $4 billion undrawn credit facility and $2.1 billion in cash on hand at the end of the second quarter, we will continue to pursue our debt reduction target in a disciplined manner and will take only those actions that make sense for the business, on terms we consider favorable to our shareholders.
Additional asset divestments
Over the last several months, Barrick has received a number of proposals and expressions of interest relating to the proposed acquisition of various non-core assets in Nevada and Montana. Over the next several weeks, we intend to commence a formal process to sell Bald Mountain, Round Mountain (50 percent interest), Spring Valley (70 percent interest), Ruby Hill, Hilltop and Golden Sunlight. These assets represent an attractive portfolio of producing and development-stage assets in a politically stable and highly prospective region.
Our strategy is focused on maximizing free cash flow per share from a portfolio of high-quality gold assets in our core regions, underpinned by disciplined capital allocation and operational excellence. In the past six months, we have taken significant actions to improve our business plans, resulting in positive free cash flow in the second quarter. We remain focused on improving productivity and driving down costs to ensure we can continue to generate free cash flow in the current gold price environment.
Anticipating the potential for weaker gold prices in the second half of 2015, we challenged our leaders to cut spending by $1 billion. We have now increased this target. By the end of 2016, we are targeting $2 billion in reduced expenditures across the company. These reductions will come from operating expenses, capital spending and corporate overhead. We have identified $1.4 billion in potential opportunities to date. This will strengthen the resilience of our portfolio in a lower gold price environment, while positioning us to deliver stronger margins when gold prices recover.
These efforts are benefiting from the outcomes of our Value Realization reviews, which have now been completed for all operations. This process has identified concrete projects to maximize free cash flow, extend mine lives and lower costs. The reviews also support non-core asset sales by ensuring we understand the full value of every mine before proceeding with any divestiture. For details on key Value Realization opportunities identified at Lagunas Norte and Pueblo Viejo, please see Appendix 1 on page 9. For certain related risk factors, please see the cautionary statement on forward-looking information at the end of this press release.
We have also carried out a series of scenario planning exercises that detail actions we can take to optimize mine plans and increase flexibility in a lower gold price environment. These actions include:
- Adjust life-of-mine plans to maximize short-term free cash flow
- Place higher-cost operations on temporary care and maintenance
- Defer stripping activities
- Close or divest mines that do not meet capital allocation objectives
- Increase cut-off grades
- Reduce mining/processing rates
- Further reduce G&A and exploration
- Further reduce sustaining capital
- Process higher-grade stockpiles
As we continue to review all expenditures for 2015 and 2016, we are cancelling or deferring spending that does not meet our capital allocation objectives, which include, first and foremost, the ability to meet a hurdle rate of 15 percent. In the second quarter, we identified $240 million in reductions that have now been removed from our plans. Total capital expenditures for 2015 are now expected to be $1.6-$1.9 billion, 20 percent lower than in 2014.
Exploration expenditures are now expected to be $180-$220 million, a reduction of 17 percent from our original 2015 guidance. Sixty-five percent of our exploration budget is allocated to mine site exploration, with 35 percent directed at greenfield projects, primarily on our newest discovery Alturas and the El Indio belt.
Reductions identified in the second quarter include:
- Sustaining capital reduced by $100 million to $1.4-$1.6 billion;
- Expansion capital reduced by $50 million to $100-$150 million, driven by efficiencies and reductions at Turquoise Ridge, Cortez and Ruby Hill;
- Project capital reduced by $50 million to $100-$150 million, primarily reflecting reductions at Pascua-Lama and Spring Valley; and
- Exploration budget reduced by $40 million to $180-$220 million, focusing expenditures on our most promising opportunities where we see the highest potential returns.
We are focused on reducing costs and improving productivity across the entire business. Excluding severance and one-time costs, the company is on track to capture approximately $50 million in savings from reduced G&A expenditures and overhead costs in 2015, exceeding our original target of $30 million for the year. We expect to reach $90 million in annualized G&A savings by 2016.
1 All-in sustaining costs per ounce, adjusted net earnings and adjusted net earnings per share, free cash flow, adjusted EBITDA and EBITDA are non-GAAP financial performance measures with no standardized definition under IFRS. For further information and detailed reconciliations, please see pages 50-56 of Barrick’s Second Quarter 2015 Report.
2Barrick has entered into agreements to sell 50 percent of its interests in Barrick (Niugini) Ltd. and Zaldívar, and to sell a gold-silver stream linked to its 60 percent interest in the Pueblo Viejo mine. These transactions are expected close in the third quarter, late 2015, and early in the fourth quarter, respectively.
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