Barrick Mining Corporation (B) Q2 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Barrick Gold Q2 2011 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 28, 2011. I would now like to turn the conference over to Deni Nicoski, Vice President of Investor Relations. You may go ahead, sir.

Thank you, operator, and good morning, everyone. Before we begin, I will bring to your attention the fact that we will be making forward-looking statements during the course of this presentation. For a complete discussion of the risks, uncertainties and factors which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statement, please refer to our year-end report or our most recent AIF filing. With that, I'll hand it over to Aaron Regent, President and CEO of Barrick.

Thanks, Deni, and good morning. And thank you for joining our second quarter conference call. I'm joined here today by Jamie Sokalsky, Peter Kinver, Kelvin Dushnisky and Rob Krcmarov, and there are also other members of our senior management team on hand as well who will be available to answer questions later on in the call. I'll start by covering some of the highlights of the quarter and provide an update on our projects. And I'll turn the call over to Rob Krcmarov, our Senior Vice President of Global Exploration, to discuss the exploration upside at the recently acquired Lumwana and Jabal Sayid assets. And then Jamie will take you through our results in a bit more detail and our outlook on the gold and copper market, after which we'd be happy to take any questions that you might have. Turning to the quarter. Operationally and financially, we had a solid quarter but the increased pressure on the capital costs for projects has been a challenge. Metal prices continue to increase underpinned by strong price support of fundamentals. Operationally, we met our production and cost targets. Second quarter gold production was 1.98 million ounces at a cash cost of $445 per ounce. And we remain on track to meet our guidance this year. With the increase in metal prices and good cost control, our margins continue to expand and led to record adjusted net earnings of $1.1 billion or $1.12 per share, which is above consensus estimates. This also equates to annualized 21% return on equity. We completed the Equinox acquisition and associated long-term financing. The newly acquired assets will add another source of long-term cash flow to the company. The one area where we continue to be challenged is the pressure on the capital cost of our projects. I'll elaborate more in a moment, but it is worth emphasizing that despite the higher capital cost, the returns have also increased due to the leverage these projects have to higher metal prices. Looking more closely at our operating performance. The North American region continues to perform ahead of expectations, producing around 923,000 ounces in the quarter at a total cash cost of $404 per ounce primarily due to strong performances from Cortez and Goldstrike. Cortez production of 419,000 ounces at a total cash cost of $220 per ounce, reflects a ramp up of leach pad production, increase mill throughput from debottlenecking and the processing of refractory ore at Goldstrike's facilities. The Goldstrike operation exceeded plan, producing 299,000 ounces at total cash cost of $511 per ounce on better-than-expected grades and more ore than anticipated from the open pit, which is anticipated to transition to a higher stripping phase in the second half of the year, however. Full year production for North America is expected to be between 3.3 million and 3.46 million ounces at a total cash cost of $425 to $450 per ounce. The South American business unit produced 453,000 ounces at total cash cost of $373 per ounce. Lagunas Norte mine exceeded expectations producing 176,000 ounces at total cash cost of $267 per ounce on positive grade reconciliations. Veladero contributed 241,000 ounces at a total cash cost of $364 per ounce and is on track to produce nearly 1 million ounces this year. Full year production for the South American region is expected to be between 1.8 million and 1.935 million ounces at total cash cost of between $350 and $380 per ounce. The Australia Pacific business unit produced 463 ounces at total cash cost of $611 per ounce, and attributable production from African Barrick was 127,000 ounces at a total cash cost of $652 per ounce. Australia Pacific is expected to produce between 1.85 million and 2 million ounces at cash cost of $610 to $635 this year. And Barrick's share of ABG's production is anticipated to be between 515,000 and 560,000 ounces at total cash cost of $590 to $650 per ounce. Organizationally, the Lumwana mine and Jabal Sayid project will be managed by our Australia Pacific regional business unit. Looking at the copper production for the quarter, we produced 93 million pounds at a total cash cost of $1.56 per pound and this includes one month of production from the Lumwana mine in June. And for the year, we expect copper production to be between 455 million and 475 million pounds at total cash cost of between $1.55 and $1.75 per pound. So in summary, our second quarter production was on plan and the outlook for the balance of the year remains within our guidance of between 7.6 million and 8 million ounces of gold at a total cash cost of between $450 and $480 per ounce and lower net cash cost of $290 to $320 per ounce. Turning to our projects. At the Pueblo Viejo project in the Dominican Republic, overall construction is now more than 70% complete. A major rainfall event that occurred in May damaged the partially constructed starter tailings dam facility and as a result, due to the required remediation work, first production has been delayed and is now anticipated in mid-2012. The start date is however, predicated on the timing of approval of a new tailings permit. The cost of this remediation work and the impact on the schedule has resulted in mine construction capital cost increasing to $3.6 billion to $3.8 billion on 100% basis or $2.2 billion to $2.3 billion for Barrick's 60% share. At the end of the second quarter, 75% of the total has been committed. As part of our longer term optimized power solution for Pueblo Viejo, we are advancing a plan to build a dual-fueled power plant. The estimated incremental cost is about $300 million on 100% basis or $180 million for Barrick. Initial generation would use heavy fuel oil power, but the power plant will have the ability to subsequently convert to cheaper liquid natural gas. At PV, Barrick's share of annual gold production in the first full 5 years of operation is expected to average 625,000 to 675,000 ounces at total cash cost of $275 to $300 per ounce. Despite the higher CapEx, Pueblo Viejo will continue to generate a high return on our investment. To illustrate the strong cash flow generating potential of this project, at the current gold price of around $1,600 per ounce, Pueblo Viejo is expected to contribute approximately $900 million of average annual EBITDA to Barrick over the first full 5 years. This represents an investment EBITDA ratio of around 2.5x. Since a construction decision in February 2008, Barrick's share of average annual EBITDA based on prevailing gold price at that time has increased by approximately 125% from $400 million. At the end of the second quarter, 3 of the 4 autoclaves had been brick-lined and the remaining autoclave is more than 70% complete, about 90% of the planned concrete has been poured, approximately 90% of the steel has been erected and more than 4.8 million tons of ore have been stockpiled. And work continues toward achieving key milestones including the connection of power to the site. Turning to Pascua-Lama. Since February of this year, we have reorganized our capital projects group, increasing the involvement and coordination of our regional business units in the construction of major projects to assist in operational readiness and to capture regional synergies. As a result of this, personnel changes were made at the project. In addition, a detailed review of the underlying assumptions and trending analysis for Pascua-Lama was completed in the second quarter, resulting in different expectations for our long-term price assumptions, which underpin our capital cost estimate for the project. This review also coincided with the review of the capital cost of Cerro Casale, where additional data and information applicable to Pascua-Lama was identified. We have concluded that based on current trends, certain of our early -- earlier estimates are not achievable including those for productivity rates and the inflationary effects on costs, as well as for required quantities of certain construction materials such as steel and cement. In addition, the company has increased estimated expenditures to essentially maintain the schedule for bringing the project into production in mid-2013. As a result, preproduction capital is now estimated to be between $4.7 billion and $5 billion. Included in this estimate is a contingency of $350 million to $650 million, which represents approximately 15% to 25% of the remaining uncommitted expenditure of about $2.5 billion. I should note that we have engaged an independent globally recognized engineering consultant firm, who has reviewed the robustness of our processes and methodology in deriving this updated capital estimate. Approximately 40% of the capital had been committed at the end of the second quarter for items including structural steel, the mining fleet, autogenous and ball mills, the overland conveyor and the primary and pebble crushers. Our Pascua-Lama capital cost have been impacted by the global cost trends faced in the industry. Since the 2009 feasibility study, cost for key consumables have increased materially, steel prices are up about 100%. Oil prices have increased by about 120% and copper prices are up more than 200% since the beginning of 2009. This is further impacted by reconstruction efforts in Chile after the earthquake last year. This is increasing the demand for labor and contractor service, which has resulted in added cost pressures. Wage inflation in Chile is in excess of 8% and is over 25% in Argentina. In addition, the Chilean peso has appreciated against the U.S. dollar, whereas the Argentine peso has been stable notwithstanding a high domestic inflation rate. These inflationary pressures represent approximately 50% of the increased capital. Based on construction experience to date, we have re-estimated quantities of material required for such items as steel, cement, fuel and equipment, which represents approximately 35% of the increase. And then given lower-than-expected productivity levels, the company has increased project expenditures to essentially maintain the schedule for the project in order to deliver first production in mid-2013. This includes expanding camp facilities and a higher cost associated with winter construction, which represents about 15% of increased capital. At the same time, rising commodity prices have also significantly enhanced the project economics, outpacing any increase in CapEx estimates. Pascua-Lama is a high quality world-class deposit. Average annual gold production has increased to 800,000 to 850,000 ounces in the first full 5 years of operation at negative total cash cost of $225 to $275 per ounce assuming a silver price of $25 per ounce, which would make it one of the lowest cost gold mines in the world. Average annual silver production for the first full 5 years is expected to be about 35 million ounces. For every $1 per ounce increase in the silver price, total cash cost are expected to decrease by about $35 per ounce over this period. To illustrate the sizable cash flow generating potential of this project, at current commodity prices of $1,600 per ounce of gold and $40 per ounce of silver, Pascua-Lama is expected to generate approximately $1.9 billion of average annual EBITDA in the first full 5 years of operation. This represents an investment EBITDA ratio of approximately 2.6x. And since the construction decision in May 2009, the average annual EBITDA estimate based on prevailing gold and silver price at that time has increased by about 170% from the previously estimated $700 million. At the end of the second quarter, engineering design was about 90% complete. In Chile, earthworks were more than 80% complete. The truck shop platform was completed and work advanced on road construction to the Pascua pit. In Argentina, plat parts for the conveyor portal, coarse ore stockpile, pebble crusher and Merrill Crowe facility were completed. Occupancy and expansion of the construction camps in Chile and Argentina continues to ramp up with more than 2,300 housed on-site and a further 2,800 expected by the end of the year. And preparations are underway to commence pre-strip mining in the fourth quarter of this year and development of the tunnel connecting the mine in Chile and the processing plant in Argentina is progressing on both sides. Turning to Cerro Casale, a detailed capital view has also been completed for the Cerro Casale project at Chile. Design changes have also been made to strengthen the technical performance of the process plant incorporating lessons learned from other projects with similar ore characteristics. This has resulted in a more robust and lower risk technical design. Estimated preproduction capital is about $6 billion on 100% basis. This number also includes a $900 million contingency, which represents about 50% of the capital cost. The cost of the project has increased since the feasibility study, which was based on 2009 prices, exchange rates and labor conditions due to a number of factors. Specifically, inflationary and other impacts of labor and consumables such as steel and cement, which have increased cost for structural work, represent approximately 25% of the increased capital. Based on a review of recent industry projects, we have re-estimated cost for items such as mechanical and electrical work and quantities for other materials accounting for about 20% of the higher capital. We've also increased project expenditures related to lower-than-anticipated productivity based on construction experience to date at Pascua-Lama, and these higher expenditures represent approximately 20% of the higher capital. In connection with a current labor environment, we've expended the temporary camps and facilities, which accounts for about 10% of the increase. And then a provision for a higher contingency represents approximately 25% of the increase. While Cerro Casale is expected to generate higher EBITDA at current strong metal prices, given the higher cost of capital estimate, we continue to evaluate further options to optimize the project. Our exploration team has completed a detailed review of the Cerro land position and have identified 3 targets that could have a positive impact on the life of mine plan. In particular, a nearby target has shown mineralization at surface with substance indicating better grades at Cerro Casale. An initial drill program is planned to commence at the end of July. Exploration programs will continue in parallel with advancing detailed engineering and permitting. The EIA is expected to be submitted shortly and the permitting process is anticipated to be about 18 months, at which time we would consider a construction decision. Barrick's 75% share of average annual production is anticipated to be about 750,000 to 825,000 ounces of gold and 190 million to 210 million pounds of copper in the first full 5 years of operation. And lower total cash cost previously estimated of about $125 to $175 per ounce. Around these projects, we have 4 other large projects: Donlin Creek in Alaska, Reko Diq in Pakistan, Turquoise Ridge in Nevada and the Kabanga Nickel Sulfide project in Tanzania, which represents significant [indiscernible] value within our portfolio. At the Reko Diq copper-gold project in which Barrick owns a 37.5% interest, the Supreme Court of Pakistan has ruled that the provincial government of Balochistan has the authority to decide to grant a mining license to the project, Tethyan Copper. Efforts to secure the mining license and associated project and mineral agreements are expected to continue in the second half of 2011. There's a potential to develop a large-scale open pit at our 75%-owned Turquoise Ridge mine in Nevada in order to mine the lower grade halo around the high-grade underground ore, which could significantly increase annual production. A pre-feasibility study is advancing alongside baseline environmental work to support the permitting process, and this is expected to be completed in 2012. Infill drilling of the lower grade halo is progressing with now 9 drill rigs currently on site and preliminary results continue to confirm expectation. Results of completed and ongoing metallurgical test work are confirming scoping level assumptions. A peer review of the graphed social environmental impact assessment report for the 50% owned Kabanga project in Tanzania was completed during the quarter and expected to be finalized along with a feasibility study in the second half of 2011. The focus will then shift the approval phase in getting the required Tanzania regulatory approvals and negotiated an acceptable mineral development agreement with the government. Now I'd like to take a moment to provide an update on some of our progress with respect to the newly required Equinox assets. As I mentioned, the Lumwana mine and Jabal Sayid project will be managed by our Australia Pacific regional business unit where we have an experienced team with previous exposure to Africa. And in addition, they also have the necessary infrastructure in place. We're currently about 2/3 of the way through the integration process. As we've discussed in the past, there are a number of factors, which continues to support our decision to invest in Equinox as the unique opportunity to acquire the long life of the Lumwana mine, which has substantial upside. The acquisition further strengthens our asset base and provides us with another source of long-term cash flow to reinvest in our gold business. It's expected to be accretive to earnings cash flow per share, which will improve further with the expected completion of Jabal Sayid in 2012. This transaction does approve our leverage to copper prices, but it also maintains our shareholders exposure to gold. We secured debt financing in historically low interest rate environment to help fund the transaction, including a new $2 billion revolving credit facility with an interest rate of LIBOR plus 125 and a $4 billion issuance of debt securities comprised of 3, 5, 10 and 30-year terms. Low-cost financing also enhances the returns from this acquisition. And we believe that copper prices will continue to be well supported on the demand and supply side, which Jamie will discuss further in the presentation. We are focused on 3 areas to realize the full potential of this asset and maximize long-term cash flow. Operational improvements and efficiencies, a focus on exploration to materially expand the resource and an ongoing evaluation to determine the optimal size of the expansion. Lumwana is expected to produce 155 million to 175 million pounds at total cash cost of $1.75 to $1.95 per pound from June 1 to the end of 2011. Cash cost for 2011 have been impacted by plant availability and lower grades related to dilution, as well as a higher cost related to currency, labor and power. On a full year annualized basis, production is expected to be around 300 million pounds beyond 2011 and prior to any expansion. Areas of expected operational improvements include mill debottlenecking, pit re-optimization, changes to mine sequencing, dilution control and benefits from higher equipment availability and leveraging Barrick's supply chain agreements. An infill drill program at the producing Malundwe deposit is underway to improve dilution control and more accurately model orebody characteristics. I'd now like to turn the call over to Rob Krcmarov to discuss the further upside potential at these assets. Rob?

Thanks, Aaron. The Australia Pacific regional business unit has taken on a new focus on exploration drilling in an effort to expand the resource and to determine the optimal size of the expansion, which could potentially double processing rates at Lumwana. I think there's excellent potential for both brownfields and greenfields resource growth, and we feel confident we can materially increase resources, throughput and production here. Let me just briefly comment on the overall exploration potential at Lumwana. The orebodies in this region are typically very large, continuous and naturally extensive. They're kilometric in scale and have excellent grade continuity, as well as sharp visual boundaries and are extremely predictable. Historically, there's been a high ratio of resource conversion and upgrading, the ore is coarse-grained and metallurgically simple to extract. Essentially, this is a simple straightforward operation. I think Equinox has done a fantastic job in developing Lumwana. But the vast majority of exploration focused on infill drilling, resource upgrading and condemnation drilling for infrastructure only. There's been no material drilling on this -- on property target outside of the resource area for around 15 years. A minimum is 16 drill rigs are planned to be added, primarily at the development stage Chimiwungo deposit to convert mineralized inventory and inferred resources to the measured and indicated category, to conduct extensional drilling, infill drill 2 potential starter pits and evaluate the potential for a third starter pit. Malundwe is open to the north and south, and Chimiwungo remains open in multiple directions. In addition, recent condemnation drilling west of the current optimized Chimiwungo pit shell is intersecting typical, what we call Chimi-style mineralization. Additionally, widely spaced drilling is planned for the recent Mutoma discovery, as well as drilling to test advanced sediment-hosted copper-gold targets elsewhere on the Lumwana Mining Lease and on other exploration properties in Zambia including the copper belt. Overall, we're really excited by the greater potential of the property package. So let's now zoom into the Chimiwungo area. This map shows the shape of the current Chimiwungo pit based on $1.20 a pound copper price. The colors in the image represent the thickness of the mineralization intersected in the drill holes multiplied by the grade. On the left side of the image, you can see the main Chimi lens in red extends beyond the current pit. Again based on the cell, the continuity and the predictability of these types of deposits, I think it's a reasonable assumption that you can extrapolate and increase the resource to the south. And in fact, drilling by Equinox during the last several quarters have confirmed that significant mineralization grades and thicknesses have been accounted in these areas. In the middle of the image, you can see the Chimi eastlands also appears to continue to the south and recent drillings confirms some excellent widths and grades. For example, half a kilometer to the south, from left to right, the holes intersected 178 meters at 0.55% copper, 61 meters at 1.1% copper and 70 meters at 0.89% copper. In the top right side of the image, recent drilling by Equinox is intersected mineralization outside of the current pit and unexpectedly closer to the surface than expected. I think this could have implications for the position of the final Eastern pit wall of Chimiwungo and its pile of deposit. At Jabal Sayid, good potential exists with material extensions to 9 deposits. Metal sulfides do tend to occur in clusters and I think there's potential to find more within this fertile metal sulfide camp. Our current exploration is focused on testing Lode 4 pits where mineralization is being intersected in several previous drill holes, including an intercept of 111 meters at 2.67% copper. Several geophysical surveys are also in progress. And that concludes my discussion on the Equinox assets. But as Aaron mentioned, I'd also like to highlight that we also have major exploration programs advancing in Nevada, South America and in the Australia Pacific region, which I look forward to updating you on in the near future. I will now turn the presentation over to Jamie.

Thanks, Rob. I'll go over our strong financial results in the quarter. The second quarter average realized gold price was a new record at $1,513 per ounce, up from the $1,205 per ounce in the second quarter of 2010. The trend of gold margin expansion continued during the quarter, which was driven by the higher gold prices but also continued cost control. Cash margins and net cash margins increased 33% and 30% to $1,068 per ounce and $1,175 per ounce, respectively, reflecting the exceptional leverage the company has to the gold prices. And as you know, the price is about $100 higher than the realized price in the second quarter today. Our reported net earnings for the second quarter rose 35% to $1.2 billion, $1.16 per share from $859 million or $0.87 per share in the prior year period. Our quarter 2 adjusted net earnings increased 36% to a record $1.1 billion or $1.12 per share from $824 million or $0.84 per share in Q2 2010, which reflects the higher realized gold and copper prices and higher gold sales volumes. Our quarter 2 EBITDA increased 40% to $2.1 billion from $1.5 billion in the same year period. Our quarter 2 operating cash flow of $690 million and adjusted operating cash flow of $938 million, which adjust for the onetime operating cash flow impacts related to the Equinox acquisition, compares to operating cash flow of $1,100 -- $1.1 billion and adjusted operating cash flow of $1.1 billion -- million -- $1.1 billion in the same prior year period, respectively. However, there are some unusual items in the quarter which I'd like to take a moment to highlight, which impacted our cash flow in the quarter. Operating cash flow and adjusted operating cash flow were negatively impacted by an increase in income tax payments, primarily due to the final 2010 income tax payments in Argentina, Australia and Chile. Income tax payments in the second quarter totaled $736 million compared to $245 million in the same prior year period. And about $420 million of that related to 2010 income tax payments in the above jurisdictions. So an unusual payment in the quarter related to prior year taxes. So going forward based on our current gold and copper prices, we expect our income tax payments to normalize around $400 million per quarter for the remainder of 2011. For 2011, assuming our total cash cost guidance of $450 to $480 per ounce and gold prices of about $1,500 per ounce, our cash margins will continue to be over $1,000 per ounce. And assuming our net cash cost guidance of $290 to $320 per ounce, our net cash margins would be about $1,200 per ounce. And we use a variety of input cost hedging to contain the costs and not only give predictability to our earnings but also protect us against further cost increases. And we think that's worked out very well for us. On the currency side, about 60% of our consolidated production costs are denominated in U.S. dollars and the largest single currency exposure outside of this is the Australian dollar exchange rate. We are 92% hedged on our expected remaining Australian operating and capital expenditures in 2011 at an effective average rate of $0.76, which compares to the $1.10 that we have in the current spot market and have substantial coverage for the following 3 years at rates at or below $0.75. We've also mitigated the impact of these higher oil prices through the use of financial futures contracts and our production from Barrick Energy such that a $10 change in the WTI crude oil prices is only expected to impact our 2011 cash cost by about $1 per ounce. The Barrick Energy contribution, together with our financial contracts provides hedge protection for approximately 85% of our expected remaining 2011 fuel consumption and for the next 3 years. Therefore, higher oil prices will have minimal impact on our cash cost going forward. All of these cost containment efforts and our strong operations position us as one of the lowest cost senior gold producers. Our copper margins also expanded 39% to $2.51 per pound in the second quarter. We've utilized some option caller strategies and have put in place for protection on approximately 45% of our expected remaining copper production for 2011 at an average floor price of $3.27 per pound and can participate in the upside up to an average ceiling price of about $4.85 per pound on approximately 55% of our expected remaining 2011 production. We've also put in place for protection on approximately 45% of our expected copper production for 2012 at an average floor price of about $375 per pound and can participate in the upside up to an average ceiling price of about $5.50 per pound on approximately 40% of our expected 2012 production. The company's remaining copper production is completely subject to market prices. And although we put in place these callers, we continue to be very positive on the copper outlook. Our copper caller strategies allow us to ensure that we generate healthy returns and cash flow from our copper assets to reinvest in our gold business, while allowing us to participate in significantly higher copper prices. We've left a lot of upside participation on the ceiling prices of these callers. As you can see from this next chart, Barrick continues to demonstrate exceptional leverage to the gold price. The company's adjusted earnings and cash flow have substantially outpaced the rise in the gold price over the past 6 years. You can see that since 2004, gold is up just over 200% but Barrick's cash flow per share has increased by over 400% and earnings per share is up over 600%. Our robust financial results are also driving a positive trend in our underlying return on equity, which has increased to 19% in 2010 up from 12% in 2009. And based on our second quarter adjusted net earnings, this translates into an annualized return on equity of about 21% for 2011. And that's at a gold price well below where we are today. I'll take a moment to make a few comments and why we continue to remain bullish on the gold price. The macroeconomic factors continue to drive investment demand, sovereign debt concerns, continuing need for fiscal and monetary inflation due to the disappointing U.S. economic data, driving low U.S. real interest rates and the weaker U.S. dollar. We continue to see stable strong investment demand that's evidenced by the record ETF levels at over 70 million ounces now. And I think more recently, we've seen some other factors internationally, rising inflation in China and India, which should provide further support to demand for gold in these key markets, which represent almost 50% of demand. Central banks are -- continue to be net buyers of gold, which I'll talk about a bit more on the next slide. Currency reserves around the world are coming up to $10 trillion of which at least 60% is in U.S. dollars. Chinese currency reserves are now over $3 trillion. So as the dollar weakens, central banks continue to be encouraged to diversify their dollar reserves and we're seeing that with every quarter that passes. Mine supply has been inelastic to higher gold prices, reflecting the increasing challenges associated with bringing new production on stream. Some may suggest that gold is getting toppish or is in a bubble, but the price is not particularly expensive when you compare it with other commodities. Also, when you compare the recent gold price trends with known bubbles in the past like the NASDAQ bubble, for example, reveals that gold's upward trend has been much more modest and stable. There's also been a significant shift in central banks' attitudes towards gold over the last 20 years. The central banks have stopped selling in emerging economies central banks like the Reserve Bank of India, People's Bank of China, Central Bank of Russia have added to their gold reserves in recent quarters sufficient to offset the 403 tons of gold sold by the IMF. In late June, UBS did a survey of an assembly of more than 80 institutions, which included central bank reserve managers, multilateral institutions and sovereign wealth funds with collective assets of over $8 trillion dollars. The key takeaway from that survey is that the official sector remains very friendly toward gold. As you can see from this slide, the majority of sovereign institutions who participated in the survey believe gold will be the best performing asset class for the remainder of the year, which we think is a strong indicator of the ongoing change in sentiment that we've seen in this sector in the past few years. And it's further evidence to substantiate our view that gold still has plenty of upside potential. I'll make a few more comments on the copper market as well. We also believe that copper prices will continue to be well supported as they are today even in an environment of the economic uncertainty that we're experiencing. Demand is expected to be driven by the emerging economies, in particular by the continued industrialization and urbanization of China. 2011 demand for the CRU April forecast is expected to increase by about 650,000 tons versus 2010. And we expect that average growth of about 3% per year should be the case going forward. And we feel as well that we have some excellent insights into the current mine construction environment, particularly in South America and Africa. These 2 regions are projected to account for over 65% of new copper mine supply in the next year. So against the backdrop of demand that should continue to be strong, it's our view that the industry will continue to be challenged to provide a supply response for the strong and growing demand. There's downward trend in industry copper grades, rising cost for operations and projects, environmentally -- environmental permitting and policy constraints, which extend construction periods and skilled labor shortages in copper producing countries such as Chile and Peru. So a lack of large projects on the horizon and some of these challenges that I've just outlined should keep the market tight or in deficit for an extended period and that bodes very well for high copper prices going forward. I'll now turn the call back over to Aaron to wrap up.

Thanks, Jamie. So in closing, we continue to be very optimistic about the future of our industry and for Barrick. As Jamie highlighted, gold and copper prices are well supported with significant upside potential underpinned by excellent price support of fundamentals. We have been and will continue to be a major beneficiary of increasing metal prices with a large production base that we have in both large gold production base and a stable cost operating structure. And this has been reflected in our expanding margins, record financial results and higher returns on equity. We have 2 world-class projects that are nearing production within the next few years and are anticipated to generate combined annual EBITDA of around $2.8 billion at today's prices. And the impact of these 2 mines will lower our overall unit cost by about 20%. The acquisition of Equinox adds 2 quality copper mines to our portfolio. And in particular, the long-life Lumwana mine, which will provide us with an additional source of long-term cash flow. And we continue to advance our deep pipeline of world-class projects, which offer us further investment options in the future. So in conclusion, we feel the Barrick story is a compelling one and the outlook to be very positive. So with that, we'll conclude our formal remarks. And operator, at this point, we'd be happy to take any questions.

[Operator Instructions] Our first question is from the line of Patrick Chidley from HSBC.

I just wanted to ask really your view on obviously on acquisitions going forward in this environment where it appears as if you were stalked as well as a whole bunch of other companies in a sector of trade downs and pretty low multiples. And I'm wondering if it might be better to be moving towards acquisitions -- cash acquisitions rather than actually building your own projects, which by all accounts, seems like the CapEx is going up so rapidly that it's -- aligns with what you're seeing in the market for existing assets.

Right. Well, I think that from a strategic perspective, we think it's important in terms of from a long-term perspective of having a balanced approach of looking at both acquisitions as well as developing projects. And so we are -- we'll continue to monitor the marketplace for opportunities to acquire assets. And clearly, there's a real attraction to buying and producing assets because of the benefit of getting production immediately and the earnings and cash flow that comes from it. But typically, producing assets tend to be higher valued because they're -- perhaps have been de-risked. And so that adds a bit of a challenge. On the development side, capital costs are up and that's a trend in the industry. And now clearly, the watermarks you're seeing that we're being impacted by that. But the leverage to higher metal price is quite substantial. And so despite the fact that capital costs are up, as we take Pascua-Lama as an example, on today's prices, we would generate $1.9 billion of EBITDA for that asset, which is on an investment to EBITDA ratios around 2.6x. So if you think we trade at 6x multiple, once that's in production, you can see the impact it can have on the overall valuation of the company. So projects are hard but -- and there's higher risk associated with it, but I think that your returns are higher, the projects signed [ph] and you somewhat get paid for taking that risk. And provided you got the right orebody, you can create a lot of value. So I think they said, it's kind of a balanced approach between the 2.

Just a quick follow-up, if I may, on new projects going forward. I mean you talked about Turquoise Ridge, a little bit about how that open pit plan is potentially going to be a big asset for Barrick in the future. I think it was a 20 million ounce figure there. I'm wondering if there are other areas of the portfolio, other open pits across the world that you've got that you might be thinking similar things there in terms of bigger expansions and potentially, big additions to the asset base?

I think Turquoise Ridge is a kind of unique situation given the low grade mineralization around the existing mine. So we don't really see the same scope of opportunity across the portfolio. Although what we do see is around some of our existing mines. There are satellite pits, which may not be the highest grade but the capital intensity to develop them is quite low so your returns on capital can be quite high. So we do have an active program to look at developing those types of opportunities. In addition, some of our other mines like Lagunas Norte, we have the salt mine project where there could be 3 million to 5 million ounces of gold there, which are not currently in our plans, which we'll be looking to pursue. There's I guess a new metallurgical process we'll apply to attract those ounces. So I think given the higher gold price, projects like that become much more attractive. And then I guess the other point is from an exploration perspective. We have a pretty good pipeline of projects on the exploration front, and I think that there are going to be some I think attractive opportunities that's going to come out of that. On that front, we'll look to update you going forward.

Our next question is from the line of Greg Barnes with TD Securities.

Aaron, I get the inflation aspect to the CapEx increases and the productivity changes. But I'm a little surprised by the requirements for additional material like steel and cement to Pascua-Lama given the stage that project is already at. I was wondering what happened to cause that.

Well, I think, I'll make a comment then maybe I'll ask Peter to comment as well. I think that the earlier estimates were just -- were light. When you look at the benchmarking of quantities that are required to a generic project, the assumptions that were used for this project were consistent and in line with that. But I think that when you look at the location of Pascua-Lama, particularly the winter conditions where there's significant winds, snow, as an example, structural steel. As a consequence, a lot more structural steel is required to fortify the facility housing, the processing plant. And I think that's an example where when you look at previous estimates, they looked reasonable. But then when you have to incorporate the environment that Pascua is located, that additional quantities in fact were necessary to refortify the facility. And so that's an example of something that has added to the quantities. I don't know, Peter, if you want to...

When we actually started excavating foundations, et cetera, we found the footings required either different material or deeper material, and that kind of impacted the quantities of concrete and steel. But one of the big factors that Aaron said was the wind conditions up there are quite extreme and we've had to sort of beef up the main buildings.

And just as a follow-up then on Cerro Casale. You said you would consider a production decision once the EIS is approved. That seems a little less definitive than perhaps in the past, are you reconsidering the project?

No, I think it's still a good project. But I think in the environment we're in right now, we think that the best approach is to get all the permitting finished, do the detailed engineering and then you'll re-cost the project at that point and you'll have much greater certainty in terms of things that you just mentioned, quantities as well as pricing. You have the opportunity to do turnkey contracts. So that's sort of what I was implying by our comment. So there's really 3 paths that we're pursuing. Submitting the EIA and get the permitting done. In parallel, complete the detailed engineering. And then the third path is fully exploring the Casale property. As we highlighted, there's a satellite deposit that looks -- deposit probably early stage. But there's been sulfur showing, which looks really encouraging. And so we're advancing an exploration campaign now and we'll be drilling by the end of the summer -- our summer. And hopefully over the next 6 months, we'll re-flush out what that might be and that could have a positive impact on the project. So that's kind of theplan. And so as we get towards -- that will probably take us about 18 months or so. So really towards the end of next year, we'll be in a position to make a decision on constructing the project.

So if you haven't done detailed engineering, is there further scope for CapEx to go even higher at Cerro Casale?

I can't say that the numbers won't go up. But I like to think that we have already built in a fair -- fairly high contingency. In the $6 billion number, there's a $900 million contingency, which represents about -- I think it's about 18% of the capital of the project. So I think that we have taken a fairly perhaps cautious view on that. So I think the numbers should be good but until you've done all the work, I can't say definitively.

Our next question from the line of David Haughton from BMO Capital Markets.

I've got some questions and obviously the focus here is on CapEx. But you spoke about the numbers going up, what about the timeline for delivery? Are you seeing any issues with regard to the timeline being blown out, available of [ph] fleet equipment tires, et cetera, is that coming through at the moment?

Well, from a schedule perspective, we're continuing to target the middle of 2013. And part of the capital increase relates to maintaining schedule, probably around $200 million or so. And that relates to having -- building out the camp, additional catering cost, operating in the wintertime, some bonus schemes. So that -- so we are deliberately spending some capital to keep schedule. And the payback is pretty high. The EBITDA is around $500 million in a quarter and so it's a quick payback on the capital that would be spent to maintain schedule. Peter?

Yes, I'm going to add. At Pueblo Viejo the extra mobile equipment is on site. So that's secure and we've secured positions for mobile equipment at Pascua-Lama. So that side of the risk is being mitigated. But we are seeing -- I mean, to concur what you're saying, we are seeing increased delivery times for major equipment.

All right. Somewhere in your release I'd seen 40 weeks as a potential for a mill to be delivered. That surprised me. It seemed a little bit lower than what I'd heard from others. So it sounds like you do have some leverage over some of your competitors in that regard.

Yes, I think the size counts a bit. I think we've seen certainly in Lumwana, for example. Suppliers, because we're a big customer, they probably push us to the front of the queue, I suppose.

Just now thinking about the individual projects. At PV, you had mentioned that there's additional CapEx for the power. Is that included in the $3.6 billion to $3.8 billion or is that in addition to the CapEx that you'd previously indicated?

It's not included in the $3.6 billion to $3.8 billion. We have a -- in the $3.6 billion to $3.8 billion, there is dollars which have been allocated to ensure that power is available to the plant. And so we can operate, but what we're looking at though is the quality of that power is probably not ideal, both from a cost perspective and reliability perspective. And so we always contemplate the project to have an alternative longer term and different power solution. And so we're kind of front [ph] into that. And what it'll do is it will provide again greater stability to the power supply. It'll be lower cost and it gives us the potential in the future to switch from HFO to LNG, and that will have a meaningful impact on our operating cost. So there will be a return on the capital that we invested on the power side. But the additional $300 million is separate from the $3.6 billion to $3.8 billion.

Do you have a sense as to what magnitude that cost saving could be? Are we talking 5%, 10% sort of thing or do you have a figure?

That's probably -- yes, that's probably a good estimate at this point.

And as far as the towers go, you're awaiting some new permitting there for the remedial action that you needed. Is that going to impact that timeline that you've indicated for the start-up mid next year? Or should we allow some more timing just in case that permit just gets jagged [ph] up anyway?

We don't anticipate having any issues. But I don't know, Kelvin maybe -- I'll ask Kelvin because he's basically focused on this quite closely.

Sure. Well, the timeline actually builds the new permitting into mid next year production. And the response so far, we've been working very closely with government. They've been very proactive and so we've -- things are moving well on track. So at this point, we don't anticipate any delay.

All right. Now switching back to Pascua. You had mentioned a very high contingency number, quite a range as well 350 to 650. Is that to cover additional costs or do you have some change of scope in mind if it's to move the upper end? What's the thinking behind such big contingency range?

There's no contemplated change in scope. That's already been factored into the numbers. I think that perhaps there's a bit of a cautionary conservatism that we're layering in right now. Because as you point out, it is a healthy contingency. But the environment that we're operating right now is a dynamic environment, so we just think it's prudent to be a bit cautious.

All right. Switching now to Cerro Casale. You alluded to some design improvements that you've been working on. What can we expect to see out of that? Is that with regard to better metallurgical recovery or is there something else that we could expect?

I don't think you should expect to see anything too visible. It really is reflecting the fact that the ore at Cerro Casale is quite hard. And so we sort of looked at other like projects that had similar hardness to the ore. And so we've added additional grinding capacity to ensure that we'll get the recoveries that we anticipated. Peter?

The big thing is the energy costs as well.

Right.

And the CapEx that you've got, do you have any provision in there for leveraging off the existing base that you've got within the region? With Pascua as a potential base or anything like that?

We will have for certain synergies. Obviously, where we have overlap, there will be some synergies built in.

But from a dollar perspective, they would be -- that significance is more from a utilization of people, yes.

All right. And then the final one, I'm sorry for taking so much of your time, Jabal Sayid. What's the status of the permits and the ordering of the equipment and how confident should we feel about the start up time that you've mentioned of next year?

Let me start with the equipment. Basically, everything's being ordered around the water. One of the critical points now is try and get the major equipment in before the early Ramadan period. And we're looking at second half of next year for first production on the permitting side.

Permits are all in hand for construction. Once you proceed to that, then you get the operating permit.

And the CapEx number there, you've had an opportunity to review from what Equinox had and given the circumstances that you've got at other mines, you're comfortable with the CapEx number of $400 million?

I think so, yes.

Our next question from the line of Anita Soni from Credit Suisse. Anita Soni - Crédit Suisse AG: My question refers to the capital cost -- sorry the cash cost estimates. The net cash cost, are you deducting copper from Lumwana from the gold production? Or is that just including the byproducts from Pueblo Viejo and mixing them into the gold?

Anita, it's Jamie. The net cash cost is a metric that we've added in addition to our normal cash cost reporting to provide an indication of what all of the copper revenue that's generated by the company. What that does to our overall cash cost to try to compare, on an apples-to-apples basis, ourselves with many of the other companies who are utilizing much more of the copper byproducts. So that net cash cost number will include all of the copper production from Zaldívar and Lumwana. And so that number will go down even further as we are adding more of the Lumwana copper production going forward. But it's just that, it's really a secondary type of metric to our overall cash cost reporting. But I think it does give a better idea of how we stack up to some of our peer group. Anita Soni - Crédit Suisse AG: Okay. And then just with respect to Cerro Casale. I think the original start-up or the latest start-up timeline had been middle of 2015 or early 2016. Is that still what you envision or has it been pushed out a little bit?

I suspect that, that timeline will be pushed out. Anita Soni - Crédit Suisse AG: Okay. And then just lastly with the copper callers, just so I understand that. In 2011, you've got 40% that is hedged on the downside, at -- was it 327 and then 55% that's hedged on the upside of 485, is that how it works?

Yes, that's right. So 55% of the production if it goes to 485, that's what we'll get. And the other 45% that's on hedge is completely exposed to the prices higher than the 485.

Our next question from the line of Kerry Smith from Haywood Securities.

Kelvin, just on the new tailings facility at Pueblo Viejo. Does it need to be re-permitted because you need to now have a larger footprint to handle higher potential volumes of runoff because of what you've seen with this big rain? Or exactly why do you have to re-permit it?

Well, Kerry, 2 things. First of all, good news. The copper dam start-up has already been approved. So it took them to only one week to do that review. But given that there was the failure to the start-up given the unusual rainfall and the sequencing of that, the government's asked for a review just to make sure that the original design is still consistent with the overall design. So no real change, the intent is that the starter dam is scheduled for approval October 1. The government review panel that was in place to review the original design, you might recall this being approved in sequences as we moved up. And so that process is still in place, and the intent is to begin depositions in May. So as far as that goes, we're still on track. No major shift.

You should note, too, that the tailings end design is designed to withstand a rain event like we just experienced. It just so happened that the dam was at a stage where there wasn't sufficient storage capacity behind it. But as the damage raise, these storage capacity rises exponentially as you have more surface area.

So overall capacity, there's no change.

All right. So are you actually re-permitting the design or they've just asked for some additional work to be done to make sure the design is still appropriate and if they're happy with that, then you keep the old permit? Or I'm just confused. Are you actually re-permitting it, though?

No. Kerry, the former. This a revalidation of the original design and so the government just wants to ensure. And in the Dominican they have an expert panel who's been advising the government, we've been working with them to do the original approval and again as we're going through this next stage, so no fundamental change.

Okay. And Aaron, previously you sort of suggested that production for 2011 would be back half weighted. Is that still the case?

I don't know if we suggested that. I think -- I don't think we suggested that. I think our budgets could say that our guidance for the year is between $7.6 million and $8 million and we're basically on track to meet that.

Okay. And then perhaps, Peter, what are the plant availability and dilution issues at Lumwana? Because the plant is new, and I wasn't aware that they were having a dilution issue. But you talked about in the release, just curious exactly what the problems are there.

Further availability actually is pretty good. And I think we have to commend Equinox, they did a very good job of building the mine. And the plant has been well engineered, and is in good shape. On the operational issues, there's an acceptance and awareness. There is currently high dilution and we've got a team of people helping them get through that. One of the issues is the orebody dips at about 26 degrees, which is a kind of awkward angle. You to address off the waste off the face before you start loading. So we've introduced them to dress the waste off. So we're going to get the dilution down from probably 30% to about 20% by the end of the year and the next year we're going to target 12% dilution.

So it has been 30%, you're hoping to get to 20% by some time this year and then 12% ultimately?

Yes.

And part of the drilling program is to do additional infill drilling, which will I think help dramatically in mine planning. I think mine planning is an area that we've noticed has been somewhat -- where there's improvement to be made from a mine planning perspective.

Okay. And just in terms of the CapEx reviews that you've now completed for Pueblo Viejo, Pascua-Lama and Casale. Who actually did those reviews for you? I'm presuming it was an internal group and then now you're getting this consultant to review those numbers, is that correct?

Yes, that's correct. We had -- so we have 2 different teams. Clearly, the Pascua project team that we've had some changes there. So that's a bit of a fresh perspective that was brought. In addition, there's a separate team on Cerro Casale. But we did have 2 firms come in to review both of those estimates, Turner and Thompson, Pascua-Lama and IPA Cerro Casale. So we did have 2 independent parties, engineering firms who are experienced to review projects come in review our methodology and our assumptions. So it's just another layer of scrutiny.

And sorry, who was the group that reviewed Pascua-Lama?

Turner and Thompson.

Our next question is from the line of Steve Butler from Canaccord.

So a question for you on Pascua-Lama. I see, Aaron, you raised your guidance for the first 5 years by about 50,000 ounces. Is that simply the gold grade in the first 5 years? I see silvers been maintained at 35 million ounces a year.

I think that's the main reason, yes.

Mainly gold, not throughput change. Peter, productivity you referred to -- productivity levels at Pascua-Lama being obviously lower-than-expected productivity levels. But the productivity have worsened over the years comparing it to Veladero because of the labor issue, inexperienced labor, or is it particularly just harsher elevation issues?

I think it's a combination of recruiting new people. The altitude difference does make a difference. If you walk around up there, you can definitely feel it's harsher on the body and it's a lot colder. We just come out of a winter. We're coming out of a winter where we originally planned not to do a lot of work during the winter. But we have managed to keep some work going, but it does impact productivity. But we did see this at Veladero when we started. It kind of takes 1 year or 2 to get the productivity. I can remember in the early days of Veladero, we had some times but within 1 year or 2 we have the productivity levels up to much better levels.

Great. Cortez had a great Q2 guys. Is it sustainable over the balance of the year roughly at those levels or will we see any changes?

Due to stockpiling in grade, et cetera, we expect to come down from the 400,000 ounces to about the 300,000 to 325,000 ounce level. And the cash cost will probably creep up closer to $300 per ounce level.

Okay. And lastly, Aaron, I mean with CapEx reasonably crystallized at Cerro Casale as best as you can guess at $6 billion. And if you didn't have -- and if you had permits today, would you make an investment decision in the positive today for the project? Maybe it's in light of your review of the long-term copper and gold price perhaps.

Sure. I think Casale is a good project. It's -- like all these things, it won't be easy. And so I think it's something that we've looked clearly very closely at and I think the bias will be to try to advance it. So yes.

Our next question is from the line of Barry Cooper from CIBC.

Just wanted to ask Peter the 4 autoclaves that you've got at Pueblo Viejo, just trying to kind of assess. Does having 4 autoclaves heighten or reduce the risk? And then wondering is the devil usually more in the ore or in the individual autoclave when these things have troubles, primarily during the start-up phase?

Well, having 4 obviously leads itself to flexibility because occasionally you have to re-brick these. So if you had one gigantic autoclave, you would obviously not get the availability. But autoclaves basically see sulfur grades and that's basically what they see. And the throughput of an autoclave is really determined by the sulfur going in and the sulfur going out. So as we commission, hopefully we don't get any surprises. We've -- in the last 12 months, we've been bringing people from Dominican Republic to Goldstrike and vice versa. So the Goldstrike guys who are very experienced on site. So we don't anticipate any major hiccups.

Right. And then Jamie, I think usually you give us some sort of an indication of your forward OpEx position in Australian dollars. And this quarter, you've just said substantial. I'm wondering if you can kind of elaborate a little bit more on substantial and then how do you allocate that hedging to the capital expenditures versus the operating cost expenditures.

Okay, Barry. Actually on Page 18 in the MD&A, we've got a table there. And if we look at post 2011, we're averaging probably about 75% to 80% on average. Next year, we've got about 85% hedged. Following year after that, 70%, and then at about 50% in 2014. So about 75% of the overall operating and capital exposure is hedged post 2011 at rates that are below $0.75 on average. The bulk of that is operating costs. The capital that we hedge is sustaining capital there, which isn't a huge amount. We've got about $1 billion or so of operating cash cost and a fraction of that is in the sustaining capital. So the high percentage of these hedges relate to the operating costs.

Our final question is from the line of John Tumazos from John Tumazos Independent Research

A long time ago, watch group is in the queue at the geological survey of Saudi Arabia, mid-80s. And various geologists that I've spoken to had great enthusiasm for gold exploration in Saudi Arabia. Alcoa has over 100-kilometer long pretty continuous box-like deposit, a very high quality, where their biggest capital is in Saudi Arabia. In addition to Citadel and Equinox's activities, what are your thoughts about the big picture grassroots opportunity in the kingdom over and above the specific copper-gold deposit engineered? And with the 20% tax rate, it seems like we should be talking about gold.

All right. Well, maybe I'll make a comment just touching on your last point and then I'll ask Rob to maybe comment on the potential -- exploration potential. And one of the positive things about Saudi Arabia is that it does have a fairly healthy industrial base, obviously, driven after petrochemical industry but you've mentioned Alcoa as well. And so there's a level of sophistication in the country, which is perhaps much more robust compared to some of the countries that we operate in. So that's a real positive. From a policy perspective, the government is trying to encourage diversification of their economy and resources outside of petrochemicals is a focus for them. And I think that's kind of reflected in the attractive tax rate. So those are a number of positives. But Rob, perhaps you could comment on the exploration potential of both Jabal Sayid as well as the land positions that we have.

Sure, Aaron. I guess the Arabian shield is known to have more than [ph] copper and gold mines and more than 6,000 mineral occurrences. And I think the spot that has been very lightly explored using both exploration and data integration techniques. Also, if you have a look at the granted tenement position in Saudi Arabia, there is a lot of unstaked ground and a lot of mineral countries. So on that basis, I think there is definitely a potential to fund additional mineral occurrences and test some of the known ones.

We have no further questions at this time. Sir, you may resume with your closing remarks.

Okay. Well, thank you, operator. And again, I'd like to thank everybody for joining our good call. There's a lot to cover off and we appreciate your patience. And I guess we look forward to speaking with you at our -- I hope that you can join us for our Investor Day, which is on September 7. That will give everyone an opportunity to talk again in more depth about various aspects of the company. So with that, we'll conclude the call and hope everyone has a great summer. All the best.

Ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.