Barrick Mining Corporation (B) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold Fourth Quarter 2011 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, February 16, 2012. I would now like to turn the conference over to Deni Nicoski, Vice President, Investor Relations at Barrick Gold. Please 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 statements, 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.

Okay. Good morning, Deni, and thank you for joining us today. I'm joined here by -- with other members of the senior management team, including Jamie Sokalsky, our CFO; Peter Kinver, our COO; Kelvin Dushnisky, who's our Head of -- EVP in Corporate and Legal Affairs; and Rob Krcmarov, who's our Senior Vice President of Global Exploration. We're also joined – or, also joining us is Greg Patigos, [ph] who's our new Senior Vice President of Investor Relations and Communications. Greg joined us in early January and will be fulfilling that role. Deni, who has been Head of Investor Relation for some time, is going to be moving on to a senior role in our finance area. So at this point, I would like to thank Deni for his great work that he's done for us in this area and certainly delighted that he's going to be making a contribution in other parts of the company. So with that, for our call today, what we plan on doing is discussing some of the highlights of 2011. Our fourth quarter results, we'll provide an update on the projects. Then I'll turn the call over to Rob who's going to provide an update on our exploration programs, and then Jamie will provide more details of our financial results and the outlook for 2012. So looking at 2011, this is the time of year we can reflect back on the total progress in the past year. I think, overall, we've made progress in a number of areas. First, I think we're pleased that we were able to meet our production and cost targets for the year. We produced just under 7.7 million ounces of gold at a cash cost of $460 per ounce. Total cost basis and on a net cash cost basis, our cash cost is around $339 per ounce. And I think that compares very favorably with the other senior gold producers and positions us around the bottom third of the cost curve. With the rise of the gold price, we've had a significant expansion in our margins, and when you apply that to our production, the result was record financial results. We had adjusted earnings of $4.7 billion for the year, which was around $4.67 per share. We had EBITDA of $8.4 billion, and our return on equity was 22%. And consistent with our past practices of increasing the dividend on a progressive basis, we increased the dividend last year as well by 25% to an annual dividend of $0.60 per year, and this is a trend that we anticipate will continue. We continue to advance our 2 world-class mines, Pueblo Viejo and Pascua-Lama. So we're a year closer to getting production from these 2 mines. PV will be producing in the middle of this year and Pascua-Lama in the middle of next year. So it's nice to sort of get closer to those dates. And these mines will produce -- combined, will produce or contribute around 1.5 million ounces of low-cost ounces to the company. We once again replaced our gold reserves, and we grew our resources. And our exploration program had considerable success this year with the discovery of Red Hill and Goldrush. These are greenfield discoveries in Nevada. And the drill results continue to be very encouraging. And, again, Rob will provide more details shortly. The other projects in our pipeline continue to move forward. We have a number of projects that in either feasibility permitting or in the scoping stage, but this is a robust pipeline, which I think provides us with a lot of investment choices for the future. We added 2 quality mines to our portfolio, the Lumwana copper mine and the Jabal Sayid copper mine. And with respect to Lumwana, we significantly increased the copper reserves and resources compared to 2010. And then in the area of responsible mining, this is an area that we have put a considerable amount of focus. We have had some challenges, but we've made considerable progress and it's nice to see that our efforts are being recognized by third-party organizations. We were, once again, relisted on the Dow Jones Sustainability World Index and also named to the NASDAQ Global Sustainability Index. So if I can turn to the fourth quarter, the production and cost were in line with our internal targets. We produced 1.81 million ounces at a cash cost of $505 per ounce or $382 per ounce on a net cash cost basis. Copper production was 143 million pounds at just under $2 per pound. Gold margins continue to be very healthy at $1,159 per ounce, and on a total cost basis. And on a net cash cost basis, our margins were $1,282 per ounce. Adjusted earnings for the quarter were $1.2 billion or $1.17 per share, and our adjusted operating cash flow was $1.3 billion. Just a brief comment on each of the -- our regions. North America performed very well, above plan, producing 761,000 ounces at a cash cost of $498 per ounce. And that was really underpinned by strong performances from both Cortez and Goldstrike. These are really the anchor mines that we have in North America. Cortez in the quarter produced 283,000 ounces at a cash cost of $331 per ounce. And for the full year, Cortez produced 1.42 million ounces at a cash cost of $245 per ounce. So this is, I think, really positions Cortez as one of the most profitable gold mines in the world. Goldstrike continues to be a workhorse for us and had a strong quarter, producing 245,000 ounces at a cash cost of $570 per ounce. In South America, again, the performance there was on plan. Production overall was 446,000 ounces at a cash cost of $357 per ounce, so again, very competitive. The biggest contributor was the Veladero mine which contributed close to half of that production, around 228,000 ounces at a cash cost of $355 per ounce. And Lagunas, again, continues to be a star, producing 176,000 ounces at a cash cost of $268 per ounce. In Australia, that region contributed 485,000 ounces of production to our overall production base at a cash cost of $677 per ounce. And then the attributable production from African Barrick Gold was 118,000 ounces at a cash cost of $779 per ounce. Turning to copper. Overall, we produced 143 million pounds at just under $2 per pound. Lumwana contributed 60 million pounds and Zaldivar contributed 83 million pounds. So if I could turn to our projects, I just want to comment briefly on Pueblo Viejo and Pascua-Lama. Pueblo Viejo is going well. We continue to track within our budget and schedule. Overall construction is currently about 90% complete. As I said before, we expect first production in the middle of this year. And just to -- I guess some statistics, we own 60% of this mine, so our share of the annual production will be around 625,000 to 675,000 ounces at a cash cost of under $350 per ounce. At the end of the fourth quarter, approximately 85% of the total mine construction capital has been committed. The contribution this year from Pueblo Viejo were forecasting our share of the production to be around 100,000 to 125,000 ounces at a cash cost of under $500 per ounce. We anticipate a 12- to 18-month ramp-up period, so clearly, we'll have a much bigger contribution in 2013. The mine is well prepared. There's about 13 million tons of ore, which represents about 1.4 million in contained ounces that has been stockpiled to date. The oxygen plant is expected to undergo pre-commissioning this quarter, and the first of the 2 autoclaves will be pre-commissioning in the second quarter. So turning to Pascua-Lama, about 55% of the capital of this project has been committed. And, again, we continue to expect first production in the middle of 2013. Pascua-Lama will produce, on average, about 800,000 to 850,000 ounces of gold at a negative cash cost of about $225 to $275 per ounce. And that's based on a silver price of $25 per ounce. And silver today is significantly higher than that, and so cash costs will be even lower. This is a challenging project. It has been impacted by labor and commodity cost pressures in Argentina as a result of significant inflation, as well as the competition for skilled labor in the region. In addition, there has been some restrictions with respect to importing selected ice into Argentina, so we've had to manage through that as well. In terms of some of the milestones in Chile, the earthworks, about 95% complete at the end of the quarter. And in Argentina, the earthworks are about 65% complete. About 40% of the concrete has been poured at all the processing facilities in Argentina. And about 15% of the structural steel has been erected. And occupancy of the construction camps in Chile and Argentina continues to ramp up. We now have 6,500 beds available at the end of the year, and those camps will grow even further to their full capacity of 10,000 beds in mid-2012. We've talked about this before, but PV and Pascua-Lama will have a substantial impact on the financial profile of Barrick. Pueblo Viejo, using a $1,600 gold price, our share of the EBITDA from this mine when it's fully up and running will be roughly $800 million per year. In Pascua-Lama, the EBITDA contribution from Pascua will be about $1.65 billion per year. So these are very attractive, robust mines and will be major contributors to the company for some years to come. Turning to Jabal Sayid. This is a copper project we have in construction in Saudi Arabia. The project is going well. It is about 75% complete at the end of the year, and we expect first production in the second half of this year. There are some final approvals that we need, but expecting that we'll have those in hands, our first production will be in the second half of this year. But 85% of the capital has been committed. The total capital for this project is around $400 million. And annual production from the mine will be around 130 -- sorry, 100 million to 130 million pounds at a cash cost of $1.50 to $1.70 per pound. And in 2012, we expect Jabal to contribute around 35 million to 45 million pounds at a cash cost of $2.15 to $2.50. Clearly, as the pressure ramps up, those cash costs will come down accordingly. With respect to our pipeline of projects, as I said earlier, we have a large number of projects that we continue to advance. Cerro Casale continues to go through the permitting phase, permitting we expect to have in hand later this year. Donlin, we expect to start permitting this year. There's pre-feasibility studies for Lumwana, Turquoise Ridge, Zaldivar and Lagunas Norte, which many of them will be completed this year. And then Red Hill and Goldrush is still early days, but we're looking to the future and expect that, that will be, again, another attractive property that will enter into our project pipeline. In terms of our growth aspirations, the targets we set out before continue to be the same. We're targeting gold production of 9 million ounces by 2016, silver production of 50 million ounces and gold -- copper production in excess of 1 billion pounds by 2017. So at this point, I'd like to turn it over to Rob to give us an update of our exploration activities. Rob?

Thanks, Aaron. This slide is an illustration of our explorations factoring all today. So since 1990, we spent around $2.5 billion in exploration for an overall mining cost of only around $17 per ounce. During that time, since 1990, we've mined 118 million ounces of gold, we've acquired 110 million ounces and we found 148 million ounces through gold -- through exploration. And to provide a bit more detail on where some of those ounces have come from, as well as to demonstrate the exceptional optionality within our project pipeline, this updated slide shows the history of reserve and resource growth following acquisitions. So the gray bars represent the reserve and resource ounces at the point of acquisition of an asset, and the brown bars represent some of the material new discoveries we've made or subsequent ounces we found through exploration. You will note that Ruby -- that Red Hill and Goldrush are represented by the third bar from the bottom. And as this chart illustrates, one of our strengths is our ability to identify and deliver new ounces following any acquisition and also to add ounces through our own discoveries. The key point here is that our project valuation is really only a snapshot in time. We've got excellent optionality on many of our projects, and we have a remarkable track record in realizing that upside. And our track record of successful exploration continued in 2011. We replaced reserves to an industry-leading 139.9 million ounces. We grew measured and indicated and inferred gold resources towards 80 million and 40 million ounces, respectively. So our total gold inventory now stands at more than 260 million ounces. Total copper reserves nearly doubled, from 6.5 billion pounds to about 12.7 billion pounds. Copper M&I resources rose 17% to about 15 billion pounds, and inferred resources increased 117% to almost 20 billion pounds. At Lumwana, copper reserves grew 9% to 4.9 billion pounds, and inferred resources nearly doubled, from 5.5 billion pounds to 10.7 billion pounds. In addition, about 2 billion pounds were added in the M&I category, and the large Chimiwungo deposit remains open to the east and south. Our exploration pipeline continues to be one of the most robust in the industry, and following on from last year's successful discoveries, require an increased exploration investment. So the 2012 total exploration budget guidance is $450 million to $490 million, of which about 40% will be capitalized. The budget is weighted towards near-term resource additions and conversions at existing mines while still providing support for earlier stage exploration in operating districts and other emerging areas. The increased budget is mainly the result of major exploration programs at Red Hill and Goldrush and Turquoise Ridge open pit and Lumwana, and these account for some 40% of the total budget. These are key projects with large drill programs which will directly add and upgrade gold ounces and copper pounds in 2011 through 2013 and are required as the baseline for various planned scoping, feasibility and expansion studies. This slide shows Barrick-controlled gold deposits in the greater Cortez camp area. The discovery history in this district spans some 50 years or so, and the Cortez camp still continues to yield tremendous discoveries. In fact, there's about 43 million ounces in cost production and current reserves and resources, and that's inclusive of the Red Hill/Goldrush indicated and inferred resources. And as I'll show you in a minute, we're confident that this will continue to materially grow. It's worth noting that pipeline in Cortez Hills, which both exceed 10 million ounces each, were concealed deposits. And these newest discoveries are also covered by barren volcanic rocks. Shown here in the lower right corner are Red Hill and Goldrush discoveries announced in September 2011, which have now merged into one system. Let's zoom in and take a look at recent developments at Goldrush and Red Hill. The 2 blue outlines surrounding the colored shapes represent the updated Red Hill and Goldrush resource areas. The colored dots outside the resource areas represent the individual grade on the slide by the thickness of the holes, which were not of sufficient drill hole spacing to qualify as a CIM compliant resource. But from the colors, you can see clearly that we continue to intersect strong mineralization well beyond the resource areas. Since our announcement of Red Hill and Goldrush discoveries last September, I'm pleased to report that continued drilling has doubled the resource, and we expect further significant increases in the future. For year-end 2011, a total of 1.3 million ounces of indicated and 5.7 million ounces of inferred resources have been attributed to the combined Red Hill and Goldrush system. So let's just focus on the area outside the resource footprint in this next slide. As you can see, some of the ore grade intersections outside the resource areas and which still remain open, as shown on this slide, and we've tried to estimate the extent of the mineralized corridor as represented by the yellow envelope. But note that we really don't have a good constraint on this in many areas as the systems open in so many directions. So just look at the area west of Goldrush, there's no constraints to high-grade mineralization whatsoever. It's worth keeping in mind the enormous scale of the mineralizing system. It's now over 4 kilometers long. And there are 3 main aspects to our drilling work. The first one is to increase the confidence of the mineralization's continuous between drill holes and also getting a better understanding on grade distribution. That's why there's been plenty of in-fill drilling, particularly at Red Hill, where the mineralization comes closer to surface . The second aspect is determining whether the deposits connect. I think we're now convinced that they are -- however, it should be noted that the strong mineralized intercepts we intersected between the 2 deposits didn't have sufficient drill spacing to qualify as a resource under the CIM guidelines, however, ongoing drilling lines to convert that large inventory into our resource stream the next year or so. And thirdly is to scope out the entire limits to the system. We've been scoping out along strike to the north and south. And just this week, in fact, we've started drilling west of Goldrush, where we see excellent potential to extend and add new high-grade ounces quickly. So to summarize, mineralization is strong and continuous, over a strike length of 4 kilometers. And the alteration continues well beyond those extents. With double the resource we announced last September, we've identified a very large mineral inventory with strong intercepts. So that currently has insufficient drilling to qualify as a resource, and so the deposit is still open in many areas. This is a very significant deposit which will continue to grow. We have 468,000 feet of drilling planned for Red Hill and Goldrush in 2012, and that's to test the full extent of the system and further expand and upgrade the resource base. Over to Zambia now, where we look at recent developments of the Chimiwungo deposit at Lumwana. So just to recap, we've been mining at the Malundwe pit, and this year, we're transitioning to the Chimi pit. An aggressive and advanced exploration drill-out program gained momentum at Lumwana in Q4 of 2011, where an 18-month 300,000-meter drill program will grow and provide increased confidence in the resources for an expansion study to materially increase production. The total 2011 reserves and resources at Chimi of nearly 15 billion pounds represent an increase of about 7 billion pounds from the 2010 Equinox reserve and resource statement. The Chimiwungo plant entails a very aggressive drill program, ramping up to plus-20 rigs by this quarter, which will focus on 3 key areas: a resource definition program to upgrade the 10 billion pounds currently in inferred resources to M&I status, and that will provide a resource base case for the expansion study; also, an exploration program to hiding [ph] additional copper inventory outside of the currently defined resources; and a condemnation program to the west of the pit hole to assist with planning of future infrastructure requirements. We were at 17 rigs on-site by the end of last year and another 4 due to arrive later this quarter. Results to date have been really encouraging as we'll see on the next slide. The character and install of these mineral system is such that they typically occur as blankets which can extend to tens of kilometers. In the case of Chimiwungo, we know that there's mineralization which likely extends to at least 6x4 kilometers and possibly significantly further, as evidenced by some of the highlighted intercepts well outside of the $3.50 pit. But the extra attraction of Chimiwungo, and this is where the real value is, is that the copper blanket is essentially thickened into north-south likely continuous zones or as we call them shoots, named here the Roan and the Equinox shoots, shown in yellow here. These shoots are 2 to 3 times thicker than a typical Chimi blanket while still retaining some of the high and strong copper grades. This concept is illustrated by the schematic section on the top of the slide and the shoots on plan illustrated by the dashed yellow lines. These thickened high-grade zones can really enhance the economics, and results to date indicate the resource definition drilling is in line with expectations, including confirmation of the thickened eastern Equinox shoot as shown with the results in the slide. The Equinox shoot contains 3 stack shoots of ore, of which at least one is significantly thicker in higher grade and the deposit where we're currently mining at Malundwe. Also drilling further to the east is intersecting mineralization, thinner but shallower than expected, which might have the potential to extend the eastern pit boundary. You will also note an interceptor clearly made it at 1.41% copper to the left of the Chimi pit. In fact, it's located almost halfway between the Chimi and the Malundwe pits. And I think this drill hole intersected, what may well turn out to be one of the most significant intersections since 2000 outside of the 2 deposits. It potentially links the Malundwe and Chimiwungo resource areas [indiscernible]. So in summary, drill ramp-up is on schedule, early results in terms of [indiscernible] in the first 2 months of ramped-up drill program at Chimi. We're getting excellent results, results as expected. From what we're seeing to date, we've got a high confidence in the expected inferred to indicated resource conversion in line with estimates. Plus, we also expect to add additional resources east of the current resource outline at shallower depths but lower grade. We also expect to add additional copper pounds around and linking the current resources, especially in the favorable areas of the Equinox and Roan shoots. The 100-meter space drill hole is now allowing these barren internal zones to be better interpreted and modeled. And we'll definitely assist in mine scheduling in the expansion study. As a deposit, I think Chimiwungo is much more robust. It has much thicker ore zones than Malundwe. And Chimi is more amenable to bulk mining. And as a result, it's not expected at the internal barren ice units. We'll have the same dilution impact as Malundwe where the ore units are thinner. And so with that, I'll hand it over to Jamie.

Thanks, Rob. Net earnings and cash flow in 2011 were a record for the company at $4.5 billion and $5.3 billion, respectively. On an adjusted basis, our net earnings were approximately $4.7 billion, up 33% from the approximately $3.5 billion in 2010. Our 2011 adjusted operating cash flow was $5.7 billion, and EBITDA increased 28% to $8.4 billion, another record from the $6.5 billion a year ago. Our trend of gold margin expansion continued in 2011, driven by the higher gold prices but also by our continued cost control. On a total cash cost basis, our cash margins increased 37% to $1,118 per ounce from the $819 per ounce in 2010, while on a net cash cost basis, margins were 33% higher at $1,239 per ounce from the $935 per ounce in 2010. These highlights -- these results clearly highlight the company's excellent leverage to the gold price. We have one of the lowest cash cost profiles among the senior gold producers, and our input cost hedging mitigates exposure to changes in foreign currency, exchange rates and oil prices and gives us greater predictability of our cash cost profile. For example, our largest single currency exposure is the Australian dollar, and we are fully hedged on Australian operating expenditures in 2012 at an effective average rate of just $0.81. Further to that, about 70% of our operating costs for 2013 are hedged at an average effective rate of just $0.74, and we have significant additional coverage after 2013 at attractive rates as well. We've also mitigated the impact of higher oil prices through the use of financial contracts and the production from Barrick Energy, such that a $10 change in the WTI crude oil prices impacts our 2012 total cash costs by less than $1 per ounce. The contribution from Barrick Energy, along with the financial contracts, provides hedge protection for about 80% of our expected 2012 fuel consumption, with extensive coverage after 2012 as well. We've also put floor protection in place on approximately half of our total anticipated 2012 copper production at an average floor price of about $3.75 per pound, with no cap, so we can fully participate in any additional copper price upside. Turning to our outlook for 2012. We anticipate gold production to be in the range of 7.3 million to 7.8 million ounces. Our total gold cash costs are expected to be in the range of $520 to $560 per ounce. Our net gold cash costs are expected to be in the range of $400 to $450 per ounce, assuming an average market copper price of $3.50 a pound for 2012. Our copper production is expected to increase to 550 million to 600 million pounds this year as a result of a full year of production from Lumwana and the midyear startup of Jabal Sayid. Our copper total cash costs are anticipated to be in the range of $1.90 to $2.20 per pound. And despite an increase in our 2012 estimated total cash costs per ounce, which is consistent with the industry trend, Barrick is positioned in the lower 1/3 of the industry cash cost curve. The increase primarily reflects a change in the production mix this year, from lower cost ore sources to higher cost ore sources, both between and within mine sites. Our gold production mix is expected to change as a result of higher production in North America, offset by slightly lower production in South America. The higher expected production in North America is due to first production expected at Pueblo Viejo and an increase in the Goldstrike production. The decline in the South American production is expected to be lower, primarily due to decreased production from Pierina and Veladero this year. Additionally, we expect to capitalize less waste stripping costs as a result of Goldstrike and Cortez completing substantial stripping campaigns in 2011. As you know, labor cost is increasing due to a combination of inflation in parts of South America, market adjustments for skilled labor in North America, Australia and Africa and also planned hiring at some of our operations. Our gas and electricity costs are also higher, principally due to higher natural gas prices at Porgera as a result of the expiration of a long-term contract at the end of last year. And there are other cost pressures, including the changes in our effective currency hedge rates from last year, while still low or up slightly, and higher royalties due to higher realized gold prices. The increase in our copper total cash cost is largely as a result of the impact of a full year's contribution from Lumwana. Lumwana cash costs this year reflect the mining of lower-grade areas of the current Malundwe pit and the transition to the initial lower-grade benches of the Chimiwungo deposit, which starts to produce during the second half of this year. Lumwana costs are also being impacted by higher royalties and additional labor costs. The startup of Jabal Sayid and higher cost at Zaldivar, primarily due to an increase in market prices for sulfuric acid, also contributed to the higher expected total cash cost per copper production in 2012. At the end of 2011, we remained in a very strong financial position, with a quarter-end cash balance of about $2.7 billion and the gold industry's only A credit rating. The company's $2 billion revolving credit facility was replaced this year with a new 5-year $4 billion revolving credit facility last month, of which $3 billion remains undrawn. Our financial strength positions Barrick well to continue investing in our project pipeline, maintain a progressive dividend and pursue other value-enhancing opportunities. Turning to our CapEx. Our total 2012 capital expenditures are expected to be in the range of about $5.5 billion to $5.9 billion and include project expenditures of about $2.6 billion to $2.75 billion, primarily related to the construction activities as we finish Pueblo Viejo and ramp up additional construction at Pascua-Lama. Our open pit and underground mine development, which includes capitalized waste stripping, is about $850 million to $925 million. And additional mine site expansions are expected to be about $850 million to $925 million, which includes development projects at Lagunas Norte, Cortez, Turquoise Ridge, Pueblo Viejo, Goldstrike and Lumwana. And then finally, we have mine site sustaining capital of about $1.2 billion to $1.3 billion, which reflects a full year of expenditures at Lumwana and the inclusion of sustaining capital for Pueblo Viejo. Just before finishing off, I'd like to make a few brief comments on why we continue to have a positive outlook for gold. When you consider the challenges facing the global economy, whether they’re structural economic challenges or continuing eurozone sovereign debt concerns and the necessary policy response to those challenges, including the reflationary efforts as central banks try to stimulate employment and GDP growth, all of this continues to put pressure on currencies and continues to reinforce gold's ability to retain its purchasing power. Just some recent examples include in January of this year, the U.S. Federal Reserve’s pledged to keep interest rates at exceptionally low levels until the end of 2014 and hinted at further quantified -- quantitative easing. S&P and Moody's recent downgrades of the eurozone countries' debt, and this isn't just limited to the U.S. and Europe, to the Bank of England's latest round of government bond purchasing of GBP 50 million is the equivalent of about $500 billion of a purchase by the Fed if you adjust for the size of both economies. In addition, the GDP growth rates in emerging economies should bode very well for increased gold demand. And on the official sector front, central banks became net buyers, with 439 tons of gold purchased in 2011, which is over a 450% year-over-year increase and the highest since 1964. And you might have noticed that the first gold Chinese-currency denominated ETF was just launched on the Hong Kong Stock Exchange last week, providing more opportunities for investors to buy gold in that area of the world. So we continue to remain quite bullish on gold. I'll now turn the presentation over to Aaron.

Great. Thanks, Jamie. And so in closing, 2011, I think, marked another year of good progress for the company. We sort of touched on this. We had strong operating results and record financial results. We continue to advance our project pipeline. We've replaced the reserves and drill resources. We've added 2 new mines with Lumwana and Jabal Sayid. We've had some greenfield discoveries with Red Hill and Goldrush, and we've had positive recognition for our responsible mining practices. So when you take that as a collection, I think it speaks well for the progress that was made last year. We continue to be pretty optimistic about the outlook for the industry and the company. Jamie just talked about the fundamentals for gold, which should be very price-supportive. And clearly, with the large production base that we have and the competitive cost position we have and the large margins we're realizing, we will be a major beneficiary which will result in, again, another year of strong financial performance. Our 2 mines, PV and Pascua-Lama, we're 1 year closer to getting those into production. The other projects to that pipeline continue to advance. As Rob highlighted, we've got significant momentum in our exploration programs, and that further demonstrates the value of a very structured, disciplined program and what it can generate for shareholders. And then we also expect to continue to improve our responsible mining practices. This is a complex area, an evolving area, and we're very committed to making sure we stay at the forefront of best practices. So with that, we'd be happy to take questions. So operator, I'll turn it over to you.

[Operator Instructions] Our first question will come from the line of Jorge Beristain with Deutsche Bank.

Jorge Beristain with Deutsche Bank. My question was on the copper assets. If you could just again reclarify, have you hedged 100% of your copper outpour for 2012?

Jorge, it's Jamie. No, we've hedged about 1/2, just with floors, at $3.75. So 1/2 is protected with floors and the other is completely exposed. And 100% is completely exposed to higher prices and half is protected against downside.

Okay. And my other question on the copper unit is with the ramp-up of Jabal Sayid. You mentioned that there's also going to be some cost push this year. So you're kind of looking at an average cash cost, it looks like, of over $2 a pound. Against about a $3.75 backdrop, that's $1.75 of cash flow per pound times a pound in total, and it's about $1 billion EBITDA operation for 2012. I was wondering if you could just talk to the point of, has that acquisition of Equinox, is it living up to the expectations that you thought last year? Do you think that there's more room for lowering the cost as you get some economies of scale there into 2013? If you could just kind of talk about where the cost and what the copper price is doing relative to your expectations.

Sure, Jorge. Let me tackle that. I think that -- well, first, with respect to copper price, I think the copper prices actually performed very well, all things considering. When you look at the uncertainty in Europe and the United States and concerns about hard and soft landing in China, the fact that copper is around $3.80 a pound, I think, is quite a positive sign. And so for us, when we -- part of the view that we have is that the fundamentals for copper are quite strong near, mid, and long term, and we think that those are kind of playing out. So our view really hasn't changed on that. And a lot of it has to do with what we're seeing on the supply side, just the challenges of maintaining production, let alone discovery and bringing new mines into production. So that hasn't -- our view on that hasn't changed at all. With respect to the asset, there hasn't been many surprises. We sort of -- when we did our diligence, we recognized that the first, really, the first 18 months of operation were going to be a transition in 2 ways: transitioning from Equinox's operating practices to Barrick operating practices, and they're quite different. And there are a lot of things that we've identified which need to change in order to improve the performance and efficiency of the operation, and we're doing that now. And the second thing is as it transitions from Malundwe into Chile, where we saw the real value in that asset was in the Chimi deposit. And I think Rob sort of highlighted in his presentation the substantial growth in the resources that are there, and there's still significant upside as well. And that really does underpin the expansion. And you'll have -- we'll have like a 30-, 40-year mine once it's up and running. So I think that it's kind of -- as we said, it's -- there hasn't been too many surprises. We recognize that there are going to be challenges, operational challenges, but we have the capability to take those things on and that's what we're doing. But 2012 is a bit of a transition year, and that's kind of what we expected. I think if anything on Jabal Sayid, there's probably surprises on the upside in the Jabal asset. I think it's -- resource there is probably bigger than what we had originally anticipated, and it's a fairly straightforward operation. And so the cost will follow. Jabal, I think, you'll see significant improvement once we get up and running. You got to remember, we're in the startup phase. So like PV, with the fewer ounces, the cash costs obviously reflect that. But once you get up to scale, then we will see a beneficial impact on the unit costs.

Great. And sorry, if I could just have a quick follow-up. Just on the dividend policy, I do appreciate you have been raising it. You said about 170% or in the CAGR of something like 20% over the last 5 years. But do you believe that you could improve on your base dividend in 2012?

I don't want to -- maybe I'm not really in a position to commit to that. I think it's a discussion that we have at the board on a quarterly basis. What I would say, though, is if you look at the track record, the company does have a tradition of increasing the dividend on a regular basis. I think we recognize the importance of having a balance and allocating capital to invest in balance sheet management and returning capital back to shareholders. And particularly, in this environment with a low interest rate, there is increased demand and 4 dividends, and so we're very cognizant of that. And I assure you, this is something that at the board we have robust discussions about. So I can't commit to anything, but I could say that it is top line from a board perspective.

I just would flag, one of your competitors did put out a formal dividend allocation for 2012, which I found interesting. But I'll leave it there.

Our next question will come from the line of Stephen Walker with RBC Capital Markets.

I just have a couple of questions here. First of all, on sustaining capital. We've seen sustaining capital on a per ounce basis, I guess, more than double over the last 2 to 3 years. Currently, we're looking at about $165 an ounce in 2012 for Barrick's sustaining capital. When you look at your budgets over the next several years, what is a good range of sustaining capital on a per ounce basis or on a dollar basis for the next couple of years? And then as a follow-up, I know it's a little more difficult to forecast, but you've got obviously a capital number for the underground development and open pit capitalized stripping. I mean, those numbers are relatively well known in budgets and in forecasts. Do you have some guidance for that number as well? What is a good range of sustaining capital -- sorry, go ahead.

Sure. Stephen, it's Jamie. Well, a couple of points that I can maybe make first. Your comment about the $165 an ounce, if you look at the sustaining capital of $1.2 billion to $1.3 billion, remember that some of that relates to the copper assets as well. So on a gold per ounce basis, that number is a bit less than $165. So -- and then I think the other point to make is that sustaining capital has gone up because of the changes to IFRS accounting as well. And so that increase that you mentioned from previous years does reflect a little bit more of a change in the IFS accounting standards, which, as you know, we adopted this year. So against that backdrop, I'd say that probably on a going-forward basis, a number of around $150 an ounce for sustaining capital, I think, is a reasonable amount. And, again, that includes some of the stripping as well and underground development.

And per pound of copper?

Per pound of copper, I'd say that you're probably looking at something in the neighborhood of $0.10 to $0.20.

Okay. Great. Just, again, as we see the startup of Pueblo Viejo, the -- my understanding is working capital is not included within sort of the over capital -- the overall capital commitment to capital budget. 2 questions. I guess the first one is, when do you anticipate, if all goes as planned, going commercial at PV? And what sort of working capital needs will there be in that period before you do declare commercial production, that is we can offset some of the production revenues against working capital expenses or capitalized expenses?

Sure, Stephen. We anticipate that the actual commercial production, the accounting production will occur likely at the beginning of the fourth quarter. Actual production, as we're starting up, will be that midyear that we've talked about. But declaring commercial production is likely going to be at the beginning of the fourth quarter. And in terms of working capital, we probably got a few hundred million dollars that's required there in working capital. But as we are starting the production, some of that production does yet netted against the overall capital until we declare commercial production, which will be, as I mentioned, a few months later.

Great. One last question, if I might. At Porgera in PNG, there's been a couple of press articles coming out of the local industry news about some of the conflicts in the highlands and some of the power pylons being knocked down and power being disrupted. I'm trying to understand when you say your natural gas contracts are going up, how much of that is sort of inflation from the suppliers of power or the natural gas component to that power? And how much of it is sort of disruption in the region that comes to surface from time to time with respect to disrupting the power -- power lines, et cetera?

Stephen, it's Aaron. You are right. The Porgera operation has been impacted. Because there has been some sabotage to the power lines to the site. And so I think if you look at our production range this year, we've kind of built probably some increased flexibility into it, in anticipation that the production from Porgera might be more variable than we might have normally expected. But the situation is, I'd say, in hand with respect to the law enforcement agencies. And so we're optimistic that, that won't be an ongoing issue. But we have experienced some difficulties to the start of the year. That issue is separate from the power contract. I think Jamie mentioned in his comments, we had a long-term power supply agreement, which is very favorable to the company. And unfortunately, that expired last year. And so now we're in negotiations with ExxonMobil on the other side. And unfortunately, the gas prices in Papua New Guinea are substantially higher than what you might expect to realize here in North America. So I don't know, Jamie, if you want elaborate.

Sure. As Aaron mentioned, the natural gas prices that are inherent with the power costs are in the neighborhood of 5x higher than the natural gas prices that one might experience in North America. So that has quite an impact on the overall costs. About $10 an ounce of our total cost this year as a company have been -- of that increase are as a result of the higher power cost that we're experiencing at Porgera. So it has had a significant impact on not only Porgera and the Australia Pacific region but on the overall company cash costs as well. But we're looking at some other alternatives. We are actively negotiating and we're hopeful that we'll be able to mitigate some of that as we move forward. But we're looking at, I guess, the worst case scenario there in terms of a bit the reflection on our cash costs.

Our next question will come from the line of Paretosh Misra with Morgan Stanley.

Just looking at your capital expenditure on capital projects for 2013, do you expect that to fall to $1.7 billion? Could you provide any more details maybe as to which projects are included and how much of that is Pascua-Lama?

The bulk of that will be Pascua-Lama. That number reflects no other decisions on any other projects at this point. So the bulk of that will be Pascua-Lama. There will be some additional capital at a few -- small amounts of capital at a few other of the smaller projects, but we're still looking at the significant portion of that number being related to completing Pascua-Lama.

Okay. So no Cerro Casale yet in that number?

That's not -- that hasn't been approved, and that's not in any of those numbers post 2012 at this stage.

[Operator Instructions] Our next question will come from the line of Steven Butler with Canaccord Genuity.

Question, Aaron, I guess, on your any initial thoughts you may provide on Red Hill/Goldrush in terms of what you may be scoping? Are you looking at a potential for Cortez mill expansion or would this simply be displacing lower grade -- I think lower grade ore from Cortez with higher grade from Red Hill/Goldrush in the future?

Steven, that's tough to answer. I think it's still too early stage at this point. And I think what was pointed out, the primary objective for us right now is really to define the outer boundaries of the deposit. And then once we've done that, then we can start deciding on what processing options might make the most ends, whether it's standalone or whether we incorporate some of the other infrastructure we have. I think the good thing is, given its location is that we do have those options and some flexibility in that regard. So I think whatever outcome we come to, I think, we're -- as I said, we benefit from having those choices.

Great. And what are your thoughts on the expansion of Lumwana, Aaron? Is it looking at a sort of a 50% expansion to ultimate throughput here? And when I look at the resource grades beyond reserve, there is a marginally better resource grade. I mean, the reserves are 0.52%, the resources are just above or around 0.6%. Further, to Rob's discussion about the new resource area, I mean, at the end of the day, will that diluted grade be not heck of a lot better than the current reserve base in the Chimiwungo pit?

All right. I may ask Rob to or Ivan to answer that. But with respect to the expansion project, kind of the base line is -- the current throughput is around 25 million tons per annum, and we're anticipating perhaps doubling that to around 50,000 tons per annum. But...

As we said, we're looking at doubling production, and there won’t be much dilution from that reserve grade. That's the current assumption.

And can I just add something [indiscernible]. A lot of the drilling that Rob -- so completed at the tail end of last year, which was generally good news. It was not incorporated in that 0.52% number that you're seeing. So hopefully this year, as the good news continues, we will start incorporating hopefully some higher grades in the year-end 2012.

Our last question will come from the line of Elizabeth Collins with Morningstar.

I apologize if this has already been asked and answered. But on Pascua-Lama, you mentioned again the preproduction capital estimate of $4.7 billion to $5 billion, but then said that labor productivity has been lower than expected in general commodity and labor inflation. How likely is it that we'll end up seeing preproduction capital costs higher than $5 billion? And when can we expect, I guess, an official update on this project?

We're still tracking within the range of the CapEx numbers that we've set out in the schedule. I think we are flagging, though, that when we look at that range, we’re probably suggesting that we're probably bumping up against the top end of that range. Whether or not we go above that range, I think it's too early to say at this point. We -- as we get closer and move further along, and we'll be continuing our trending analysis. And to the extent that we see changes to that, if they go above the range, if that is the trending that we see, then of course, we'll come back and we'll update you as we go throughout the course of this year.

Okay. That's helpful. And then on reserve replacements, your price assumption for year-end has gone -- year-end reserves has gone from 1,000 to 1,200. I know that's not a big move, but still, can you give us an idea of how much of the addition was due to a higher price assumption?

Sure, yes. That 1,200 is basically a prescribed number that we're required to use. And in terms of reserves, it's roughly, I guess, just over maybe like a 60:40 ratio in terms of price and ounces with the drill.

Okay, so 60 being price?

About 60 -- yes, about 60 being price. Okay, I understand that's the last question. So I guess we'll conclude the call. And before I do, I just want to thank everybody for joining us today. We appreciate your taking the time to hear our update and appreciate the questions. And so with that, I know it's a busy day, so we'll let you go and we'll speak to you next quarter. Thank you.

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