Barrick Mining Corporation (B) Q1 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold Q1 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today Wednesday, April 30th. I will now turn the conference over to Ms. Amy Schwalm, Vice President, Investor Relations. Please go ahead.

Thank you, operator and good afternoon everyone. Before we begin, I would like to point out 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 latest year-end report or our most recent AIF filing. With that, I will hand the call over to Jamie.

Thanks, Amy. Good afternoon and thank you everyone for joining us on the call. I am here today with our Senior EVP, Kelvin Dushnisky; our CFO, Ammar Al-Joundi; our CEO, Jim Gowans and our Senior Vice President of Global Exploration, Rob Krcmarov. In addition to this group there are other members of Senior Management with us. All of them will be available to answer questions after the presentation. I would like to start with a couple of important underlying themes. The first is that we have been extremely focused on improving and strengthening our business. I think it’s fair to say that Barrick is a considerably different company today than it was a year ago following the comprehensive actions we took in 2013. It is leaner and stronger and in a much more flexible position. We are continuing to focus on the assets that have the ability to generate the most attractive risk adjusted returns and free cash flow for Barrick and its shareholders. The second theme is how excited we are about our pipeline of opportunities that have the potential to meet or exceed our hurdle rates of return. We will talk about a few of these later in the presentation. Turning to our first quarter results, we had a strong start to the year. Gold production was 1.6 ounces, which reflected the sale of a number of mines but the assets that remained delivered a strong performance. Our all-in sustaining costs were a very low $833 per ounce, $100 per ounce lower than the prior year quarter. Copper production was 104 million pounds at C1 cash cost of $2.11 per pound, which is 15% lower than a year ago. We reported net earnings of $0.08 per share and adjusted earnings of $0.20 per share. Earnings declined year over…

Thank you, Jamie. Good afternoon everyone. I thought I’d take a couple of minutes just to give you an idea what I’ve been doing for the last three and a few, three months and a few days. I’ve gone through most of the operations -- over half of the operations on all three continents and what I’ve done is, being an operating type of guy, I tended to dig in, spend a couple of days, two or three days at the bigger operations to get an understanding of the processes, how the operation is running as well as getting a better understanding of our people and so it’s taking a little bit longer to get to everyone in the operations but I feel pretty comfortable with my progress to date. I should be pretty well through all the operations by about mid-year and I thought I give still my first impressions and I have admit they’re pretty positive. Some of the aspects that I’ve been very impressed with, first one is the technical expertise. I thought I had a pretty good idea over this, coming from the Placer Dome organization a dozen years ago. I thought that they would -- as it got integrated into Barrick to be pretty good, my impression is that the Barrick expertise is actually more extensive. When I look at the auto claiming and roasters and now we’re implementing a new title sulphate technology at Goldstrike. So what I’m impressed with is the ability to take a look at all sorts of complex gold doors and being able to develop a flow sheet. And I think that’s a great strength for future growth. And same in the mining side, our mining technology, the mineral resource management are very strong. Some of our people in spending…

Well, thanks Jim. We’ve done a significant amount in the past few years to re-calibrate the Company. And I think it’s important to take a moment now to focus on the future. While we’ve reset the direction of the Company, we all wanting to talk about all of the great opportunities that we have ahead of ourselves. Importantly, one of the things we are looking at in a completely new way is project evaluation and development. In the past, gold companies looked at new opportunities with a focus on maximizing production in MPV. Now often to achieve that, the solution was to achieve economies of scale by building massive projects with large CapEx budgets. And that was being done in an environment of continually escalating costs but with an expectation that the rising gold price would provide an offsetting reason to justify building large projects to generate more and more production and then more and more cash flow, which worked as long as the gold price was going up. As you know even before the gold price fell however we recognized for change. We adopted a more disciplined approach to capital allocation focused on risk adjusted returns and free cash flow and a key element of this framework is how we’re now going to evaluate and develop projects. So now when we look at investment and opportunities, we look at de-risking them through a series of achievable milestones and incremental expansions. We’ll start smaller and build-in stages using existing cash flow to fund the next stage. This approach allows a better synchronization of spend with things like permit approvals and provides time for value optimization. It also gives us more leverage and flexibility in contracting with suppliers, contractors, and governments. It’s critical to maintain this flexibility in order to help…

Thanks, Jamie. More than 50% of that 2014 exploration budget is allocated to North America with the majority targeted for Nevada. Largely for our GoldRush [ph] project which as you know is located only 6 kilometers from Cortez Hills as showed in the top left, we announced this discovery in 2011 and since then we’ve doubled the deposit twice. And it now stands at about 15.5 million ounces. The prefeasibility study is well underway and is scheduled to completion in mid-2015 while a number of development options have been considered including underground miming or a combination of both underground and open pit miming. Under any development scenario, we’re increasingly confident that there will be an underground mining component. Thus subject to regulatory approvals, we intend to start underground exploration development while we continue to advance our feasibility study. As this schematic shows the third option is to develop a portal in the north and access the northern extent of the mineralization. I think it’s worth nothing that we have some very high-grade drilled incepts at significant depths in this areas and the mineralization remains completely open to the north. We intend using the underground development as a platform to drill out the area and we’re optimistic that we’ll find further extensions to high grade mineralization along the way. Our exploration team is excited because the pink rock you see in the lower left part of the slide is an intrusive rock, and the biggest ore bodies in the Nevada often located when perspective rocks shine here in blue near, a major fault are right next to intrusive rocks. And Goldstrike, Cortez Hills, Turquoise Ridge, they all examples where that occurs, so very similar geometry. Here you can see the conceptual exploration decline with the respect to the location of currently…

Thanks Rob. We continue to make good headway on our portfolio optimization in our ongoing efforts to lower costs. Since July, 2013 we have divested a number of non-core assets for total consideration of over a $1 billion. $360 million realized in 2014. As result of this focus on the best assets, the number of mines in our portfolio has been reduced to 19 from 27 last year. In the first quarter we completed the sale of Plutonic and Kanowna and reduced our equity interest in African Barrick by 10% to 64%. And subsequent to quarter end, we finalized the sale of our minority interest in Marigold. With respect to African Barrick this was an opportunity to capitalize on the substantial improvement in ABG share price this year. Furthermore, the transaction widened the investor base and increased liquidity in the shares, which benefits both ABG and its shareholders. We continue to support ABGs new management and their efforts to improve operations which I have already had significant intangible positive results. At our existing assets, we continue to work to improve capital and operating efficiencies. For 2014 most of you know, we said an aggressive target of a further $500 million of cost reductions. We have made excellent progress towards this goal in the first quarter and have already implemented actions that we expect will deliver over 60% of this target. We remain confident that we will realize this $500 million annual savings target by year end. These are real tangible improvements, ranging from renegotiating purchase contracts to improving maintenance programs to optimizing equipment utilization. This program is a great example of a successful shared initiative under the new operating model which has enabled increased accountability, increased transparency and the ability to better leverage global scale and expertise across sites. Our…

Thanks, Ammar. As you can see, we’ve been working very hard and continue to work to strengthen and reshape the Company’s prospects. We’ve made significant strides in reducing cost, cutting, suspending or deferring lower return capital investments and optimizing our industry leading asset portfolio in order to maximize free cash flow. As a result, we’re well along the path of transforming into a leaner and more agile organization and one that’s focused on assets which hold longer term shareholder value. As you can see, many of the projects represent tremendous optionality to scale up or do incremental expansions in the future, but there is a robust financial rationale. We have great opportunities in front of us and I do think that the market is under-appreciating how many opportunities we have in the future, particularly in Nevada. After a tough 2013 stronger more financially flexible Barrick with one of the industry’s best portfolios and growth opportunities in the some of the world’s best mining jurisdictions is well positioned in the event of a lower price environment and has the ability to realize tremendous upside at higher prices. And lastly, I’ll just make another comment. Clearly at Barrick, we’re always open to opportunities that generate shareholder value and while there has been much recent speculation on Barrick’s terminated talks with Newmont and the unique opportunities, this combination would have provided to accelerate our current strategic plan, we remain entirely confident with Barrick’s standalone strategy, the strength of underlying business and our future prospects. I’m not going to beyond what has been discussed this morning at our Annual Meeting and in our most recent press releases on this call. I would like to focus on questions on our first quarter results and disclosure. Thank you. I’ll now open it up to questions.

Certainly sir, (Operator Instructions) And the first question is from Andrew Quail at Goldman Sachs, please go ahead, your line is now open.

I would just like to start at Cortez. Obviously you talked about an improvement going through to 2014. Is that driven by grade? We actually had something less than what you guys came out with. And is that going to improve what we saw in Q4 last year?

I’ll ask Jim to respond to that.

I think in 2014 and ’15 we do have -- there is an aspect of grades and have a drop in grade that has lowered it and in terms of our first quarter shortage we’ve had a couple of issues on the grade where our models aren’t, and we’re in a new area in the underground and we’re getting some differentiation between our what our models are saying and what we’re actually getting on our production. So we’ve got to do some work on that.

So, throughput would remain pretty consistent, but improving grade?

Yes.

Okay. Just turning to copper. With Lumwana, when we talk about sort of the interruption insurance, when would you expect to see some of that come through, Jim?

Its Ammar here, we have insurance for both the physical assets and the business interruption, and the business interruption covers lost profits as well as fixed costs. I’ve been through this before. It takes a little bit of time but we’re quite comfortable with the insurance that we’ve got.

And speaking of copper, can you guys make a comment on Jabal Sayid and where you are with that process?

Sure Andrew. We’re still in discussions to resolve some of the issues that we have there to enable the mine to get into production. I think we’re making progress there. We’re looking at a number of options and we’re optimistic that we’re going to be able to resolve that situation in the near future and get that mine into production.

Thanks, Jamie. And last one just on Pascua-Lama. Could you guys comment on what you're seeing in trends of strategic partnerships and royalty streams and what the developments have been there?

Sure, well I think it’s still early days on a number of those discussions Andrew, we continue to have some discussions that are investigative in terms of whether there are some things that we can do, whether it’s on strategic partnerships, joint ventures, royalties or streaming. So those discussions are ongoing but it’s still too early to really say that anything has got any traction and ultimately that we’d be able to do something more serious. So, but continuing to look at that and we’re very open to the prospect of those types of partnerships.

Thank you. The next question is from Stephen Walker at RBC Capital Markets. Please go ahead, your line is now open.

Just to follow-up on Andrew's question at Lumwana. You are maintaining the cost guidance at Lumwana, or cost guidance for the copper assets even though Lumwana is obviously going to be producing much lower levels from the stockpile. Ammar, are you assuming that the cost are being deferred by the business disruption insurance and you’re applying that to the -- to make up the difference for many of the operating cost increases at Lumwana?

No we’re not doing that. So it’s a relatively high cost mine but the team has already put a good plan in place to mitigate the economic impact. So the current plan is to continue to mine and we do actually have excess capacity in the mill at Lumwana. So we’ll build stock piles. Those stock piles will be capitalized and the good thing about Lumwana is that it does have excess processing plant capacity. So all of this will come in over time, it won’t all come in this year obviously but it will come in over time.

Right, and your comment was it takes some time it to get the insurance is? We looking at early 2015? We shouldn't assume anything in 2014? Or will it be at some point this year?

Well the best way for me to answer that is my previous experience because this takes a little bit of an -- it’s an art as much as a science when you’re dealing with these sorts of things. But typically what will -- we don’t expect that there’s going to be any issue with regards to us getting the insurance, but it’s a complex process, particularly business interruption insurance and typically what they will do, the insurance companies is they will make partial payments through the process. So I do expect we’re going to get some this year but it’s just a complicated process, but normal.

Okay. Thank you for that. Just to change gears a little bit on the Veladero. You made the observation that you’ve received the approval, your fourth update of the environmental impact study, but it incorporated a number of number of conditions that are being review by Barrick and it’s going to be maybe some applications for the existing 650,000 to 700,000 ounce, guidance for 2014. What are the implications and what is the background behind that?

Steve, its Kelvin here. I can respond to that. The approval received, first of all the important part is it gave us the ability revert to the amount of water, fresh water we need for makeup and pump back. So that was the key aspect of it. It also had conditions related to monitoring. So on going forward basis we’re working through what that means in terms of monitoring the performance of this existing pattern and may be some requirements for separation in the bed but at this point we don’t see it having an impact. And we’re just proceeding, as usual.

When would be the point in time when you know that sort of, might be a problem or might a need to revise guidance, so it is just -- just being cautious in the wording at this point?

Hey, correct. We received approval, like they typically do this, conditions that we’re going through the wording and language but no the discussions have been extremely positive. The government’s very supportive in keeping the project on track and at full production. So we’re comfortable with that.

Thank you. (Operator Instructions) And the next is from Anita Soni at Credit Suisse. Please go ahead, your line is now open.

My question is with regards to the $500 million in cost saving and your sustaining capital spend so far this year. So I think its 244 million in the first quarter. That annualizes to less than 2 billion to 2.2 billion. So first, is that 500 million baked into that 2 billion, 2.2 billion? And is that 344 that you spent, is that reflecting some underspend in that 500 million cost savings?

Hi, Anita, it’s Ammar here. The 500 million is in our budget end guidance, which is a reflection of how confident we’re, that we’re going to get it, which is confident. The CapEx in the first quarter, the guys did a great job in controlling costs and in controlling sustaining CapEx. They’re going to continue I am sure to work very hard to control that. This is part of a major cultural change at Barrick over the last couple of years where the general managers and their teams that site are taking full responsibility and full charge off controlling costs and these are the types of results we’re seeing but it’s still early in the year, and one quarter does not a year make. And so we’re leaving guidance unchanged right now

So there is going to be somewhat of a ramp up in spending at certain areas or inability, I mean to preserve this kind of cost reduction. Where we would be looking to ramp up spending? Which assets would you expect extra spending?

I think almost without exception, every mine in every region did a good job controlling sustaining CapEx. So it’s not one particular area.

Thank you. The next question is from Patrick Chidley at HSBC. Please go ahead. Your line is now open.

Now just, I want to ask question about the thiosulfate project. And just in relation to what the current total throughput of processing capacity at GoldStike has right now, maybe you can just explain how much extra capacity, the thiosulfate project will bring on in terms of actual throughput from where you are at current rates.

Thanks Patrick. I’ll ask Ivan Mullany to respond to your question.

Thank you. With GoldStrike, as you know we have two circuits, the roaster circuit and the autoclave circuit. So the roaster circuit can take up to 15,000 tons per day and the autoclave is 15,000 tons per day. So once the thiosulfate’s back up, you’ll get that circuit back running at 15,000 ton per day. And then the roster additional 15,000 tons per day.

Just to follow up if I may, the autoclave right now is zero.

They started commissioning on the carbon circuit in May and that will start ramp up as of next month.

Okay. So the next year it’s especially potentially doubling of tonnage throughput?

It’s Ammar here Patrick. Just to be clear because we’ve had this discussion before on calls. This is effectively allowing us to continue to process gold through the autoclaves where we wouldn’t have been able to before. So you can probably expect us to maintain closer to historical levels. I wouldn’t assume that the $400 odd thousand ounces are going to be incremental to historic levels.

Thank you. The next question is from Greg Barnes at TD Securities. Please go ahead. Your line is now open.

Jamie, with the new staged approach to projects going in smaller rather than bigger and clearly, the focus on higher grade in Nevada, are they big low-grade open pit type [indiscernible] projects done for you?

I wouldn’t say that there would be because I think there are opportunities to do something there as well on those types of projects. And maybe a project like Cerro Casale of something of that nature could allow or a smaller start pits and maybe a smaller overall investment to begin with. And then look to upsize that or look for different pockets on the overall deposits. So this doesn’t mean that we can only focus certain types of deposits. I think this lends itself to different approaches, many different kind of deposits and that’s what we’ll do. We’ll be innovative and flexible on how we approach those things.

Just a follow-up. Are there any sacred cows in Barrick? Is the copper business something that you would not sell, for example?

I’d say that there shouldn’t be any sacred cows. What we’ve always said is we’re very interested in increasing shareholder value and if there were something that we felt that we could do through some type of portfolio optimization or some other strategy, I don’t think we could say there were any sacred cows. We do have a number of core assets though that are very important and like a Cortez or something like of that nature that would be very difficult for us to consider doing anything with.

Thank you. The next question is from Pawel Rajzsel at Veritas. Please go ahead. You line is now open.

Just a question on the Pascua-Lama spending, can we expect the Pascua-Lama spending to drop down to the roughly $6 million per quarter that you are spending or at least expensing at this point for care and maintenance after this year?

Powell, its Jamie. No, I think that’s a little too optimistic to assume that it would be $6 million a quarter. There are ongoing care and maintenance expenses. We have to run small camps. There’s lot of things that have to be done in terms of environmental monitoring et cetera that would increase that cost. So the $300 million that we’re talking about this year reflects the fact that we hadn’t demobilized fully in the first quarter first half of the year, and so that is more weighted to the first half. So I would say as we move forward, it could be in the neighborhood of half of that 300 million on an ongoing basis or so. That’s a rough approximation. So there are certainly additional ongoing costs that are more substantial than 6 million a quarter.

So, I guess you are saying that the ramp down is ramping up?

I’m sorry.

In other words, it seems like you are saying the ramp down is ramping up. It’s like I should expect the 6 million that was expensed this quarter to be increasing?

No, it’s Ammar here. Some of that, Pawel is adjusting for basically at yearend -- reversing some expenses at yearend. So ramp down is not ramping up. It’s probably going to be probably about $10 million a month based on our current estimates. But we’re hoping to get that down, it’s still early in this process and we’re hoping to fine-tune it. But the ramp down is now ramping up again.

Thank you. The next question is from David Haughton at BMO. Please go ahead. Your line is now open.

I’ve got a question in the copper space. Lumwana going to be out of action for a couple of months. That seems pretty drastic for a conveyor issue. Can you give us a little bit of insight as to what's happening there?

Sure. Jim, can you take that.

I could take that, thanks. The challenge we have is that the section of the conveyor that actually collapsed is the big tower going over the core source stockpile, particularly the last two towers. So the big cantilever part of the structure, as well as the two sections before that have collapsed onto the tower. So we have to basically clear those off and then rebuild it. We had some sustenance [ph], some citing on the foundations that we’ve been monitoring that we didn’t pick up on the other tower and that’s what caused the tower to slide off to the edge and….

Okay. So, it was the faulty foundation that effectively had been the catalyst for that?

Yes.

Okay. Looking at Zaldivar, lower recoveries there with the sulfides. Is that a function of a longer leach curve? Or is the just metallurgy means that you are not going to get the kind of recoveries?

It will be a function of the longer leach curves on the sulfide compared to the oxide.

Thank you, the next question is from, I beg your pardon, sir.

No, go ahead.

That’s very good, the next question is from Kerry Smith at Haywood. Please go ahead. Your line is now open.

Rob, roughly how long would it take to permit an exploration decline at Goldrush?

I’ll ask Kelvin to answer that. It’s beyond my area of expertise.

Not really, but thank you. I think Kerry what we’re looking at filing a plan of operations in Q2- Q3 2014, so this year and probably have approval in place by the end of 2015.

And that would give you - would that give you the approval for the define itself plus any water disposal plus all the drilling underground? Is that right?

Correct.

So approval by the end of 2015?

Thank you, the next is from Brian Yu at Citigroup. Please go ahead. Your line is now open.

Thanks, good afternoon, first question is on South America. Both Lagunas Norte and Veladero, you had pretty good first quarter results in the back half. Your guidance essentially suggests and volumes will be up, yet costs will be, too. Can you elaborate on the divergence in the map trends you typically seek? Why costs are going up as well as volume.

Hi Brian, it’s Ammar here. We do expect volumes to be going up as a function of where we are in the mine plan. It’s hard to give specific guidance on a quarter by quarter basis. So a couple of things I would say is one, we are still maintaining our overall cost guidance for the quarter. Two there are some, in particular with regards to Veladero, the silver credits make a big difference. So depending on where you are in the ore body, whether it has silver or not, it makes a very big difference and then third obviously in general there are more costs associated than just grade and production et cetera.

Okay, and second one on Lumwana. There was a discussion there about the potential increase in power rates and can you give us sense if this data was fully pass through, would does that translate into on a dollar per pound basis?

Well you know, we are still looking at that with regards to whether or not that’s going to go through, but I think on a dollar per pound basis, I’m just trying to look at my notes here, it would be in between $0.05 to $0.10 a pound if that power increase went through and we have an agreement that goes into the next decade. So that based on that agreement wouldn’t come into effect until past 2020. So our view is that it shouldn’t affect us but the impact would be between $0.05 and $0.10 a pound.

Thank you, the next question is from John Tumazos at Very Independent Research. Please go ahead. Your line is now open.

Jamie, the question is about governance. And from time to time, John Thornton makes public comments. I don't know if they’re just his opinion or the board's opinion, or your opinion. Example, in early December it was attributed to him that he favored hedging but of course, the Company did not embark on hedging and you made later comments ‘expecting much higher gold prices. That could be other points. But, should we assume that the entire board makes policy and that each individual just speaks their own mind?

Well thanks John, there’re unified discussions about these types of things and I think one of the things you referred to wasn’t a discussion where it was a definitive strategy and this is what we’re going to do or not. I think there are discussions that indicate that these are things that anyone, any company would consider and that you would consider and have discussions on that. So, there’s a -- in terms of these types of things there is a unified strategy that we do talk about at the Board and these aren’t just hit and miss type of things that don’t have some fairly significant discussions that are behind them.

Thank you, there are no further questions. I would like to turn the conference back over to you, Ms. Schwalm.

Thank you operator. I think we can conclude the call.

And thank you everyone for spending time with us. That was a long call and we did talk about a lot of this as well in the AGM and we really appreciate the time you took and the questions and look forward to speaking with you again soon.

Thank you. Ladies and gentlemen, your conference is now ended. All callers are asked to hang up their lines at this time and thank you for joining today’s call.