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2Q07 EARNINGS DROP

Barrick opines on gold supply and price, Donlin Creek, Pascua Lama, Pueblo Viejo

During a conference call Thursday, Barrick delved into its future prospects including gold prices, the fate of its Donlin Creek JV, delays with Pascua Lama permits, and a new deposit at Pueblo Viejo.

Author: Dorothy Kosich
Posted: Friday , 03 Aug 2007

RENO, NV -

Thursday's conference call for the world's biggest gold miner, Toronto's Barrick, delved into a suite of major issues including the future of gold prices, the potential fate of the Donlin Creek gold joint venture, problems with the Pascua Lama approval process, and a new deposit at Pueblo Viejo.

During the conference call, Barrick President and CEO Greg Wilkins and Executive Vice President and CFO Jamie Sokalsky revealed that the company has been "digging in very deeply on the supply side of the business," working with a research firm to uncover evidence and trends increasing Barrick's optimism for the future gold price.

While Barrick is still studying its research, Sokalsky told analysts that "our initial analysis shows that the buy side is likely to drop a lot quicker and more than most in the market are anticipating." While he insisted it is "still too early to really talk about any specific numbers," Barrick research has uncovered much that "should be a lot more positive to the gold price.

Sokalsky divulged that a 10% to 15% drop should occur in overall mine supply of gold within the next five to seven years.

DONLIN CREEK

Despite the unmitigated skepticism of joint venture partner NovaGold, Barrick Executive Vice President and General Counsel Pat Garver told analysts that the company will have a complete feasibility study submitted by the deadline of November 11 or 12^th. He also affirmed that Barrick's board of directors would make a decision on whether to proceed with the development of Donlin Creek by the November deadline.

The dispute between Barrick and NovaGold over Donlin Creek has been very heated at times and Barrick mounted an unsuccessful $1.7 billion all-cash hostile bid for NovaGold in 2006. The Donlin Creek JV gold project is expected to yield an average of 1.4 million ounces of gold annually over the 22-year life of the project at cash cost of US$276/oz of gold.

Nonetheless, Wilkins warned that "if the feasibility study demonstrate that it was not an economic project or not a decent project from a risk adjustment point of view, I wouldn't take it to the board and ask them to make a positive decision to preserve a 70% interest" in the JV. Currently Barrick has a 30% interest.

"Frankly, if the project isn't economic, I don't intend to spend any more money on it," Wilkins declared. "Thirty percent of an uneconomic project is better than 70% of an uneconomic project."

Wilkins made it clear to analysts that Barrick does not "know what the feasibility is going to tell us. But just from a capital discipline point-of-view, we're not going to go chasing something that doesn't make economic sense." Meanwhile, Barrick EVP Exploration and Corporate Development Alex Davidson confirmed that Barrick is engaged in an infill drilling program, including 80,000 meters of drilling, which will be included in the Donlin Creek feasibility study.

PASCUA LAMA

The fate of Barrick's huge Pascua Lama project now rests in the hands of Argentinean politicians and their priorities. Barrick believed that cross-border agreements for the deposit, which straddles the borders of Chile and Argentina, had originally been completed.

The US$2.4 billion Pascua Lama project, which has proven and probable gold reserves of about 18 million ounces, is planned for production in 2009

While Pascua Lama has enjoyed "very good support" from provincial officials, Wilkins told analysts "I remain somewhat cautious about progress on the federal side where we've had agreement for some time with respect to trans-border issues. We have just not been able to bring those agreements to signature."

"We're not prepared to move forward with a major construction project of this magnitude until we have all of our ‘I's dotted and ‘T's crossed," he declared, adding "we've been very consistent about that from the beginning."

"The signals we're getting are what we're hearing from the government are all very positive. We're optimistic," Wilkins said. "But again, we need to see the signatures on paper before we finally make that construction decision."

In an interview with Reuters Thursday, Haywood Securities analyst Kerry Smith said he wondered at what point government delays might push back Barrick's timetable for developing Pascua Lama. "I'm not quite sure if there's still some slack there," he said.

PUEBLO VIEJO

Meanwhile, Barrick's exploration program is doing so well; its 2007 budget has been increased $15 million to $185 million.

Barrick geologists discovered what Davidson called "a new blind deposit between two orebodies" at the Pueblo Viejo project in the Dominican Republic. Monte Oculto offers Barrick a new structural model which could ultimately expand the scope of Pueblo Viejo. The Monte Oculto zone is deeper, open to the east and does not appear to connect with the Monte Negro or Moore pit areas which now comprise Pueblo Viejo.

However, Wilkins said the scope of the project will be kept as it currently is for now. The deposit could be potentially be utilized for a phased expansion of the 18,000 tpd project in the future.

Meanwhile, a construction decision has been made on the Buzwagi project in Tanzania. After a two-year construction period, Buzwagi is expected to yield 250,000 to 260,000 ounces at total cash costs of $270-$280/oz in the first five years.

Davidson said Barrick is also re-examining the Golden Ridge project in Tanzania as possible open pit mine.

FINANCES

Barrick reported a second-quarter 2007 net profit of $396 million or 46-cents per share, down from $459 million or 53-cents per share during the same period of 2006. The results included an after-tax charge of $66 million for the elimination of corporate gold sales contract.

For the first half of 2007, Barrick reported a net income of $237 million (27-cents/sh) down from the $683 million net income (83-cents/sh) reported for the first half of 2006.

The company maintains its full year production guidance of 8.1 million to 8.4 million ounces of gold and 400 million pounds of copper and total cash costs of $335-$350/oz. Second half cash costs for gold are expected to be higher due to increased stripping at Goldstrike and Veladero and lower grades at Laguna Norte from mine sequencing.

In the second quarter of this year, Barrick produced 1.86 million ounces of gold at total cash cost of $345/oz, compared to 2.09 million ounces produced at total cash costs of $280/oz for the second-quarter 2006. The company also mined 101 million pounds of copper at total cash costs of 77-cents per pound compared to 100 million pounds at total cash costs of 76-cents/lb during the same quarter of 2006.

Like its rival gold miner Newmont, Barrick reported that its Australia production was negatively impacted by the strength of the Australian dollar, but the company has fully hedged this currency for the balance of the year.

When asked by analysts what Barrick would do with the cash "piling up," Wilkins responded that he is focused "first and foremost on building up projects;" second, look at the company's asset base; third, consider a dividend increase; and fourth, ask the board to consider a share buyback.

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