Barrick Gold CEO Aaron RegentSTRINGER/CANADA
Barrick Gold says it will spin out its African gold properties into a separate public company.
Toronto-based Barrick, the world's largest gold producer, also confirmed it will be taking a 75-per-cent controlling stake in the Cerro Casale gold and copper project in Chile by buying a 25-per-cent stake from partner Kinross Gold Corp. Both moves come as Barrick announced a fourth-quarter profit of $215-million or 22 cents per share, reversing a loss of $468-million or 54 cents per share for the same time last year.
Earnings were $604-million, or 61 cents a share, when adjusted to exclude a charge to buy out its gold hedge book and other items, beating analyst expectations of 57 cents a share, according to an analysts' survey by Thomson Reuters. The fourth-quarter adjusted earnings compared to $277-million, or 32 cents a share a year earlier.
Sales rose nearly 13 per cent to $2.36-billion in the latest quarter, with the average realized gold price rising to $1,119 per ounce, up from $809 last year.
Total cash costs per ounce rose slight from $471 last year to $474 in the latest quarter, a figure Barrick says will drop as new lower-cost mines come into production.
Production in the quarter reached 1.9 million ounces. About 11 per cent of that came from its African operations that it now plans to spin off into a company called African Barrick Gold that will trade on the London Stock Exchange. Barrick will own 75-per-cent of African Barrick and float the rest in an initial public offering expected to take place in March.
"We think there is lots of potential in Africa," Barrick chief executive officer Aaron Regent told investors during a conference call Thursday.
"We think it's a unique business environment, so we are establishing a structure which I think is really customized to the continent and customized to the opportunities that are out there, and that's why we went this route."
African Barrick Gold would include four producing mines, Bulyanhulu, North Mara, Tulawaka and Buzwagi. Production in 2010 is expected to be 800,000 to 850,000 ounces, with total reserves at 16.8 million ounces.
"We believe that the spin-out of ABG is a sign that Barrick is starting to focus more closely on its higher growth, lower cost regions - namely North and South America," TD Newcrest analyst Greg Barnes said in a note.
'We expect that investors should react positively to the news of the ABG spinout as the company takes actions to, in effect, shrink to grow from less risky asset base with a lower cost profile.' On Cerro Casale, Barrick will pay Kinross $455-million in cash and assume a $20-million Kinross obligation for the 25-per-cent interest in the low-grade but mineral-rich project.
The move comes as costs at the mine have nearly doubled to about $4.3-billion.
Cerro Casale contains more than 23 million ounces of gold and six billion pounds of copper but has languished in uncertainty for more a decade due to concerns about its economic viability.
The deal underscores Barrick's enthusiasm for major mining projects that could produce more than one million ounces of gold a year, despite high construction costs and the fact that they contain large amounts of other metals, in this case copper. One of Barrick's biggest challenges is increasing its gold reserves and raising its annual production of about eight million ounces a year.
In 2007, Barrick paid $773-million for the junior mining firm that owned half of Cerro Casale. Barrick recently became embroiled in a legal battle with Goldcorp Inc. for the right to buy the El Morrow project, a similar copper and gold deposit, also located in Chile.
For Kinross, the agreement gives the smaller Toronto miner much needed cash to be dispersed to its other development projects and to fund potential acquisitions, chief executive officer Tye Burt said in an interview.
"Frankly, overall capital for the project of this scale is about $4.3-billion in total. By selling half our exposure, we reduce our future capital spend by about $1.1-billion. And then add the cash proceeds we get of $475-million in value, that's almost a $1.5-billion swing in our future capital outlook. We have lots of places to deploy that, and are quite pleased with the result."
Mr. Burt said the money would be spent across Kinross's projects worldwide, but mostly in South America. Kinross will retain a 25-per-cent interest in Cerro Casale and will assume expected capital expenditure costs of about $1.05-billion.
"That much spending in one project doesn't make sense for us," he said of Cerro Casale's new overall price tag. "We decided it was prudent to split our exposure and reinvest the proceeds elsewhere."
Kinross said its 25 per cent annual share of production over the first five full years of Cerro Casale's mine life was expected to average between 250,000 and 275,000 ounces of gold at a cost of approximately $530 an ounce, according to a recently completed feasibility study. Kinross's share of copper production would be between 57 million and 63 million pounds at a cost of approximately $1.25 a pound