Barrick predicts higher costs in 2019 as it books a $1.2-billion quarterly loss

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Barrick Gold Corp. is predicting sharply higher costs and lower grades at a key mine, as well as lacklustre production for 2019, highlighting the challenges the company still faces after its takeover of Randgold Resources Ltd.

The Toronto-based miner, which closed its deal for Randgold on Jan. 1, also booked a fourth-quarter net loss of US$1.2-billion, as it incurred impairment charges at its Lagunas Norte and Veladero mines in Peru and Argentina, respectively.

The Randgold acquisition was designed in part to inject new management talent into Barrick after years of restructuring. New Barrick chief executive Mark Bristow, who came from Randgold, is considered within the industry to be skilled at trimming costs. In the short term, however, Barrick said it expects its all-in sustaining costs (AISC) to rise to between US$870 and US$920 an ounce in 2019, compared with US$806 for last year, an increase of between 8 per cent and 14 per cent.

Barrick pinned the expected increases primarily on the transition from low-cost, open-pit mining to higher-cost underground mining at its big Cortez Hills facility in Nevada. Barrick also said that input costs, such as fuel, are also on the rise. The company’s production forecast for 2019 came in lower than expected and its capital cost estimates are higher than analysts predicted.

The quarterly report put pressure on Barrick’s stock, sending it 3.9-per-cent lower on Wednesday in Toronto. For all of 2018, Barrick lost US$1.55-billion on a net basis, including booking US$742-million in tax adjustments.

In an interview, Barrick’s new chief executive, Mark Bristow, brushed off the weak result and said he’s in the job for the long term as Barrick takes action on costs. He said grades will improve at Cortez Hills over the next few years.

In a presentation to analysts at its head office in Toronto that ran almost two hours, Mr. Bristow offered a glimpse of his vision for the company. He said that Barrick will stop a practice known as “high grading,” which emphasizes mining high-grade ore so as to produce short-term cash flow.

At the beginning of the year, Barrick closed its US$6-billion acquisition of Randgold, which Mr. Bristow founded in the 1990s. The transaction adds about a million ounces of additional production. The acquisition will see Barrick reverse a multiyear slide in production. For 2019, Barrick says it will produce between 5.1 million and 5.6 million ounces of gold.

Mr. Bristow also said the company won’t be rushed into another large transaction, despite one analyst arguing that the environment is better for buying rather than selling assets at the moment. Mr. Bristow countered that it is much cheaper to find new discoveries than buy a company that’s already producing.

During the interview, he also said Barrick has no intention of bidding for Goldcorp Inc. because it has no tier-one assets. Last month, Newmont Mining Corp. announced that it was buying the Vancouver-based miner for US$10-billion, near a multiyear low in Goldcorp’s share price.

Mr. Bristow did leave the door open to buying out Goldcorp’s 40-per-cent share of the Pueblo Viejo mine in the Dominican Republic, in which it is a joint-venture partner alongside Barrick, saying he might do a deal if the price is right. But he also said it is “nice to have a partner” in a country like the Dominican Republic where the political environment isn’t as stable as North America.

Despite there being a rush of interest from buyers in some of its non-core assets, Mr. Bristow said Barrick will take its time before deciding whether to sell mines, such as its high-cost Hemlo mine in northern Ontario. He said the company will first try to fix underperforming assets and then decide to either hold on to them or sell them.

On an adjusted basis, Barrick reported a profit of US$0.06 a share in the fourth quarter, a penny higher than analysts surveyed by Thomson Reuters were expecting.

After Barrick announced the acquisition of Randgold, it was poised to reclaim its crown as the world’s biggest gold company by market value. But assuming Colorado-based Newmont closes its deal to buy Goldcorp, Newmont will become No 1.

While its mining costs are projected to rise this year, Barrick has made strides in cutting costs in other parts of its business. The company’s administrative expenses were US$212-million for 2018, compared with an earlier forecast of US$275-million. Even before the Randgold acquisition closed, Barrick made deep staffing cuts, laying off more than half of its head-office staff in Toronto before Christmas.