Skip to main content

Photo from Africa Barrick Gold of the North Mara minein northeast Tanzania in the Tarime district of the Mara region.

Africa Barrick Gold

What in the world does Barrick Gold Corp. do now?

The massive gold miner's already written off roughly $13-billion (U.S.) in six months, cut capital spending by $2-billion since January and slashed its dividend to just one-quarter of its former glory.

Have no fear: there is a game plan. Barrick's promised to stay stringent on capital spending and executives are now hell bent on cutting out their high-cost mines, many of which are located in Australia and Africa.

Story continues below advertisement

Before the latest round of writedowns, Barrick revised its internal gold price assumptions to $1,300 (U.S.) per ounce to determine which mines weren't profitable at this level. Some of the latest impairment charges stem from this analysis.

Now the company's analyzing its portfolio again, and this time it's assuming a scenario in which gold prices drop to $1,100 per ounce.

At this price, some Australian and African assets simply don't make sense. Porgera, the major Australian project, comes with an all-in sustaining cost of $1,306 per ounce. (This costs metric comprises a comprehensive set of expenses.) Barrick's share of African Barrick Gold assets comes with all-in sustaining costs of $1,550 to $1,600 per ounce.

Referring to mines like these, Barrick executives repeatedly mentioned on a conference call Thursday that they may "suspend, close or divest these operations" even though they are expected to account for roughly 25 per cent of Barrick's 2013 production.

Chief executive officer Jamie Sokalsky vowed to be ruthless if need be. "Just because a mine is profitable, it doesn't mean it can't be optimized," he said.

Barrick's already made headway on this strategy. On Thursday, Mr. Sokalsky said the company is "well advanced in a process to sell certain Australia assets."

Now contrast these costs with Barrick's stellar North American assets. Projects in this region produced gold at an all-in sustaining cost of $797 per ounce in the second quarter.

Story continues below advertisement

South America's production was also lucrative, with all-in costs of $821 per ounce. The big wrinkle on this continent, however, is the pending Pascua-Lama project in Chile and Argentina. Mr. Sokalsky acknowledged that many people have questioned whether Barrick should forge ahead with it given all the delays, but he said the miner certainly will, regardless of the extended timeline.

Sunk costs likely have something to do with that. To date Barrick's spent $5.4-billion on Pascua-Lama.

Despite all the bad news, investors appear to like the game plan. By midday Barrick's shares were up 3.5 per cent. However, this optimism must be kept in perspective. At $17.60 per share, Barrick's stock is at a level that was last seen, until very recently, in 1992.

(Tim Kiladze is a Globe and Mail banking reporter.)

Return to Streetwise home page .

The Globe has launched a Streetwise and ROB Insight newsletter, with content available exclusively to Globe Unlimited subscribers. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter