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African Barrick takes $700 mln charge as gold’s devaluation bites; $185 mln in cuts promised

African Barrick Gold (LON:ABG) has taken a $727 million post-tax charge stemming from a reduction in the value of its mines, according to figures for the first half of the year released Tuesday after the bell North American time, with a reported $185 million in cuts to come chief among the measures the miner is implementing to take account of the newly lowered price of its main commodity.

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African Barrick Gold (LON:ABG) has taken a $727 million post-tax charge stemming from a reduction in the value of its mines, according to figures for the first half of the year released Tuesday after the bell North American time, with a reported $185 million in cuts to come chief among the measures the miner is implementing to take account of the newly lowered price of its main commodity.

For the half year to June 30, the London-headquartered gold miner reported adjusted net earnings of $39.3 million or 9.6 cents per share although the impact of one-off adjustments of $741 million resulted in a net loss of $701.2 million, or $1.71 per share.

The loss is attributable primarily to non-cash impairment charges of $727 million, post tax, related to the Buzwagi mine, which accounted for $543 million, the North Mara mine, which lost $128 million, the Tulawaka mine, which booked a writedown of $17 million, and the Nyanzaga mine, which took a charge of $39 million. The figures posted a year ago recorded an adjusted net profit of $74 million for earnings per share of 18 cents.

Operational cash flow was $99.0 million in the latest period. 

Production for the quarter to June 30 came to almost 166,000 ounces of gold, with cash costs of $879 per ounce sold reported, a figure which drops to $862 if the Tulawaka mine was excluded. However, the metric of all-in sustaining costs shows a figure of $1,416 per ounce.

Production for the half year came to almost 312,000 ounces of gold, with gold sales of almost 320,000 ounces recorded, both figures up from a year ago, when gold production of almost 298,000 and gold sales of just over 302,500 ounces were recorded. The miner is maintaining its full year production guidance.

The mid-cap gold producer, 74 per cent of which is owned by Barrick Gold Corporation (TSE:ABX) (NYSE:ABX), could be regarded as a bellwether for Barrick shareholders bracing themselves for tomorrow’s quarterly results.

The company, spun off from parent Barrick, which rejected the offer of offloading it earlier this year, operates three of its mines in Tanzania and saw a fourth mine closed down earlier in the year, a casualty of commodity headwinds that rendered it uneconomic.

In common with other gold miners suffering from diminishing metals prices, the miner said in a company statement released with the figures that it is “taking decisive action in response to changed gold price environment”, has engaged in cost cutting measures, the first step of which identified $185 million in cuts.

Of this, $95 million is to come from a reduction in operating costs, $50 million comes from a reduction in sustaining capital expenditure, while another $25 million comes from shrinking exploration spending and the remaining $15 million is derived from trims to corporate administration expenses.

The company also announced a plan to shorten the mine life of the Buzwagi mine to 6 and a half years, a measure intended to return the mine to cash flow generation. Mining at the site – the company's highest cost mine – will cease in 3 and a half years under the new plan, with the remaining 3 years planned to be spent processing the stockpiles on hand.

“We have delivered strong operational performance in the first half, with production tracking ahead of guidance and cash costs below the bottom of the guidance range,” said chief executive officer, Greg Hawkins. 

“We have taken decisive action at all of our mines, including the reshaping of the life of mine at Buzwagi, in order to adapt to the lower gold price environment. We have a solid base from which to implement the findings of the Operational Review, which has identified potential cost savings of US$185 million across the group.

"Having taken these steps, we remain confident in the ability of our asset base to deliver shareholder value which is reflected in the decision to continue with our stated dividend policy. We remain on track to achieve our full year guidance.”

Shares in the company finished up in London the day after the release of figures, adding 1.50 pence per share to previous close to settle at 112.90 pence.

Quick facts: Barrick Gold Corp.

Price: 35.21 CAD

TSX:ABX
Market: TSX
Market Cap: $62.61 billion
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