“We can’t depend on higher prices to manage our business”, said Barrick Gold Corporation (TSE:ABX) (NYSE:ABX) president and CEO Jamie Sokalsky on a conference call with investors, analysts and media held the morning of the release of the gold giant’s figures for the second quarter that saw a whopping $8.6 billion loss on the back of plummeting metal prices, and that message – along with talk of cost-cutting and efficiencies across the company's operations -- dominated the call.
Sokalsky reiterated that he remained bullish on the long-term prospects for the company’s metals, saying that the future of Barrick was to concentrate on “quality not quantity.”
The CEO, appointed to his post just over a year ago, promised that the mining major would adopt the stance that “returns will drive production, product won’t drive returns,” and to that end, the miner was reviewing all its projects in search of efficiencies.
He said the company was “taking action” in the face of the disastrous quarterly results precipitated by a vertiginous drop in metal prices for its main commodity, including measures such as upping cut-off grades in some instances, and shortening the life of certain mines in others.
Sokalsky spoke of a program of evaluation that had been underway across the giant’s portfolio “for months” that included the re-figuring of internal calculations predicated at a market price of $1,100 per ounce for the company’s main commodity -- $600 lower than the figure used in earlier years -- saying this work had allowed for a “quick and decisive” response to the precipitous price drops experienced by precious metals in the past few months.
The chief emphasized that these efforts were not one-offs, but were set to continue even if prices were to go back up, saying the measures would “put us in a better position should prices decline further.”
“We’re managing our business to maximize cash flow in a lower price environment.”
Sokalsky said the giant was prepared to make "the tough decisions” and raised the possibility of “suspending, closing and divesting” underperforming assets, emphasizing that even money-making mines could benefit from optimization.
“Just because a mine is profitable doesn’t mean it can’t be optimized; were looking at every mine and have been for months now.” He advised that the giant intends to re-examine mines that return a figure of more than $1,000 per ounce for the metric of all-in-sustaining costs per ounce, with the intention of either optimizing operations, changing mine plans or taking the step of suspending, closing or divesting the project altogether.
“Our goal is to reduce the number of mines in our portfolio that [book costs] above $1,000 per ounce.”
Sokalsky reiterated the company’s “disappointment” in the write downs, but said “we are confident our assets will generate more value over time than the current values applied.”
On the question of Pascua-Lama and the wisdom of proceeding with the trouble-plagued and extremely expensive project, Sokalsky allowed that while it was true the massive high-altitude project would not be green lit were it to come up for approval in the current price environment, the project was “halfway through development and the decision to suspend is different from the decision to start construction.” He also re-iterated the long-term value of the project, recent write downs notwithstanding.
“Pascua Lama will be a world-class mine; a significant cash generator and a core mine for Barrick; there aren’t many mines of this quality in the world. At 25 years, its mine life far surpasses the average life of metal mines. I’m confident this will be a high value mine for Barrick.”
Sokalsky also said that the quarter just ended proved the companies fundamentals were “strong”, emphasizing the reductions in capex and the impact of other cost cutting measures.
Costs of production for the metal in the quarter just ended were reported as coming in at $552 for adjusted operating costs per ounce, below the guidance figure of $575 to $615, or $919 per ounce on an all-in sustaining basis, within the current guidance of $900 to $975 per ounce. The Canadian giant is responding to the rout in gold prices and various additional troubles with a program of cost cutting and a reduced dividend of a nickel per quarter, down from 20 cents.
Shares in Barrick were trading up on the Toronto Stock Exchange Thursday, as the company's quarterly results exceeded analysts' estimates despite its breathtaking loss, with 52 cents being added to previous close to hit $17.53 at 11:57 am EST, also on the back of an uptick in gold prices.