Barrick Gold (NYSE:ABX)(TSE:ABX) is suspending construction at its Pascua-Lama mine that straddles the Chile-Argentina border as a means to conserve cash and reduce capital costs for next year by up to another $1.0 billion, as the price of its chief commodity is set to snap 12 years of gains in 2013.
The Pascua-Lama news overshadowed Barrick's solid quarterly results, which still reveal cash costs among the lowest in the industry. "Significant cost and operational improvements achieved this year, including previously announced reductions of $2.0 billion from budgeted 2013 capital and costs, have translated into another quarter of strong results," said Barrick's president and CEO, Jamie Sokalsky, in a statement Thursday announcing its third quarter financials.
"We continue to make excellent progress at Lumwana and are evaluating a number of other opportunities to improve performance further."
The company, the world’s largest producer of gold by volume, is also targeting $500 million of additional annual savings related to job reductions from a company-wide review launched earlier this year -- now largely complete -- and through a new operating model and a program to reduce procurement costs.
"The suspension of Pascua-Lama will also significantly improve our near term cash flows," the chief executive said, saying the decision to temporarily suspend construction, apart from those activities required for environmental protection and regulatory compliance, will postpone and reduce near-term cash outlays. The decision to restart will depend on improved project economics, Barrick added, such as go-forward costs, metal price outlook and reduced uncertainty tied to legal and other regulatory concerns.
The troubled project on the border between Chile and Argentina was initially expected to be producing gold and silver this year, but it suffered legal setbacks as it has long been the subject of concerns relating to its proximity to glaciers and to the effects of inadequate water safety on downstream communities. In August, the gold miner took a $5.1-billion writedown on the project as part of an $8.7-billion impairment charge.
For the third quarter that ended September 30, net earnings were $0.17 billion, or 17 cents per share, compared to $0.65 billion, or 65 cents per share, a year ago.
Adjusted for one-time items such as $280 million in income tax expense at its Pueblo Viejo project and $40 million in unrealized foreign exchange losses, profit came to $0.58 billion, or 58 cents per share, down from $0.88 billion, or 88 cents per share, in the same period last year.
The company said profit was impacted by lower realized gold and copper prices as well as higher interest and income tax expenses, which were partially offset by higher copper sales.
Revenue fell to $2.99 billion from $3.40 billion, while adjusted operating cash flow -- a key metric in the mining industry that indicates a company's ability to fund future operations -- fell to $1.3 billion from $1.4 billion in the same period of 2012.
Barrick produced 1.85 million ounces of gold, at all-in sustaining costs of $916 per ounce in the third quarter, better than the 1.78 million ounces at all-in costs of $1,010 per ounce a year earlier. It produced 139 million pounds of copper, up from 112 million pounds, while copper costs were $2.15 per pound, lower than the $3.05 per pound in the third quarter of 2012. Copper sales surged to 135 million pounds, from 84 million pounds a year ago.
Commodity prices were a drag, however, as the average realized gold price dropped from $1,655 an ounce to $1,323 an ounce, while the average realized copper price declined to $3.40 a pound from $3.52.
At the end of the quarter, Barrick had cash and equivalents of $2.3 billion, and $1.3 billion of cumulative debt maturing through to the end of 2015.
Sokalsky said that as a result of the company's previous decision to slow down and re-sequence construction at Pascua-Lama, "which resulted in significant demobilization over the last few months", it is in a much better position to implement the temporary suspension quickly and efficiently.
Barrick said Thursday that full year gold output is now expected at the low end of its initial 7.0 to 7.4 million ounce range, due to the sale of its Yilgarn South mines, with all-in costs still anticipated within $900 to $975 an ounce. However, due to a turnaround at its Lumwana copper mine in Zambia that was bought as part of its Equinox purchase in 2011 and left Barrick with excess debt, the company increased its full year copper production forecast to a range of 520 to 550 million pounds, while cash cost estimates were lowered to $2.40 to $2.60 a pound.
The gold producer, which has lost roughly 40% of its share price year-to-date, has been mired by shareholder complaints and various charges this year, as miners struggle to remain profitable amid a declining gold price and a higher cost environment. Since its 2013 annual meeting earlier this year, the company said its directors have been in discussions with its institutional investors and is in the midst of addressing issues that had been raised, including with Barrick's executive compensation scheme and a "rejuvenation of the board".
The company also told investors it continues to actively pursue "other portfolio optimization opportunities, including the divestiture of non-core assets."
Shares declined more than 3.1% in early deals Thursday, to $20.88 in Toronto.