Sliding output could drop Barrick to no 4 gold miner

Barrick to push ahead with Pascua Lama, ‘no margin for error’

Barrick Gold put Pascua Lama on care and maintenance mid-2014 after spending $5 billion on it

Barrick Gold Corp (NYSE:ABX, TSE:ABX) lost 2.2% to $12.60 on Monday reacting to a soft gold price hovering around $1,200 and negative comments from an analyst.

Long the world’s number one producer of the metal – 6.25 million ounces in 2014 – Barrick shares have enjoyed double digit gains this year as it tackles costs through restructuring and continue with divestments to help reduce its debt load.

However, the Toronto-based company is still down more than 40% over the last year with a market value of $14.8 billion on the New York Stock Exchange, nowhere near the $50 billion-plus it was worth in 2011 when gold was trading more than $600 above current levels.

Barrick hopes to reduce its debt by $3 billion in 2015 and on Monday confirmed that its Cowal mine in Australia’s New South Wales state which produced 269,000 ounces of gold in 2014 and its Porgera operation in Papua New Guinea, which produced 493,000 ounces last year, is up for sale.

Longer term investors have also been worrying about growth prospects at the company.

Barrick’s production last year was more than a million ounces below that of 2013 and while co-president Kelvin Dushnisky told the BMO Capital Markets investment conference in Florida on Tuesday output will top 6m ounces through 2017, beyond that date the outlook is more uncertain.

A new research note on Barrick by JP Morgan analyst John Bridges quoted by Financial Post indicates a steep drop-off by 2020.

Bridges expects production to slide to in the region of 4.5m ounces by 2020 and even lower a few years later: “It’s become apparent recently that the upper limit of sustainable gold production is around the [3m – 4m ounces] level assuming [Barrick] is skilled at acquiring new projects in a way that makes them accretive.”

At less than 4m ounces per year, Barrick would be placed number four in the world according to annual output behind Denver-based Newmont Mining, Anglogold Ashanti and Goldcorp, the world’s most valuable listed gold company.

Dushnisky addressed some of the output issues in his presentation to investors pointing out that the company will release four pre-feasibility studies in Nevada this year.

Barrick’s Turquoise Ridge project  is the state could double output at the mine to 500,000 ounces thanks to very high grades with permits expected by the third quarter this year. A new standalone mine in Spring Valley, Nevada is also under consideration.

Total budgeted for exploration is between $220 million to $260 million with half of that going to Nevada and 85% of the total focused on the Americas.

Dushnishky also said its troubled Pascua Lama project which is on care and maintenance, could be advanced this year with $30–$40 million being spent on permitting at the project – approval for final water management permits will be submitted by the middle of this year.

Barrick also despatched a new project leader to Pascua Lama on the border between Argentina and Chile high in the Andes.  In 2013 Barrick wrote off more than $5 billion of the value of the project which has the potential to add more than 800,000 annual ounces at a final cost in excess of $8 billion.