巴里克黃金 (GOLD) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Barrick Gold Q3 results conference call.

During the presentation, all participants will be in a list only mode.

(Operator Instructions)

As a reminder this conference is being recorded on October 30, 2014.

I will now turn the conference over to Amy Schwalm, Vice President Investor Relations.

Good morning, everyone.

Before we begin, I would like to point out that we will be making forward-looking statements during the course of this presentation.

For a complete discussion of the risks, uncertainties and factors which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statements, please refer to our latest year-end report or our most recent AIF filing.

With that, I will turn the call over to Kelvin.

Thanks, Amy.

Good morning, and thank you to everyone for joining us on the call.

I'm here today with Jim Gowans, Co-President; Ammar Al-Joundi, Senior Executive Vice President and CFO, as well as other members of the management team who will be available to answer questions at the end of the call.

Jim and I will cover a number of items as indicated on the agenda.

I will begin with the highlights of the quarter and review 2014 guidance and then spend some time on priorities.

Priorities that's we're confident will lead to improved shareholder returns.

Jim will provide an update on our operating performance in the quarter and discuss a number of opportunities to surface further value from our portfolio.

I will then give a brief update on Pascua-Lama, following which we will open the call to questions.

Turning to the results, we were pleased to report another solid quarter that has enabled us to reduce cost guidance for the second time this year, and maintain the lowest all-in sustaining cost profile among the senior producers.

Our adjusted net earnings were $0.19 per share, and operating cash flow was just over $850 million.

We have narrowed our gold production guidance to between 6.1 million and 6.4 million ounces for the full year.

We have increased our copper production guidance, as Lumwana resumed operations ahead of expectation, and we trimmed the top end of our C1 cost range.

As this slide indicates, we now expect our 2014 all-in sustaining costs to be in the range of $880 to $920 per ounce.

This compares to our original guidance for the year of $920 to $980 per ounce, which was reduced in July to $900 to $940 per ounce.

This is the result of a hard focus on cost reduction and optimization of capital spending across all of our mine sites.

Importantly, we're not cutting capital that would sterilize future production, but we are looking at every dollar we spend to ensure we're deriving the most value from our investments.

I would like to take some time to outline the priorities that drive our decision making, our performance, and ultimately, the future of the business.

These priorities are a natural evolution from our decision two years ago to shift from an overriding focus on production growth, to a more disciplined business model that prioritizes shareholder returns.

A critical component of this model is that all investments must meet return on investment thresholds at conservative gold prices.

By executing on these priorities, and we are committed to this course, delivering growth and free cash flow and improved returns will be the natural outcome.

Turning to our first priority, we are focused on being operationally excellent in every respect.

To be clear on what this means, it encompasses every function within the Company, from performance of the mines, which Jim will cover next, to the efficiency of the corporate office and everything in between.

At the risk of stating the obvious, having the best people in the right places is critical to our success.

We already have deep bench strength.

Our operators are among the very best in the industry.

And we have moved more responsibility and accountability down to the operating level for more efficient and better decision making.

Turning to our next priority, in order to minimize risk and maximize returns we are focusing on the best assets in the best regions.

First, we are concentrating our regions where we already established and where we have developed deep geological and technical expertise as well as strong relationships with governments, communities, suppliers and other stakeholders.

This critical mass gives us a competitive edge.

Second, we are focused on areas with the best potential to find new reserves and resources and we are prioritizing near mine site opportunities.

Our emphasis on Goldrush in Nevada, is a great example of this in practice.

And third, when deciding whether to invest in a region, we consider a range of external factors including geopolitical and regulatory risks.

When you take these three criteria into account, you can see why we are focused on the Americas, particularly in Nevada and the Andean region.

For example, in Nevada, our existing infrastructure, technical and geological knowledge, and relationships with juniors, gives us a competitive advantage to identify and evaluate attractive opportunities at the earliest stage.

It also increases the probability that we will be able to access these opportunities and accelerate their timelines to first production.

In addition, we no longer believe that we need to pursue the biggest development option and build all at once to maximize MPV.

Instead, we will build in defined phases using a rigorous stage gating approach and we will assess project economics at each stage to determine the merit of further investment.

We are committed to maintaining and enhancing lasting relationships with all of our partners, including local suppliers, contractors, regulators, indigenous groups and communities.

Our partnership approach recognizes, more than ever before, that operations and license to operate are of equal importance.

Each of these areas relies on the other to ensure the overall success of our business.

Structurally, this is reflected at the operating level by the general managers of our mines and respective country managers who are working closely and effectively together.

Of course, we must also have the financial flexibility to execute on our plans.

We have $2.7 billion of cash and an additional $4 billion available on a fully undrawn credit facility.

So liquidity is not a concern.

However, our current debt level is higher than we would like it to be and we're intent on reducing it.

We will look to repay debt from improved cash flow.

In addition, we will use proceeds from any future asset sales to lower our debt levels.

That may come in the form of full divestments or partial sales to potential strategic partners.

I will now turn it over to Jim who will take you through our operational results and growth opportunities in more detail.

Jim?

Thanks, Kelvin.

Since the last quarterly call I have made it to all but two of our operations as part of my evaluation of the Company's assets.

I've been finding a number of areas where there are still good opportunities for improvement.

Critically, we're strengthening our long-term planning processes and developing a very robust detailed five-year look-ahead plan.

When you're looking at life of mine plans, it's key to ensure that the decisions you're making in the short term won't negatively impact long-term value.

A rigorous five-year planning process will help us better focus on taking the right actions along the way.

Turning to the quarter, our five core mines performed well.

We've reduced cost guidance on three of them, Goldstrike, Lagunas Norte and Veladero.

Overall, these five core assets should produce about 60% of our total production this year at an all-in sustaining cost of about $730 to $780 an ounce, which is down from our previous range of $750 to $800 an ounce.

At Cortez, we now expect production for the year to be about 880,000 to 920,000 ounces, compared to original guidance of 925,000 to 975,000 ounces.

The reduction is due mainly to the negative ore reconciliations which lowered production in the first half of the year.

We have finished mining in the area where this occurred, so there will not be that factor next year.

I would like to spend a moment outlining some of the opportunities we have to create additional value.

First, at our cornerstone mines.

At Cortez, we're in the midst of a pre-feasibility study on the Cortez Hills Lower Zone.

There is a lot of resource potential here.

Above the 3800-foot level, we have reserves of 1.3 million ounces grading about 14-grams.

Our initial work indicates that we can develop these reserves for modest CapEx and at an all-in sustaining costs that are well below the industry average.

And there is more below the 3800-foot level.

At least 2 million ounces, which are mostly oxide and higher grade than the zones above.

Therefore, they should be cheaper to process.

We would be looking at an incremental extension to the existing underground development in order to develop this high-grade oxide.

At Goldstrike, the TCM project is on track for completion in Q4, and the South Arturo project is also on schedule for production in early 2016.

And we continue to identify a number of opportunities at our other core sites to enhance their performance as well.

Let's turn to the pipeline.

We're advancing a number of projects, and as Kelvin mentioned, we are prioritizing brownfields opportunities at or near our mine sites.

Many of these opportunities are in Nevada, but we are taking the same approach at our mines in the Andean region to identify and accelerate opportunities there.

In Nevada, for example, we are looking at the addition of a second shaft at Turquoise Ridge to increase production and lower our operating cost.

This is our highest reserve-grade mine, and I believe it has great potential to become another core operation.

The northern extension of drilling is intersecting multi-ounce grades over significant thicknesses and confirming that mineralization continues to increase at depth.

The Spring Valley project is also advancing through pre-feasibility.

This is a low CapEx heap leach project that could be a stand-alone mine and we expect to have an initial resource with year-end results.

At Goldrush, the pre-feasibility study is on track to be completed by mid 2015.

We started permitting in Q2 for a pair of exploration declines for this project.

We expect there will be an underground component to the project, so we intend to start underground exploration while we continue our feasibility study.

The proposed declines would provide a platform for us to test for more mineralization beyond the northern extent of the deposit.

Drilling to date has continued to improve our confidence in the continuity of the resource and the proposed declines will help to better define it.

Turning to copper.

Kelvin mentioned the improvements to our guidance for the year.

Zaldivar continues to be a steady producer of free cash flow.

Lumwana has performed well in the quarter, but those results were overshadowed to a certain extent by the government of Zambia's recently announced plans to change the country's mining tax regime.

The newly proposed system would replace corporate and variable taxes with a 20% royalty for open pit mines.

Compared to the 6% royalty we are currently paying, a 20% royalty would seriously challenge the economics of this mine.

The government had recently begun stakeholder consultations on these royalty changes, and I think the message was pretty clear that proposed increases would have serious consequences for the country's mining industry.

However, you may have heard that the President of Zambia passed away this week.

The country has entered into a period of mourning and Parliament has been adjourned for a time being.

We expect consultations will resume following this mourning period.

Lastly, we are looking forward to closing the JV agreement with Ma'aden on Jabal Sayid in the fourth quarter and expect production to start up in a little over a year.

I will now turn it back to Kelvin to give you an update on Pascua-Lama.

Thanks, Jim.

As most of you know, the Pascua-Lama project is currently on care and maintenance.

Restarting construction will depend on several things.

First, we need to see improved project economics.

We continue to look at measures that would improve returns, including better planning and capital deployment, as well as improved cost control.

We will not make a go-forward decision before we have a reliable estimate on the cost and a robust execution plan to complete the project, and it must meet a minimum ROI threshold.

Second, we need better clarity on permitting for the water management system.

We are completing the engineering design in consultation with the government to ensure we are aligned on these requirements.

We plan to submit our permit application in the first quarter or early in the second quarter of next year.

And third, we continue to engage with the community to improve local support for the project.

To this end, we are making progress on establishing a constructive dialogue with Chilean indigenous groups through the memorandum of understanding we announced in May.

So in summary, we have had another strong quarter of production and lower costs from our operations, which has led to a reduction in our cost guidance for the second time this year.

These results are underpinned by a disciplined business model that prioritizes shareholder returns across the commodity cycle.

We are committed to delivering these returns by concentrating on our top priorities, focusing on the best assets in the best regions, maximizing performance across the business, enhancing our existing partnerships, and forging new ones, and returning the balance sheet to a position of strength.

We are under no illusion that this will be easy, but we have some of the highest quality assets and people in the business, and the management structure in place to deliver results.

With that, we will open the call for questions.

Thank you.

(Operator Instructions)

Our first question is from Andrew Quail from Goldman Sachs.

Please go ahead.

Good morning, guys.

And congratulations on a very strong quarter, another one.

Two in a row.

The first one is on CapEx.

Obviously looking at this year with your guidance of $1.8 billion to $2 billion for sort of sustaining, can you guys comment on if that's -- you have been very good at doing it -- cutting back CapEx on the majority of your operations.

Can you comment on what is the level you would think that would be at next year?

Jim?

Would it be much of a change, Jim, or pretty much in line with that?

It would be -- we will be providing the detailed guidance in February, but I would expect us to be at the same -- let's say the same level.

Maybe slightly higher.

Okay.

That's good.

Yes.

And same questions on exploration.

Obviously, just looking at your guidance as well, it looks like it ramps up a fair bit in Q4.

Is that all Goldrush?

And is everything on track there for an updated release on that in 2015?

Yes.

I think we will give the update in 2015, but you will see relatively the same, maybe a slight increase.

And everything is on track at Goldrush.

Okay.

Thanks, guys.

Thank you.

Thank you.

The following question is from John Bridges from JPMorgan.

Please go ahead.

Good morning, everybody, Kelvin and Jim.

The comments that -- the priorities that you've given there, is that the new strategy that you were talking about?

And just following on the debt level, what sort of debt level are you targeting to strengthen the balance sheet?

John, first of all, the strategy we really are -- our priorities one to five are to focus on the items that we identified.

It's going to take a lot of hard work, but we're confident that the approach will lead to generating shareholder value.

So we really are hard focused on those items.

And our intent is to be the best -- the best gold producer we can be.

In terms of targeting net debt, I think $7 billion is what we have identified as a number that we would be comfortable with.

And that's our target in terms of bringing down our current level.

Ammar, I think that's something that we're --

That's right.

John, we've been pretty consistent on the $7 billion net debt number.

That's $3.5 billion from where we are.

We know that's quite a distance, but we have a lot of opportunities to get there.

And again, consistent with what we said in the past, we think we have really great strong underlying operations that have the potential to generate quite a bit of cash flow.

Yes.

After the tour of your operations in Nevada I'd have to echo your comments on the quality of your people.

Just wondered, any thoughts on the mix of how much of the fix will come from cash flow and how much from asset sales?

That's a good question.

And the answer is we're looking at all of those.

So, without a doubt, the most important thing you can have is strong underlying business, whether you're in mining or any other business.

And that's why we continue to focus on generating more cash and the operations and there's a lot to get from those.

However, that said, we are going to continue to look to optimize our portfolio of assets.

We've been pretty clear on that.

And beyond that, there are partnerships we're looking at, et cetera.

So like any other group of executives, we look at all of the different alternatives, but we have a clear target and a clear set of opportunities.

Many thanks.

Good luck, guys.

Thank you.

Thank you.

The following question is from Greg Barnes from TD Securities.

Please go ahead.

Yes.

Thank you.

This is a bigger picture question, I guess for Kelvin.

John Thornton has talked several times about copper and wanting to be a leading copper producer and further diversification and that kind of thing.

Is that still on the table or has that message changed?

Greg, I think that the answer there is -- I mean our focus -- priority focus is to be the best possible gold producer.

Being a significant copper producer is a long-term objective.

But right now we're really focused on the assets we have.

Okay.

Can I follow up with another question on John Thornton himself?

Is he, at some point, going to address the broader market and outline what his strategy is and how he sees things developing at Barrick over the longer term?

Greg, I don't want to speak for John, but I can tell you I know that since becoming Chairman, he certainly has met with a number of investors.

In terms of strategy, I mean we work closely -- management, John as Chairman, and the Board, in discussing our strategic objectives.

And that happens in a very collaborative way.

But, really, Jim and I are responsible for running the business.

And that's why we're here to address everyone on the call.

And as far as John goes, you're hearing what the Board is hearing, you're hearing it on the call as well.

Yes.

I guess we just get it secondhand.

I was hoping for some more direct interaction.

Well, thanks.

I take your comment, Greg.

But, again, it would be unusual for a Chairman to be on the quarterly call.

And as I said, John does meet with people and I know he's been active in meeting with other investors, but to the extent there are messages, we are here to deliver them.

Okay.

Fair enough.

Thank you.

Thanks, Greg.

The following question is from Jorge Beristain from Deutsche Bank.

Please go ahead.

Good operational results.

My question really is on Zambia and I guess that falls squarely in Kelvin's camp.

Can you give us a handicap as to what is happening out there?

It does seem like a pretty imminent deadline of next January to face that potential royalty shift, so where is this law?

In Parliament?

Is it just waiting for a presidential signature at this point?

And what are the puts and takes that you have with the government in terms of getting that royalty reduced and would this apply just to you guys or is it industry-wide?

Sure, Jorge.

I'll address that.

A couple of things.

First of all, the status of the discussions, as Jim mentioned, sadly with the passing of the President, Parliament has been suspended and the country is in a state of mourning for a period to be determined.

Prior to the announcement of the royalty, we were in discussions with government.

And so they did signal that there was a change coming.

The way the process works is once the budget is announced, then there's a Parliamentary committee struck to take input from various stakeholders, including in this case, obviously, the mining industry.

Before the President's passing this week, we actually had met, both through the Chamber of Mines, which is representing the entire industry -- by the way, to your earlier question, it applies to everybody.

The proposed royalty, 6% to 8% to the underground mines, 20% to the open pit mines, the difference being there was sense that the cost structure for the underground mines was already very challenging.

There's a sense -- a misperception in some respects, that for the open pits, there was a lot more room to move.

So in terms of the process, we have actually engaged through the Chamber, as well as Barrick as a Company, we have now participated -- testified twice before the committee.

We have also had discussions with senior people in the mines and in the tax department advising government.

Our sense is that the government realizes that the numbers they have imposed will be very challenging for the industry.

And I don't want to handicap anything, but going into this week, our sense is there would be movement away from that number.

I can't guarantee it, but that's certainly the direction discussions were going.

As far as timing, we're -- because the President just literally passed away the night before last, we're in discussions to understand how the process will continue.

And with Parliament being disbanded, the normal protocol and process to have all of the committee hearings and then once the committee hearings are completed, they will draft regulations.

And those regulations come into effect on January 1. So the whole system -- or the timing is going to shift a little, but we will have a better understanding of that in the coming days.

Thank you.

And could you just remind us what that asset residual value is carried out on your books at this point?

About $1 billion.

Thank you.

You're welcome.

Thank you.

(Operator Instructions)

The following question is from David Haughton from BMO.

Please go ahead.

Yes, good morning, Kelvin, Jim and Ammar.

Thank you for the update and also providing the bullet points on your strategy.

I have got a question with a recent appointment that I find interesting.

You have got a President for China.

Can you just please explain what that means given that you've got no assets in that part of the world and how it might fit into the strategy going forward?

Sure, David.

It's Kelvin.

First of all, it is hard to imagine going forward in our business without having a strong footing and understanding of China and the Asian region more generally.

Of course, nobody -- certainly nobody that I know of has better relationships in China than our Chairman John Thornton.

You know John's credentials in that respect.

But John can't be on the ground all the time.

We need somebody there who is active, who knows China very well, which our new President for the region obviously does.

So that is the nature of his appointment.

He will be dealing with potential investors with other Chinese interests and others in the Asian region for us on a day-to-day basis.

Okay.

Can I imply from the importance placed on China then that it could circle back to the conversation that Ammar had about the debt reduction and the potential for asset sales or partnerships?

We certainly -- all options are open at this point.

And, as you know, David, there's been strong appetite from China in regard to the resource base generally.

So certainly we wouldn't take -- we wouldn't close the door on any of those kind of options.

Okay.

And another question also on personnel.

Can you please explain what a Chief of Staff does?

Sure.

Look, partly, David, what -- in our objectives, we have really shifted authority and accountability to the operating level.

And, we feel that's where the best decisions are being made.

And candidly, it's an initiative that we started last year and we never quite concluded.

And so we're removing layers in between Toronto and the operating sites.

And when you do that, it's really important, probably more important now than ever, that we have clear communication lines between the operations and our country Executive Directors and Toronto and we don't have a regional layer in between to deal with things and to buffer.

So part of the role of the Chief of Staff is helping in a -- called a business planning review, a session we've established whereby we have a clear template for reporting from the operations up to Jim and myself and Ammar and others.

And as a follow-up to that, we have to have clear communication, and then action items surface from those various meetings where Toronto has to provide support to the operation or there's issues we need to deal with.

And the Chief of Staff's role is to make sure that those things are being done in a timely way and a disciplined way.

If you see the credentials of the person we brought in to do it, this is somebody who has got great experience in separating noise from what really matters and getting things done.

So, early days.

He just recently started, but we're already seeing really positive results.

Thank you, Kelvin.

You're welcome.

Thank you.

There are no further questions registered.

I would like to turn the meeting back over to Mr. Dushnisky.

Please go ahead sir.

Thank you very much for everybody joining the call.

We appreciate it.

We are pleased with the quarter and we look forward to talking to everybody after we report the year's results.

So thank you very much.

Thank you.

The conference call has now ended.

Please disconnect your lines at this time.

We thank you for your participation.