Barrick Gold production falls amid rising costs

Metal price drop also weighs on earnings

TORONTO • Barrick Gold Corp. faced a tougher third quarter amid sagging gold prices, operational challenges and rising costs, the company reported Thursday.

Barrick's realized gold prices were 7.4 per cent lower, compared to the second quarter.

Gold production fell five per cent to 988,000 ounces while total cash costs rose four per cent to US$891 per ounce.

As a result, net earnings for the quarter dropped by 50 per cent to US$241 million from US$488 million in the second quarter.

“We had a softer quarter in quarter three as I'm sure all of you noticed,” chief executive Mark Bristow said on an earnings call from London.

The results come as gold prices have tumbled 19 per cent since breaking US$2,000 per ounce this past March, and are currently sitting at US$1,649.55 per ounce, according to the World Gold Council.

Toronto-based Barrick confirmed it expects gold production cash costs to be above its guidance range of US$730 to US$790 per ounce.

Higher energy prices accounted for half of the company's rise in costs. Bristow said that “inflationary pressures remain a challenge,” but described Barrick as “obsessed” with finding a diversity of suppliers for each consumable item it needs to run its business.

“We've increased the number of suppliers and the source of those consumables,” Bristow said, “so we have a lot of flexibility and we have built in competition, (so) we're not reliant on any one particular supplier. Our commercial team has done an excellent job in managing those cost pressures and will continue to do that.”

But cost pressures are only one of many challenges Barrick faces.

The company also lowered its quarterly dividend to 15 cents U.S. per share from 20 cents U.S. last quarter.

The dividend reduction led Bristow to discuss a perennial topic in the gold mining sector: the increase in investments from passive funds, such as exchange-traded funds, and a relative decrease in active funds that specialize in investing in precious metals mining companies.

The active funds still looking to invest in companies such as Barrick “are banging the table demanding dividends and that's an unhealthy situation,” he said.

Bristow said Barrick needs to invest excess cash in its future, which means exploring and developing the resources that feed its mines, and returning money in the form of share buybacks.

The company said it repurchased nine million shares in the third quarter, at a cost of roughly US$141 million, bringing the year to date total to US$322 million.