EX-99.1 2 d573449dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

SECOND QUARTER REPORT 2013

Barrick Reports Second Quarter 2013 Results

 

¡  

$8.7 billion in after-tax impairment charges, largely driven by recent declines in metal prices

¡  

Strong operating results from gold and copper mines; 2013 production guidance maintained, cost guidance for both gold and copper lowered

¡  

Reduced 2013 budgeted capital and costs by about $1.5 billion during the second quarter and by about $2.0 billion in H1 2013

¡  

2013 capital guidance reduced to $4.5-$5.0 billion from $5.7-$6.3 billion; cost of sales guidance reduced to $7.2-$7.8 billion from $7.9-$8.4 billion

¡  

Lowered quarterly dividend to $0.05 per share

TORONTO, August 1, 2013 - Barrick Gold Corporation (NYSE: ABX) (TSX: ABX) (Barrick or the “company”) today reported a second quarter net loss of $8.56 billion ($8.55 per share), reflecting $8.7 billion in after-tax impairment charges largely driven by significant decreases in long-term metal price assumptions following the sharp declines in spot prices in the second quarter. The total charge is comprised of: $5.1 billion for the Pascua-Lama project, $2.3 billion in goodwill impairments and $1.3 billion in other asset impairment charges.

Second quarter financial highlights include:

¡  

Adjusted net earnings of $663 million ($0.66 per share)1

¡  

Operating cash flow of $896 million

¡  

Adjusted operating cash flow of $804 million1

 

 

SECOND QUARTER 2013 OPERATING HIGHLIGHTS AND FULL YEAR 2013 GUIDANCE

 

Gold    Q2 2013      Current Guidance      Original Guidance          

Production (000s of ounces)

     1,811         7,000-7,400         7,000-7,400           

All-in sustaining costs ($ per ounce)1

     919         900-975         1,000-1,100           

Adjusted operating costs ($ per ounce)1

     552         575-615         610-660           

 

Copper

                       

Production (millions of pounds)

     134         500-540         480-540           

C1 cash costs ($ per pound)1

     1.75         1.95-2.15         2.10-2.30           

C3 fully allocated costs ($ per pound)1

     2.27         2.50-2.75         2.60-2.85           

  “We are pleased with our second quarter operating performance and our improved 2013 guidance. These results reflect the high quality of Barrick’s portfolio of assets and our increasingly effective efforts at controlling costs. We are disappointed with the impairment charges for Pascua-Lama and other assets but are confident that these assets, some with mine lives in excess of 25 years, will generate substantially more economic benefits over time,” said Jamie Sokalsky, Barrick’s President and CEO.

 

1 

Adjusted net earnings, adjusted net earnings per share, adjusted operating cash flow, all-in sustaining costs per ounce, adjusted operating costs per ounce, C1 cash costs per pound and C3 fully allocated costs per pound are non-GAAP financial performance measures with no standardized definition under IFRS. The World Gold Council’s adjusted operating cost measure was previously described as total cash costs. See pages 45-48 of Barrick’s Second Quarter 2013 Report.

 

Financial results are based on IFRS and expressed in US dollars. For a full explanation of results, the Financial Statements and Management Discussion & Analysis, please see the company’s website, www.barrick.com.

 

BARRICK SECOND QUARTER 2013   1   PRESS RELEASE


  “Over the past year, we have taken and are continuing to take a series of steps to reduce costs as part of our disciplined capital allocation framework, which allowed us to respond quickly to the new metal price environment. We have reduced 2013 budgeted capital and costs by about $2.0 billion which has offset the cash flow impact of the drop in gold and copper prices that has occurred this year. We have reduced all-in sustaining cost guidance by about $100 per ounce this year from levels which are the lowest of our peers. The bulk of our expected 2013 gold production is at all-in sustaining costs well below current spot levels, and for those operations that are not generating positive cash flow, we will change mine plans, suspend, close or divest them.

  “We have sold Barrick Energy and are well advanced in a process to divest certain Australian assets as part of our portfolio optimization strategy. We are progressing the Pascua-Lama project by extending the overall construction schedule over a longer period, which substantially alleviates near-term capital spend, and we are also working to meet regulatory requirements. We also termed out $3.0 billion of debt at attractive rates to reduce near-term maturities. And finally, in light of the current environment, we have also made a decision to lower the quarterly dividend to improve liquidity. We recognize the importance of dividends to our shareholders, and it is our goal to return more capital to investors in the future, but at this time, this is the prudent course of action.”

POSITIONING BARRICK IN A LOWER METAL PRICE ENVIRONMENT

High Quality Asset Base and Aggressive Cost Reductions Provide Operational Flexibility

Barrick’s strategy prioritizes shareholder value creation by focusing on maximizing risk-adjusted rates of return and free cash flow based on the principle that returns will drive production, production will not drive returns. In today’s environment, Barrick has no plans to build new mines.

  As part of our increased focus on disciplined capital allocation adopted a year ago, we have reduced costs and improved cash flow, initially cutting or deferring about $4.0 billion of previously budgeted capital expenditures over a four year period, shelving certain major projects and launching a portfolio optimization process.

  Barrick’s comprehensive cost reductions and high quality asset base provide the company with significant operational flexibility. Its superior group of five key mines – Cortez, Goldstrike, Pueblo Viejo, Veladero and Lagunas Norte – are expected to generate some 60 percent of 2013 production at average all-in sustaining costs (AISC) of $650-$700 per ounce. An additional seven mines have AISC below $1,000 per ounce, bringing the total amount of expected 2013 production with costs below this level to about 75 percent.

Developing Plans to Maximize Cash Flow

For the remaining operations with expected 2013 AISC above $1,000 per ounce, we will either change mine plans, suspend, close or divest these assets to improve cash flow. Actions currently being considered as part of an ongoing process include:

¡  

Bald Mountain (US) - mine plan changes to reduce the number of pits and focus on the most profitable ounces, while retaining the option to access other ore in the future

¡  

Round Mountain and Marigold (US) - working with our joint venture partners to optimize mine plans

¡  

Hemlo (Canada) - defer the open pit expansion and optimize the underground mine plan

¡  

Porgera (Papua New Guinea) - evaluate mine plan changes and explore other alternatives

¡  

Plutonic, Yilgarn South (Australia) - optimize the mine plans and/or divest

¡  

African Barrick Gold (ABG) (Tanzania) - finalizing a detailed operational review to aggressively optimize mine plans and improve operations

¡  

Pierina (Peru) - assessing closure options

  Under the direction of the new leadership appointed last year, a turnaround team of functional experts and site management have been working to improve operations and reduce costs at the Lumwana copper mine. Lumwana delivered a substantially improved performance this quarter. We have made changes to the mine plan to decrease costs and maximize cash flow. The changes include a reduction to waste stripping as a result of mine

 

BARRICK SECOND QUARTER 2013   2   PRESS RELEASE


re-sequencing and significant labor reductions, including termination of a major mining contractor. A number of further business improvement initiatives continue to be implemented at site to enhance the productivity of the core mining fleet and build upon the cost reductions achieved so far. We continue to see positive results from these actions, and the improvements at Lumwana have allowed us to significantly improve 2013 copper cost guidance.

Long-Term Production Targets Will Be Aligned with Portfolio Optimization and Mine Planning Changes

We are developing mine plans to maximize cash flows at every mine. The outcome of this process could have an impact on our year-end 2013 proven and probable reserves and expected future production levels; however, where possible, we will maintain the option to access the metal in the future. As a result of the schedule delay at Pascua-Lama, expected mine plan changes to maximize cash flow and the likelihood of further asset divestitures, we are no longer targeting eight million ounces of gold production in 2016.

2013 Guidance Improvements Reflect Ongoing Cost Reductions Totalling $2.0 Billion in First Half

Total reductions to budgeted capital and costs for 2013 of about $2.0 billion have offset the cash flow impact of the declines in metal prices that have occurred this year. During the first quarter of 2013, Barrick reduced budgeted 2013 capital and costs by approximately $500 million and lowered 2013 cost guidance for total capex and exploration. In the second quarter, the company has accelerated actions to improve cash flow. Operating cost reductions also reflect the softening of input costs such as steel and tires, as well as the weakening Australian dollar, and we continue to evaluate additional ways to reduce costs.

  As a result of the strong measures taken in the second quarter alone, reductions to budgeted 2013 capital expenditures and costs include approximately:

 

¡  

$600 million in operating costs;

¡  

$200 million in sustaining, development and mine expansion capital;

¡  

$600 million in project capital, primarily related to Pascua-Lama; and,

¡  

$50 million in exploration and evaluation expenditures.

  In addition, the company has reduced its corporate office staff by approximately 30 percent and made other significant job reductions at regional locations. As part of the ongoing company-wide overhead and operational review initiated in the first quarter, Barrick is also evaluating further changes and cost reductions to make the organization more efficient by simplifying the management structure and placing a greater emphasis on clearly defined responsibilities and accountabilities.

FINANCIAL RESULTS DISCUSSION

The second quarter net loss and adjusted net earnings of $8.56 billion ($8.55 per share) and $663 million ($0.66 per share), respectively, compare to net earnings and adjusted net earnings of $787 million ($0.79 per share) and $821 million ($0.82 per share), respectively, in the same prior year period. The net loss reflects after-tax impairment charges of $8.7 billion and a $0.5 billion loss on the sale of Barrick Energy.

  The fair values in the impairment assessment were calculated as at June 30 assuming metal prices that were influenced by only recent spot price declines, yet which are then applied and held constant over mine lives that in some instances are in excess of 25 years. As a result of these significant price declines, we have revised our gold, copper and silver price assumptions utilized for impairment testing to $1,300 per ounce, $3.25 per pound and $23 per ounce, respectively. We are confident our assets will generate substantially more economic benefits over time for our shareholders than these current valuation levels imply. Although Barrick does not rely on higher prices to drive its business plans, we remain positive on long term price fundamentals for these metals. With higher prices

 

BARRICK SECOND QUARTER 2013   3   PRESS RELEASE


in the future, we would reassess the fair value of our high quality, long-life assets such as Pascua-Lama, and could potentially reverse some of the impairment charges recorded.

Significant adjusting items (net of tax and non-controlling interest effects) for the quarter include:

  ¡  

$5.1 billion in asset impairment charges against the carrying value of the Pascua-Lama project;

  ¡  

$2.3 billion in goodwill impairments to the Global Copper, Australia Pacific, Capital Projects and ABG segments;

  ¡  

$1.3 billion in other asset impairment charges, including $423 million for Buzwagi, $401 million for Jabal Sayid and $107 million for Kanowna; and,

  ¡  

$0.5 billion loss related to the sale of Barrick Energy.

  Second quarter 2013 operating cash flow of $896 million compares to $919 million in the second quarter of 2012. Adjusted operating cash flow of $804 million removes the impact of the settlement of foreign currency and commodity derivative contracts and non-recurring tax payments, and compares to $919 million in the same prior year period. Realized gold and copper prices for the quarter were $1,411 per ounce and $3.28 per pound, respectively, both in line with the spot averages.

LIQUIDITY AND FINANCIAL FLEXIBILITY

At June 30, Barrick had cash and equivalents of $2.4 billion and $4.0 billion available under its five-year credit facility. The company generated strong operating cash flow of $2.0 billion in the first half of 2013 and is on track to meet 2013 production guidance at costs well below original guidance. Barrick’s consolidated tangible net worth at June 30 was $6.3 billion. In addition to the reductions to budgeted 2013 capital and costs, Barrick further strengthened its liquidity in the second quarter by terming out $3.0 billion in debt at attractive interest rates to reduce near-term maturities. The company has approximately only $1.8 billion of cumulative debt maturing through to the end of 2015.

  Subsequent to the second quarter, the company divested Barrick Energy for total consideration of $442 million, including cash of $394 million plus a royalty on certain assets valued at $48 million. The proceeds will be recorded in the third quarter of 2013. In addition, a process to divest certain Australian assets is well advanced, and the company continues to actively pursue other portfolio optimization opportunities, including the divestiture of other non-core assets. The company’s Board of Directors has reduced the quarterly dividend to $0.05 per share as a further prudent step to improve liquidity. The dividend is payable on September 16, 2013 to shareholders of record at the close of business on August 30, 20132.

OPERATING RESULTS DISCUSSION

Second quarter 2013 gold production was 1.81 million ounces, benefiting from strong performances at Cortez, Veladero and Lagunas Norte. In June 2013, the World Gold Council (WGC) finalized its definition of adjusted operating costs (previously called total cash costs), all-in sustaining costs and all-in costs. Barrick has revised its disclosure to align with these definitions and is voluntarily adopting the all-in cost measure. The manner in which the adjusted operating cost measure is calculated has not been changed from the total cash cost measure. The revised AISC measure is similar to our prior measure with the exception of the classification of sustaining capital; certain capital expenditures which had previously not been reported as sustaining capital are now included in this category. The all-in cost measure starts with AISC and adds non-sustaining capital expenditures at new operations and existing operations which will significantly increase production. For Barrick this consists primarily of capital for the Pascua-Lama and Goldstrike thiosulphate projects. For the second

 

 

2 The declaration and payment of dividends is at the discretion of the Board of Directors and will depend on the company’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

 

BARRICK SECOND QUARTER 2013   4   PRESS RELEASE


quarter, Barrick’s adjusted operating costs, AISC and all-in costs were $552 per ounce, $919 per ounce and $1,276 per ounce3, respectively.

North America Regional Business Unit

North America produced 0.93 million ounces at AISC of $797 per ounce, ahead of expectations. Barrick’s 60 percent share of production from the Pueblo Viejo mine was 0.12 million ounces at AISC of $635 per ounce. Production at Pueblo Viejo increased from the first quarter of 2013 primarily due to higher tons processed as the mine ramps up to full capacity, expected in the second half of this year. The new 215 megawatt power plant is expected to be commissioned on schedule in the third quarter. Barrick’s share of 2013 production from Pueblo Viejo is anticipated to be 500,000-600,000 ounces at AISC of $525-$575 per ounce. During the quarter, Pueblo Viejo Dominicana Corporation reached an agreement in principle with the Government of the Dominican Republic concerning amendments to the Pueblo Viejo Special Lease Agreement (SLA). Discussions to finalize a Definitive Agreement continue, but to date the parties have not concluded an agreement. The proposed amendments will require the approval of the Boards of Directors of Barrick and Goldcorp, the project lenders, and the Congress of the Dominican Republic. The SLA will remain in effect according to its present terms unless and until the Definitive Agreement is executed and approved. The Government has reaffirmed its support for this world class mine.

  The Cortez mine delivered a strong performance, producing 0.42 million ounces at AISC of $376 per ounce on higher grade oxide ore. Goldstrike produced 0.19 million ounces at AISC of $1,226 per ounce, reflecting processing of lower grade ore at the autoclave facility, which is currently undergoing modifications to enable about 3.5 million ounces to be brought forward in the mine plan through the thiosulphate project. The project is on track to enter production in the third quarter of 2014 and contribute average annual production of 350,000-400,000 ounces over its first full five years of operation. We expect production to increase and AISC to significantly decrease at Goldstrike in the second half of 2013.

  We continue to expect full year production to be in the range of 3.55-3.70 million ounces and now expect AISC to be in the range of $750-$800 per ounce, lower than our previous range of $820-$870 per ounce.

South America Regional Business Unit

South America produced 0.30 million ounces at better than expected AISC of $821 per ounce. The Veladero mine had a strong quarter, contributing 0.14 million ounces at AISC of $768 per ounce on higher silver recoveries. Lagunas Norte produced 0.13 million ounces at AISC of $663 per ounce, reflecting positive grade reconciliations and a build-up of ounces placed on the leach pad. The new carbon-in-column plant at Lagunas Norte, which is designed to de-bottleneck ore feed from the expanded leach pad to the Merrill Crowe plant, is on track to start up in Q4.

  We continue to expect full year production to be in the range of 1.25-1.35 million ounces and AISC to be in the range of $875-$925 per ounce.

Australia Pacific Regional Business Unit

Australia Pacific produced 0.47 million ounces at AISC of $1,033 per ounce. Porgera, the region’s largest mine, contributed 0.12 million ounces at AISC of $1,306 per ounce.

  We continue to expect full year production to be in the range of 1.70-1.85 million ounces and now expect AISC to be in the range of $1,100-$1,200 per ounce, lower than our previous range of $1,200-$1,300 per ounce.

 

 

3 

All-in costs are a non-GAAP financial performance measure with no standardized definition under IFRS. See pages 45-48 of Barrick’s Second Quarter 2013 Report.

 

BARRICK SECOND QUARTER 2013   5   PRESS RELEASE


African Barrick Gold plc

Second quarter attributable production from ABG was 0.12 million ounces at AISC of $1,416 per ounce. We continue to expect Barrick’s share of 2013 production from ABG to be 0.40-0.45 million ounces at AISC of $1,550-$1,600 per ounce. Our AISC guidance does not take into account the implementation of ABG’s Operational Review.

Global Copper Business Unit

Copper production in Q2 was 134 million pounds at C1 cash costs of $1.75 per pound and C3 fully allocated costs of $2.27 per pound. Performance from the Lumwana mine improved significantly this quarter with production of 65 million pounds at C1 cash costs of $1.96 per pound, primarily due to changes to the mine plan and a number of business improvement initiatives which continue to enhance productivity. The improved costs in the second quarter primarily reflect a major reduction in contract mining costs due to the termination of one of the main mining contractors. The Zaldívar mine produced 69 million pounds at C1 cash costs of $1.60 per pound.

  We now expect full year copper production to be 500-540 million pounds, within our original guidance range of 480-540 million pounds, at C1 cash costs of $1.95-$2.15 per pound and C3 fully allocated costs of $2.50-$2.75 per pound, both lower than our previous ranges of $2.10-$2.30 per pound and $2.60-$2.85 per pound, respectively.

  Utilizing option collar hedging strategies, the company has protected the downside on approximately half of its remaining 2013 copper production at an average floor price of $3.50 per pound and can participate on the same amount up to an average price of $4.25 per pound4. As of June 30, 60 million pounds of copper sales were subject to final settlement at an average provisional price of $3.06 per pound.

PASCUA-LAMA PROJECT UPDATE

Pascua-Lama is one of the world’s largest gold and silver resources with nearly 18 million ounces of proven and probable gold reserves5, 676 million ounces of silver contained within the gold reserves5, and an anticipated mine life of 25 years. It is expected to produce an average of 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of operation at very low costs. While we recorded a significant impairment to this asset in the second quarter, we fully expect this mine to be one of the best in the world when in operation, and to contribute substantial economic value to the company. Pascua-Lama has significant value for Barrick shareholders and the project’s host jurisdictions of San Juan Province, Argentina and the Atacama Region of Chile. We continue to work closely with the governments of both countries to ensure Pascua-Lama is on the right path to deliver value for all of our stakeholders.

  In the second quarter, the company received a resolution from Chile’s Superintendence of the Environment (Superintendencia del Medio Ambiente or “SMA”) that required completion of the project’s water management system in accordance with previously granted environmental permits before other construction activities in Chile could resume. Barrick is committed to operating at the highest environmental standards at all of its operations around the world, including at Pascua-Lama, and is working to meet all regulatory requirements at the project. The company has submitted a compliance plan for approval by Chilean regulatory authorities to complete the water management system by the end of 2014, subject to regulatory approval of specific permit applications. Following completion of the water management system to the satisfaction of the SMA, we expect to be in a position to resume construction in Chile, including pre-stripping. Under this scenario, ore from Chile is expected to be available for processing by mid-2016. In line with this timeframe and in light of materially lower metal prices, the company has decided to re-sequence construction of the process plant and other facilities in Argentina to target production by this date.

 

 

4 

The realized price on all 2013 copper production is expected to be reduced by approximately $0.04 per pound as a result of the net premium paid on option hedging strategies. Our remaining copper production is subject to market prices.

5 

For a breakdown of reserves and resources by category and additional information relating to reserves and resources, see pages 25-35 of Barrick’s Form 40-F.

 

BARRICK SECOND QUARTER 2013   6   PRESS RELEASE


  The decision to re-sequence the project, which entails a major reduction in project staffing levels over the extended schedule, will result in a significant deferral of planned capital spending in 2013-2014. Capital expenditures at Pascua-Lama over this period are expected to be reduced by a total of $1.5-$1.8 billion6. For 2013, capital expenditures are expected to be reduced by approximately $0.7-$0.8 billion (including $300 million in previously announced deferrals) to approximately $1.8-$2.0 billion. Capital expenditures in 2014 are expected to be reduced by approximately $0.8-$1.0 billion to approximately $1.0-$1.2 billion. The company is targeting to provide an updated total capital cost estimate for the project with third quarter 2013 results which is expected to reflect an increase from the latest capital cost estimate. This is subject to obtaining greater clarity on timing of regulatory approvals and completing the re-sequenced construction schedule. As of June 30, 2013, approximately $5.4 billion had been spent on the project.

  Subsequent to the quarter end, the Copiapo Court of Appeals in Chile issued its ruling on a constitutional rights protection action filed in September 2012 on behalf of four indigenous communities, on the basis of which a preliminary injunction suspending construction activities had been granted in April 2013. In its ruling, the Court stated that Barrick must complete construction of the water management system in compliance with applicable environmental permits to the satisfaction of the SMA before resuming construction activities in Chile. The Court’s ruling is consistent with the earlier SMA resolution which Barrick has been implementing. The water management design and construction scope has been awarded to Fluor, who has already mobilized a team of industry experts to the site.

Our Chief Operating Officer, Igor Gonzales, retired in the second quarter and the company is in the process of a global search to fill this position. In the interim, the Regional Presidents are reporting directly to the CEO. Barrick thanks Igor for his significant contributions to Barrick over the past 15 years.

 

 

 

 

 

 

6 

Includes Pascua-Lama initial project capital plus infrastructure capital.

 

BARRICK SECOND QUARTER 2013   7   PRESS RELEASE


 Key Statistics

 

Barrick Gold Corporation

(in United States dollars)

  

Three months ended

June 30,

   

Six months ended

June 30,

 
  

 

 

 
(Unaudited)    2013     2012 (restated)7     2013     2012 (restated)7  

 

 

Operating Results

        

Gold production (thousands of ounces)1

     1,811        1,742        3,608        3,623    

Gold sold (thousands of ounces)

     1,815        1,690        3,562        3,473    

 

Per ounce data

        

Average spot gold price

    $                     1,415      $                     1,609      $                   1,523      $                     1,651    

Average realized gold price2

     1,411        1,608        1,518        1,651    

Adjusted operating costs2

     552        591        558        568    

All-in sustaining costs2

     919        1,061        931        1,000    

All-in costs2

     1,276        1,549        1,323        1,387    

Adjusted operating costs (on a co-product basis) 2

     580        610        587        587    

All-in sustaining costs (on a co-product basis)2

     947        1,080        960        1,019    

All-in costs (on a co-product basis)2

     1,304        1,568        1,352        1,406    

 

Copper production (millions of pounds)

     134        109        261        226    

Copper sold (millions of pounds)

     135        116        250        234    

 

Per pound data

        

Average spot copper price

    $ 3.24      $ 3.57      $ 3.42      $ 3.67    

Average realized copper price2

     3.28        3.45        3.41        3.62    

C1 cash costs2

     1.75        2.21        2.08        2.13    

Depreciation3

     0.42        0.59        0.38        0.51    

Other4

     0.10        (0.02     0.15        0.09    

C3 fully allocated costs2

     2.27        2.78        2.61        2.73    

 

 

Financial Results (millions)

        

Revenues

    $ 3,201      $ 3,244      $ 6,600      $ 6,846    

Net earnings (loss)5

     (8,555     787        (7,708     1,826    

Adjusted net earnings2

     663        821        1,586        1,917    

Operating cash flow

     896        919        1,992        2,293    

Adjusted operating cash flow2

     804        919        1,974        2,395    

 

Per Share Data (dollars)

        

Net earnings (loss) (basic)

     (8.55     0.79        (7.70     1.83    

Adjusted net earnings (basic)2

     0.66        0.82        1.58        1.92    

Net earnings (loss) (diluted)

     (8.55     0.79        (7.70     1.83    

 

Weighted average basic common shares (millions)

     1,001        1,000        1,001        1,000    

Weighted average diluted common shares (millions)6

     1,001        1,001        1,001        1,001    

 

 
                

As at

June 30,

    As at
December 31,
 
      

 

 

 
                 2013     2012 (restated)7  

 

 

Financial Position (millions)

        

Cash and equivalents

         $ 2,422      $ 2,097    

Non-cash working capital

         3,415        2,884    

 

 

 

  1 

Production includes our equity share of gold production at Highland Gold up to April 26, 2012, the effective date of our sale of Highland Gold. Production also includes African Barrick Gold on a 73.9% basis and Pueblo Viejo on a 60% basis, both of which reflect our equity share of production.

  2 

Realized price, adjusted operating costs, all-in sustaining costs, all-in costs, C1 cash costs, C3 fully allocated costs, adjusted net earnings and adjusted operating cash flow are non-gaap financial performance measures with no standard definition under IFRS. Refer to the Non-Gaap Financial Performance Measures section of the Company’s MD&A.

  3 

Represents equity depreciation expense divided by equity ounces of gold sold or pounds of copper sold.

  4 

For a breakdown, see reconciliation of cost of sales to C1 cash costs and C3 fully allocated costs per pound in the Non-Gaap Financial Performance Measures section of the Company’s MD&A.

  5 

Net earnings represents net income attributable to the equity holders of the Company.

  6 

Fully diluted includes dilutive effect of stock options.

  7 

Balances related to 2012 have been restated to reflect the impact of the adoption of new accounting pronouncements. See note 2B of the interim consolidated financial statements.

 

BARRICK SECOND QUARTER 2013   8   SUMMARY INFORMATION


Production and Cost Summary

 

    Gold Production (attributable ounces) (000’s)       All-in sustaining costs4 ($/oz)
 

 

 

 

       

Three months ended

June 30,

  

Six months ended

June 30,

 

Three months ended

June 30,

 

Six months ended

June 30,

 

 

  

 

 

 

 

 

(Unaudited)       2013   2012    2013   2012       2013        2012        2013        2012 

 

  

 

 

 

 

 

Gold

                          

North America

    928   854    1,800   1,742       $   797      $   894        $   789    $   850 

South America

    296   327    666   778     821      929      765      773 

Australia Pacific

    465   445    912   871     1,033      1,201      1,065      1,154 

African Barrick Gold1

    122   113    230   220     1,416      1,536      1,507      1,465 

Other2

    -   3    -   12     -           -           -           -      

 

Total

    1,811   1,742    3,608   3,623   $   919    $   1,061   $   931    $   1,000 

 

    Copper Production (attributable pounds) (millions)       C1 Cash Costs ($ /lb)
 

 

 

 

       

Three months ended

June 30,

  

Six months ended

June 30,

 

Three months ended

June 30,

 

Six months ended

June 30,

 

 

  

 

 

 

 

 

(Unaudited)       2013   2012    2013   2012       2013        2012 (restated) 6       2013        2012 (restated) 6

 

Total

    134   109    261   226   $   1.75    $   2.21    $   2.08    $   2.13 

 

                             Total Gold Production Costs ($/oz)
            

 

                         Three months ended
June 30,
 

Six months ended

June 30,

            

 

 

 

(Unaudited)                            2013        2012 (restated) 6       2013        2012 (restated) 6

 

 

 

Direct mining costs at market foreign exchange rates

        $   602    $   620        $   608    $   607 

Gains realized on currency hedge and commodity hedge/economic hedge contracts

    (42)     (40)     (46)     (49)

Other3

               (14)     (12)     (14)     (13)

By-product credits

               (27)     (18)     (28)     (17)

Royalties

               33      41      38      40 

 

Adjusted operating costs4

               552      591      558      568 

Depreciation

               210      188      203      185 

Other3

               14      12      14      13 

 

Total production costs

             $   776    $   791    $    775    $   766 

 

Adjusted operating costs4

             $   552    $   591    $   558    $   568 

General & administrative costs

        

37 

   

59 

   

44 

   

59 

Rehabilitation - accretion and amortization

     

19 

   

21 

   

22 

   

20 

Mine on-site exploration and evaluation costs

     

   

17 

   

   

14 

Mine development expenditures

        

173 

   

173 

   

164 

   

166 

Sustaining capital expenditures

        

129 

   

200 

   

135 

   

173 

 

All-in sustaining costs4

             $   919    $   1,061    $   931    $   1,000 

 

All-in costs4

             $   1,276    $   1,549    $   1,323    $   1,387 

 

                             Total Copper Production Costs ($/lb)
            

 

                        

Three months ended

June 30,

 

Six months ended

June 30,

            

 

 

 

(Unaudited)                            2013        2012 (restated) 6       2013        2012 (restated) 6

 

 

 

C1 cash costs4

             $   1.75    $   2.21    $   2.08    $   2.13 

Depreciation

               0.42      0.59      0.38      0.51 

Other5

               0.10      (0.02)     0.15      0.09 

 

C3 fully allocated costs4

             $   2.27    $   2.78    $   2.61    $   2.73 

 

 

  1 

Figures relating to African Barrick Gold are presented on a 73.9% basis, which reflects our equity share of production.

  2 

Includes our equity share of gold production at Highland Gold up to April 26, 2012, the effective date of our sale of Highland Gold.

  3 

Represents the Barrick Energy gross margin divided by equity ounces of gold sold.

  4 

Adjusted operating costs, all-in sustaining costs, all-in costs, C1 cash costs and C3 fully allocated costs are non-gaap financial performance measures with no standard meaning under IFRS. Refer to the Non-Gaap Financial Performance Measures section of the Company’s MD&A.

  5 

For a breakdown, see reconciliation of cost of sales to C1 cash costs and C3 fully allocated costs per pound in the Non-Gaap Financial Performance Measures section of the Company’s MD&A.

  6 

Balances related to 2012 have been restated to reflect the impact of the adoption of new accounting pronouncements. See note 2B of the interim consolidated financial statements.

 

BARRICK SECOND QUARTER 2013   9   SUMMARY INFORMATION


MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

 

This portion of the Quarterly Report provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations to enable a reader to assess material changes in financial condition and results of operations as at and for the three and six month periods ended June 30, 2013, in comparison to the corresponding prior-year period. The MD&A is intended to help the reader understand Barrick Gold Corporation (“Barrick”, “we”, “our” or the “Company”), our operations, financial performance and present and future business environment. This MD&A, which has been prepared as of July 31, 2013, is intended to supplement and complement the condensed unaudited interim consolidated financial statements and notes thereto, prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”), for the three and six month periods ended June 30, 2013 (collectively, the “Financial Statements”), which are included in this Quarterly Report on pages 49 to 78. You are encouraged to review the Financial Statements in conjunction with your review of this MD&A. This MD&A should be read in conjunction with both the annual audited

consolidated financial statements for the two years ended December 31, 2012, the related annual MD&A included in the 2012 Annual Report, and the most recent Form 40–F/Annual Information Form on file with the US Securities and Exchange Commission (“SEC”) and Canadian provincial securities regulatory authorities. Certain notes to the Financial Statements are specifically referred to in this MD&A and such notes are incorporated by reference herein. All dollar amounts in this MD&A are in millions of US dollars, unless otherwise specified.

For the purposes of preparing our MD&A, we consider the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of our shares; or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. We evaluate materiality with reference to all relevant circumstances, including potential market sensitivity.

 

 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

Certain information contained or incorporated by reference in this MD&A, including any information as to our strategy, projects, plans or future financial or operating performance constitutes “forward-looking statements”. All statements, other than statements of historical fact, are forward-looking statements. The words “believe”, “expect”, “anticipate”, “contemplate”, “target”, “plan”, “intend”, “continue”, “budget”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: fluctuations in the spot and forward price of gold and copper or certain other commodities (such as silver, diesel fuel and electricity); changes in national and local government legislation, taxation, controls,

regulations, expropriation or nationalization of property and political or economic developments in Canada, the United States and other jurisdictions in which the Company does or may carry on business in the future; diminishing quantities or grades of reserves; increased costs, delays, suspensions and technical challenges associated with the construction of capital projects; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; adverse changes in our credit rating; the impact of inflation; fluctuations in the currency markets; operating or technical difficulties in connection with mining or development activities; the speculative nature of mineral exploration and development, including the risks of obtaining necessary licenses and permits; contests over title to properties, particularly title to undeveloped properties; risk of loss due to acts of war, terrorism, sabotage and civil disturbances; changes in U.S. dollar interest rates; risks arising from holding derivative instruments; litigation; business opportunities that may be presented to, or pursued by, the Company; our

 

 

BARRICK SECOND QUARTER 2013   10   MANAGEMENT’S DISCUSSION AND ANALYSIS


ability to successfully integrate acquisitions or complete divestitures; employee relations; availability and increased costs associated with mining inputs and labor; and the organization of our African gold operations and properties under a separate listed company. In addition, there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion, copper cathode or gold/copper concentrate losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or

implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this MD&A are qualified by these cautionary statements. Specific reference is made to the most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

 

 

 

CHANGES IN PRESENTATION OF NON-GAAP FINANCIAL PERFORMANCE MEASURES

 

Beginning with our 2012 Annual Report, we adopted a non-GAAP “all-in sustaining costs per ounce” measure. This was based on the expectation that the World Gold Council (“WGC”) (a market development organization for the gold industry made up of and funded by 18 gold mining companies from around the world, including Barrick) was developing a similar metric and that investors and industry analysts were interested in a measure that better represented the total recurring costs associated with producing gold. The WGC is not a regulatory organization. In June 2013, the WGC published its definition of “adjusted operating costs”, “all-in sustaining costs” and also a definition of “all-in costs.” Barrick is voluntarily adopting the definition of these metrics starting with this MD&A.

The “all-in sustaining costs” measure is similar to our presentation in previous reports, with the exception of the classification of sustaining capital. In our previous calculation, certain capital expenditures were presented as mine expansion projects, whereas they meet the definition of sustaining capital expenditures under the WGC definition, and therefore these expenditures have been reclassified as sustaining capital expenditures.

The new “all-in costs” measure starts with “all-in sustaining costs” and adds additional costs, which reflect the varying costs of producing gold over the life-cycle of a mine, including: non-sustaining capital expenditures (capital expenditures at new projects and capital expenditures at existing operations that

significantly increase the productive capacity of the mine), and other non-sustaining costs (primarily exploration and evaluation (“E&E”) costs, community relations costs and general and administrative costs that are not associated with current operations). This definition recognizes that there are different costs associated with the life-cycle of a mine and that it is therefore appropriate to distinguish between sustaining and non-sustaining costs.

We believe that “All-in sustaining costs” and “all-in costs” will better meet the needs of analysts, investors and other stakeholders of Barrick in understanding the costs associated with producing gold, understanding the economics of gold mining, assessing our operating performance and also our ability to generate free cash flow from current operations and to generate free cash flow on an overall Company basis. Due to the capital intensive nature of the industry and the long useful lives over which these items are depreciated, there can be a disconnect between net earnings calculated in accordance with IFRS and the amount of free cash flow that is being generated by a mine. In the current market environment for gold mining equities, many investors and analysts are more focused on the ability of gold mining companies to generate free cash flow from current operations, and consequently we believe these measures are useful non-GAAP operating metrics and supplement our IFRS disclosures. These measures are not representative of all of our cash expenditures as they do not include income tax payments, interest costs or dividend payments. “All-

 

 

BARRICK SECOND QUARTER 2013   11   MANAGEMENT’S DISCUSSION AND ANALYSIS


in sustaining costs” and “all-in costs” are intended to provide additional information only and do not have standardized definitions under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Although the WGC has published a standardized definition, other companies may calculate these measures differently.

This quarter we have also renamed the non-GAAP measure “total cash costs” with “adjusted operating

costs” in order to conform with the WGC definition of the comparable measure. The manner in which this measure is calculated has not been changed.

We have also calculated these metrics on a co-product basis, which removes the impact of other metal sales that are produced as a by-product of our gold production.

The table on page 47 reconciles these non-GAAP measures to the most directly comparable IFRS measures and previous periods have been recalculated to conform to our current definition.

 

 

INDEX

 

     page  

Overview

  

Review of 2013 Second Quarter Results

     13   

Key Business Developments

     16   

Business Update and Full year 2013 Outlook

     17   

Market Overview

     19   

Review of Financial Results

  

Revenues

     22   

Production Costs

     22   

Corporate Administration

     23   

Other Expense (Income)

     23   

Exploration and Evaluation

     23   

Capital Expenditures

     23   

Finance Cost/ Finance Income

     24   

Impairment Charges

     24   

Income Tax

     25   

Operational Overview

     25   

Review of Operating Segments Performance

     26   

Financial Condition Review

  

Balance Sheet Review

     34   

Financial Position and Liquidity

     35   

Financial Instruments

     38   

Commitments and Contingencies

     38   

Adoption of Advance Notice By-law

     39   

Review of Quarterly Results

     40   

IFRS Critical Accounting Policies and Estimates

     40   

Non-GAAP Financial Performance Measures

     45   

 

BARRICK SECOND QUARTER 2013   12   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

  Review of 2013 Second Quarter Results

  2013 Second Quarter Results

  ($ millions, except where indicated)    For the three months ended June 30      For the six months ended June 30    

 

 
     2013      2012      2013      2012    

 

 

  Financial Data

           

  Revenue

     $ 3,201         $ 3,244         $ 6,600         $ 6,846     

  Net earnings (loss)1

     (8,555)         787         (7,708)         1,826     

Per share (“EPS”)2

     (8.55)         0.79         (7.70)         1.83     

  Adjusted net earnings3

     663         821         1,586         1,917     

Per share (“adjusted EPS”)2,3

     0.66         0.82         1.58         1.92     

  Total project capital expenditures4

     686         700         1,301         1,330     

  Total capital expenditures - expansion, sustaining and mine development4

     779         839         1,502         1,491     

  Operating cash flow

     896         919         1,992         2,293     

  Adjusted operating cash flow3

     804         919         1,974         2,395     

  Free cash flow3

     $ (752)         ($ 797)         $ (967)         ($ 680)     

  Adjusted return on equity3

     15%         13%         18%         16%     

 

 
           

 

 

  Operating Data

           

  Gold

           

  Gold produced (000s ounces)5

     1,811         1,742         3,608         3,623     

  Gold sold (000s ounces)

     1,815         1,690         3,562         3,473     

  Realized price ($ per ounce)3

     $ 1,411         $ 1,608         $ 1,518         $ 1,651     

  Adjusted operating costs ($ per ounce)3

     $ 552         $ 591         $ 558         $ 568     

  Adjusted operating costs on a co-product basis ($ per ounce)3

     $ 580         $ 610         $ 587         $ 587     

  All-in sustaining costs ($ per ounce)3

     $ 919         $ 1,061         $ 931         $ 1,000     

  All-in sustaining costs on a co-product basis ($ per ounce)3

     $ 947         $ 1,080         $ 960         $ 1,019     

  All-in costs ($ per ounce)3

     $ 1,276         $ 1,549         $ 1,323         $ 1,387     

  All-in costs on a co-product basis ($ per ounce)3

     $ 1,304         $ 1,568         $ 1,352         $ 1,406     

  Copper

           

  Copper produced (millions of pounds)

     134         109         261         226     

  Copper sold (millions of pounds)

     135         116         250         234     

  Realized price ($ per pound)3

     $ 3.28         $ 3.45         $ 3.41         $ 3.62     

  C1 cash costs ($ per pound)3

     $ 1.75         $ 2.21         $ 2.08         $ 2.13     

 

 

 

  1 

Net earnings (loss) represent net income attributable to the equity holders of the Company.

  2 

Calculated using weighted average number of shares outstanding under the basic method.

  3 

These are non-GAAP financial performance measures with no standardized definition under IFRS. For further information and detailed reconciliations, please see pages 45 - 48 of this MD&A.

  4 

These amounts are presented on a cash basis consistent with the amounts presented on the consolidated cash flows.

  5 

We sold our 20.4% investment in Highland Gold with an effective date of April 26, 2012. Production includes our equity share of gold production at Highland Gold up to that date.

Key Highlights:

 

   

Overall, our high quality portfolio of mines provided strong underlying operating results in the first half of 2013, and we remain on track to meet our original production guidance, at lower adjusted operating costs and all-in sustaining costs compared to our original guidance.

   

During the second quarter 2013, the market prices of gold, silver and copper declined significantly. These metal prices are the primary drivers of our ability to generate earnings and cash flow, and as a result, this sustained drop in metal prices has had a significant impact on our business, and in particular our financial position and liquidity, and has been the primary cause of the impairments we recorded against the carrying value of our goodwill and non-current assets, including our Pascua-Lama project. (Please refer to pages 35 to 37 and 41 to 44 of this MD&A for further information on liquidity risks and impairments, respectively.)

 

BARRICK SECOND QUARTER 2013   13   MANAGEMENT’S DISCUSSION AND ANALYSIS


   

In second quarter 2013, we recorded impairments against the carrying value of our goodwill and non-current assets totaling $8.7 billion (net of tax and non-controlling interest effects). This included $5.1 billion against the carrying value of our Pascua-Lama project as a result of the significant decrease in long-term gold and silver price assumptions, as well as the schedule delay and related capital cost increase. Other significant impairments recorded in the quarter include $2.3 billion in goodwill impairments in our global copper, Australia Pacific, Capital Projects and African Barrick Gold segments.

   

The fair values in the impairment assessment were calculated as at June 30 assuming metal prices that were influenced by only recent spot price declines, yet which are then applied and held constant over mine lives that in some instances are in excess of 25 years. As a result of these significant price declines, we have revised our gold, copper and silver price assumptions utilized for impairment testing to $1,300 per ounce, $3.25 per pound and $23 per ounce, respectively. We are confident our assets will generate substantially more economic benefits over time for our shareholders than these current valuation levels imply. Although Barrick does not rely on higher prices to drive its business plans, we remain positive on long term price fundamentals for these metals. With higher prices in the future, we would reassess the fair value of our high quality, long-life assets such as Pascua-Lama, and could potentially reverse some of the impairment charges recorded.

 

LOGO

SECOND QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

 

   

Net loss in the second quarter 2013 was $8.6 billion compared to net earnings of $787 million recorded in second quarter 2012. The decrease reflects the impact of impairment charges of $8.7 billion (net of tax and non- controlling interest effects), lower realized gold and copper prices and higher interest expense primarily as a result of lower capitalized interest, partially offset by higher gold and copper sales volumes. Adjusted net earnings for the second quarter 2013 were $663 million compared to adjusted net earnings of $821 million recorded in second quarter 2012. The decrease reflects lower realized gold and copper prices and higher cost of sales applicable to gold, partially offset by higher gold and copper sales volumes.

   

EPS and adjusted EPS for the second quarter 2013 were $(8.55) and $0.66. The decreases over the same prior year period were due to the decrease in both net earnings and adjusted net earnings, as described above.

   

Gold production for the second quarter 2013 was 1.81 million ounces, up 4% from the same prior year period, due to higher production in North America and Australia Pacific, partially offset by lower production in South America.

   

Adjusted operating costs for the second quarter 2013 were $552 per ounce, down 7% over the same prior year period. The decrease reflects higher direct mining costs largely due to the impact of processing more ore tons at lower grades, which were more than offset by the increase in sales volumes. All-in sustaining costs for the second quarter 2013 were $919 per ounce, down 13% over the same prior year period primarily reflecting lower adjusted operating costs and decreases in general & administrative costs and sustaining capital expenditures. All-in costs for the second quarter 2013 were $1,276 per ounce, down 18% over the same prior year period primarily reflecting lower all-in sustaining costs and lower non-sustaining capital as a result of the construction slow-down at Pascua-Lama and the completion of our Pueblo Viejo project.

 

BARRICK SECOND QUARTER 2013   14   MANAGEMENT’S DISCUSSION AND ANALYSIS


   

Copper production for the second quarter 2013 was 134 million pounds, up 23% over the same prior year period, due to higher production from Lumwana. Copper C1 cash costs for the second quarter 2013 were $1.75 per pound, down 21% over the same prior year period, primarily due to lower operating costs at Lumwana.

   

Significant adjusting items (net of tax and non-controlling interest effects) in the second quarter 2013 include: $8.7 billion in impairment charges; $475 million in re-measurement losses related to the disposition of Barrick Energy; $86 million in project care and maintenance and demobilization costs; and $21 million in restructuring costs related to the company-wide overhead review; partially offset by $23 million in realized and unrealized gains on non-hedge derivative instruments; and $8 million in unrealized foreign currency translation gains on working capital balances.

   

Operating cash flow for the second quarter 2013 was $896 million, down 3% over the same prior year period. The decrease in operating cash flow primarily reflects lower net earnings, partially offset by a decrease in income tax payments. Adjusted operating cash flow for the second quarter 2013 was $804 million, down 13% over the same prior year period. Adjusted operating cash flow was affected by the same factors as operating cash flow and removes the impact of the settlement of foreign currency and commodity derivative contracts and non-recurring tax payments.

   

Capital expenditures were $1,556 million, down 9% over the same prior year period. The decrease is primarily due to a decrease in sustaining capital, most notably at Cortez and Lumwana; partially offset by an increase in minesite expansion expenditures at Cortez, Goldstrike and Bulyanhulu.

   

Free cash outflow for the second quarter 2013 was lower by $45 million over the same prior year period, primarily reflecting lower capital expenditures.

FIRST SIX MONTHS 2013 vs. FIRST SIX MONTHS 2012

 

   

Net loss for the first half of 2013 was $7.7 billion compared to net earnings of $1.8 billion recorded in the first half of 2012. The decrease reflects the impact of impairment charges of $8.7 billion (net of tax and non- controlling interest effects), lower realized gold and copper prices and higher interest expense primarily as a result of lower capitalized interest, partially offset by higher gold and copper sales volumes. Adjusted net earnings for the first half of 2013 were $1,586 million compared to adjusted net earnings of $1,917 million recorded in the first half of 2012. The decrease reflects lower realized gold and copper prices and higher cost of sales applicable to gold, partially offset by higher gold and copper sales volumes.

   

EPS and adjusted EPS for the first half of 2013 were $(7.70) and $1.58. The decreases over the same prior year period were due to the decrease in both net earnings and adjusted net earnings, as described above.

   

Gold production and sales volumes for first half of 2013 were 3.61 million ounces and 3.56 million ounces, respectively. Gold production for first half of 2013 was in line with the comparable totals for the same prior year period, as higher production in North America and Australia Pacific was offset by lower production from South America.

   

Adjusted operating costs for gold were $558 per ounce, down slightly compared to the first half of 2012. The decrease reflects increases in direct mining costs, including higher labor, energy, maintenance and consumable costs, offset by the impact of higher production levels. All-in sustaining costs were $931 per ounce in first half of 2013, down 7% compared to the same prior year period. The decrease reflects lower adjusted operating costs and decreases in general & administrative costs and sustaining capital expenditures. All-in costs for the first half of 2013 were $1,323 per ounce, down 5% over the same prior year period primarily reflecting lower all-in sustaining costs and lower non- sustaining capital as a result of the completion of our Pueblo Viejo project, partially offset by increases at Pascua-Lama relating to spend in first quarter 2013.

   

Copper production for the first half of 2013 were 261 million pounds at C1 direct cash costs of $2.08 per pound compared to production of 226 million pounds at C1 direct cash cost of $2.13 per pound for the first half of 2012. Copper production increased and C1 cash costs decreased in the first half of 2013 as compared to the same prior year period primarily due to the better performance at Lumwana.

   

Significant adjusting items (net of tax and non-controlling interest effects) in the first half of 2013 include: $8.7 billion in impairment charges; $475 million in re-measurement losses related to the disposition of Barrick Energy; $122 million in project care and maintenance and demobilization costs; $55 million in unrealized foreign currency translation losses on working capital balances; and $21 million in restructuring costs related to the

 

BARRICK SECOND QUARTER 2013   15   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

company-wide overhead review; partially offset by $40 million in realized and unrealized gains on non-hedge derivative instruments.

   

Operating cash flow was $1,992 million, compared to operating cash flow of $2,293 million for the first half of 2012. The decrease in operating cash flow primarily reflects lower net earnings levels, partially offset by a decrease in income tax payments of $341 million. Adjusted operating cash flow was $1,974 million compared to $2,395 million for the first half of 2012. Adjusted operating cash flow was affected by the same factors as operating cash flow and removes the impact of the settlement of foreign currency and commodity derivative contracts and non-recurring tax payments.

   

Free cash outflow for the first half of 2013 was higher by $287 million compared to the same prior year period primarily reflecting lower operating cash flow.

 

LOGO

 

Key Business Developments

Pascua-Lama

Pascua-Lama is one of the world’s largest gold and silver resources with nearly 18 million ounces of proven and probable gold reserves1, 676 million ounces of silver contained within the gold reserves1, and an anticipated mine life of 25 years. It is expected to produce an average of 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of operation at very low costs. While we recorded a significant impairment to this asset in the second quarter, we fully expect this mine to be one of the best in the world when in operation, and to contribute significant economic value to the company. Pascua-Lama has significant value for Barrick shareholders and the project’s host jurisdictions of San Juan Province, Argentina and the Atacama Region of Chile. We continue to work closely with the governments of both countries to ensure Pascua-Lama is on the right path to deliver value for all of our stakeholders.

In the second quarter, the company received a resolution from Chile’s Superintendence of the Environment (Superintendencia del Medio Ambiente or “SMA”) that required completion of the project’s water management system in accordance with

 

1 

For a breakdown of reserves and resources by category and additional information relating to reserves and resources, see pages 25-35 of Barrick’s Form 40-F.

previously granted environmental permits before other construction activities in Chile could resume. Barrick is committed to operating at the highest environmental standards at all of its operations around the world, including at Pascua-Lama, and is working to meet all regulatory requirements at the project. The company has submitted a compliance plan for approval by Chilean regulatory authorities to complete the water management system by the end of 2014, subject to regulatory approval of specific permit applications. Following completion of the water management system to the satisfaction of the SMA, we expect to be in a position to resume construction in Chile, including pre-stripping. Under this scenario, ore from Chile is expected to be available for processing by mid-2016. In line with this timeframe and in light of materially lower metal prices, the company has decided to re-sequence construction of the process plant and other facilities in Argentina to target production by this date.

The decision to re-sequence the project, which entails a major reduction in project staffing levels over the extended schedule, will result in a significant deferral of planned capital spending in 2013-2014. Capital expenditures at Pascua Lama over this period are

 

 

BARRICK SECOND QUARTER 2013   16   MANAGEMENT’S DISCUSSION AND ANALYSIS


expected to be reduced by a total of $1.5-$1.8 billion2. For 2013, capital expenditures are expected to be reduced by approximately $0.7-$0.8 billion (including $300 million in previously announced deferrals) to approximately $1.8-$2.0 billion. Capital expenditures in 2014 are expected to be reduced by approximately $0.8-$1.0 billion to approximately $1.0-$1.2 billion. The company is targeting to provide an updated total capital cost estimate for the project with third quarter 2013 results which is expected to reflect an increase from the latest capital cost estimate. This is subject to obtaining greater clarity on timing of regulatory approvals and completing the re-sequenced construction schedule. A significant decrease in gold and silver prices from their current levels, a significant increase in the total capital cost estimate or any other change in circumstances that materially reduce the project’s economics could cause us to reassess the decision to proceed on this re-sequenced construction schedule and evaluate other alternatives, including the possibility of suspending the project. As of June 30, 2013, approximately $5.4 billion had been spent on the project.

Subsequent to the quarter end, the Copiapo Court of Appeals in Chile issued its ruling on a constitutional rights protection action filed in September 2012 on behalf of four indigenous communities, on the basis of which a preliminary injunction suspending construction activities had been granted in April 2013. In its ruling, the Court stated that Barrick must complete construction of the water management system in compliance with applicable environmental permits to the satisfaction of the SMA before resuming construction activities in Chile. The Court’s ruling is consistent with the earlier SMA resolution which Barrick has been implementing. The water management design and construction scope has been awarded to Fluor, who has already mobilized a team of industry experts to the site.

Pueblo Viejo

During the quarter, Pueblo Viejo Dominicana Corporation reached an agreement in principle with the Government of the Dominican Republic concerning amendments to the Pueblo Viejo Special Lease Agreement (“SLA”). Discussions to finalize a Definitive Agreement continue, but to date the parties have not concluded an agreement. The proposed amendments will require the approval of the Boards of Directors of Barrick and Goldcorp, the project lenders, and the Congress of the Dominican Republic. The SLA

2 Includes Pascua-Lama initial project capital plus infrastructure capital.

will remain in effect according to its present terms unless and until the Definitive Agreement is executed and approved. The Government has reaffirmed its support for this world class mine.

Sale of Barrick Energy

In July 2013, we completed the sale of our oil & gas business segment for consideration of approximately $442 million, consisting of approximately $394 million in cash and a future royalty valued at $48 million. The assets and liabilities of Barrick Energy were presented as held for sale as at the June 30, 2013 balance sheet date and, as a result, we recorded a loss on re-measurement of $506 million, including $90 million related to goodwill. The transaction closed on July 31, 2013.

Advance Notice By-law

On July 31, 2013, Barrick’s Board of Directors approved the adoption of an advance notice by-law, which requires advance notice to the Company in certain circumstances where nominations for election as a director of the Company are made by shareholders. For more information see page 39 of this MD&A.

Business Update and Full Year 2013 Outlook

The market prices for gold, silver and copper declined significantly during second quarter 2013. In response to this decline, we have taken a number of actions to reposition our business, including some for immediate impact in order to succeed in a sustained lower gold price environment. While we remain bullish on the long-term fundamentals for gold, we are not relying on higher gold prices to drive shareholder returns.

A key element of our strategy for achieving these objectives is through adherence to the principles of our disciplined capital allocation framework (“DCAF”), which emphasizes maximizing risk-adjusted rates of return and free cash flow based on the principle that returns will drive production, production will not drive returns. Under the DCAF, we launched a comprehensive cost-cutting program last year, before gold’s recent decline, initially cutting or deferring about $4 billion of previously budgeted capital expenditures over a four year period, shelving certain major projects and launching a portfolio optimization process. We are committed to continuing these cost reduction efforts and have taken additional steps in 2013 to:

 

 

BARRICK SECOND QUARTER 2013   17   MANAGEMENT’S DISCUSSION AND ANALYSIS


   

improve operations

   

cut capital expenditures

   

reduce overhead and other operating costs

   

improve liquidity and cash flow

As part of this process we have identified about $2.0 billion of total reductions to capital and costs for 2013. In addition to the approximately $500 million of reduced budgeted 2103 capital and costs we identified in first quarter 2013, we have made the following reductions in second quarter 2013: $600 million in operating costs; $600 million in project capital, primarily related to Pascua-Lama; $200 million in sustaining, development and mine expansion capital; and $50 million in exploration and evaluation expenditures. We have also termed out $3.0 billion in debt at attractive interest rates to reduce our near-term maturities, sold our oil & gas business for cash proceeds of $394 million and continue to look for further opportunities to divest of non-core assets. In addition, the company has reduced its corporate office staff by approximately 30 percent and made other significant job reductions at regional locations. As part of the ongoing company-wide overhead and operational review initiated in the first quarter, Barrick is also evaluating further changes and cost reductions to make the organization more efficient by simplifying the management structure and placing a greater emphasis on clearly defined responsibilities and accountabilities. Please see our revised guidance table on page 19 of this MD&A.

Our superior group of five key mines – Cortez, Goldstrike, Pueblo Viejo, Veladero and Lagunas Norte – are expected to generate some 60 percent of 2013 production at average all-in sustaining costs of $650-$700 per ounce. An additional seven mines have all-in sustaining costs below $1,000 per ounce, bringing the total amount of expected 2013 production with costs below this level to about 75 percent. For the remaining operations with expected 2013 all-in sustaining costs above $1,000 per ounce, we will either change mine plans, suspend, close or divest these assets to improve cash flow. Actions currently being considered as part of an ongoing process include:

 

   

Bald Mountain (US) - mine plan changes to reduce the number of pits and focus on the most profitable ounces, while retaining the option to access other ore in the future

   

Round Mountain and Marigold (US) - working with our joint venture partners to optimize mine plans

   

Hemlo (Canada) - defer the open pit expansion and optimize the underground mine plan

   

Porgera (Papua New Guinea) - evaluate mine plan changes and explore other alternatives

   

Plutonic , Yilgarn South (Australia) - optimize the mine plans and/or divest

   

African Barrick Gold (“ABG”) (Tanzania) - finalizing a detailed operational review to aggressively optimize mine plans and improve operations

   

Pierina (Peru) - assessing closure options

Under the direction of the new leadership appointed last year, a turnaround team of functional experts and site management have been working to improve operations and reduce costs at the Lumwana copper mine. Lumwana delivered a substantially improved performance this quarter. We have made changes to the mine plan to decrease costs and maximize cash flow. The changes include a reduction to waste stripping as a result of mine re-sequencing and significant labor reductions, including termination of a major mining contractor. A number of further business improvement initiatives continue to be implemented at site to enhance the productivity of the core mining fleet and build upon the cost reductions achieved so far. We continue to see positive results from these actions, and the improvements at Lumwana have allowed us to significantly improve 2013 copper cost guidance.

We are developing mine plans to maximize cash flows at every mine. The outcome of this process could have an impact on our year-end 2013 proven and probable reserves and expected future production levels; however, where possible, we will maintain the option to access the metal in the future. As a result of the schedule delay at Pascua-Lama, expected mine plan changes to maximize cash flow and the likelihood of further asset divestitures, we are no longer targeting eight million ounces of gold production in 2016.

 

 

BARRICK SECOND QUARTER 2013   18   MANAGEMENT’S DISCUSSION AND ANALYSIS


Our updated guidance ranges are summarized in the table below:

 

  ($ millions, except per ounce/pound data)   2013E     Original
Guidance
 

 

 

  Gold production and costs

   

Production (millions of ounces)1

    7.0 - 7.4        7.0 - 7.4     

Cost of sales

    6,100 - 6,500        6,700 - 7,000     

  Gold unit production costs

   

All-in sustaining costs ($ per ounce)

    900 - 975        1,000 - 1,100     

Adjusted operating costs ($ per ounce)

    575 - 615        610 - 660     

Depreciation ($ per ounce)

    195 - 205        210 - 220     

 

 

  Copper production and costs

   

Production (millions of pounds)

    500 - 540        480 - 540     

Cost of sales

    1,100- 1,300        1,200 - 1,400     

  Copper unit production costs

   

C1 cash costs ($ per pound)

    1.95 - 2.15        2.10 - 2.30     

 Depreciation ($ per pound)

    0.30 - 0.40        0.30 - 0.40     

 C3 fully allocated costs ($ per pound)

    2.50 - 2.75        2.60 - 2.85     

 

 

  Exploration and evaluation expense2

    240 - 260        280 - 300     

  Exploration

    205 - 215        220 - 230     

  Evaluation

    35 - 45        60 - 70     

  Corporate administration

    160 - 180        160 - 180     

  Other Expense

    420 - 440        420 - 440     

  Finance costs

    500 - 525        425 - 450     

  Capitalized interest

    350 - 370        380 - 400     

  Capital expenditures:

   

  Minesite sustaining3

    1,000 - 1,100        1,100 - 1,200     

  Mine development

    1,100 - 1,200        1,200 - 1,300     

  Minesite expansion3

    500 - 550        700 - 800     

  Projects - initial capital

    1,800 - 2,000        2,400 - 2,600     

  Projects - infrastructure

    100 - 150        300 - 400     

  Total capital expenditures

    4,500 - 5,000        5,700 - 6,300     

 

 

  Effective income tax rate4

    >30%        30%     

 

 
   

 

 

  Key Assumptions

   

  Gold Price ($/ounce)

    $1,300        $1,700     

  Copper Price ($/pound)

    $3.25        $3.50     

  Silver Price ($/ounce)

    $23        $32     

  Oil Price ($/barrel)

    $95        $90     

  AUD Exchange Rate

    $0.95        $1.00     

  CLP Exchange Rate

    500        475     

 

 

 

1 

Guidance for gold production reflects Barrick’s equity share of production from ABG (73.9%) and Pueblo Viejo (60%).

2 

Total exploration budget is expected to be about $300 million to $320 million, of which about 30% is capitalized as part of mine development compared to our original guidance range of $400 to $440 million.

3 

As a result of the definitions published as part of the WGC’s all-in cost definition, we have reclassified capital expenditures within the categories to the following effects: about $100 million decrease in expansion and about $100 million increase in sustaining.

4 

We are projecting an effective rate of >30% on ordinary income. While the outcome of our ongoing dialogue with the government of the Dominican Republic in respect of the Pueblo Viejo mine is progressing, any amendments to the SLA or unilateral action by the government would likely result in a significant increase to the rate.

Market Overview

Gold and Copper

The market prices of gold and copper are the primary drivers of our profitability and our ability to generate free cash flow for our shareholders. During the second quarter, the gold price experienced significant volatility, with the price ranging from $1,181 to $1,604 per ounce. The price of gold closed at $1,192 per ounce, while the average quarterly market price of $1,415 represented a $194 per ounce or 12% decrease from the $1,609 per ounce average market price in the same prior year period.

The price of gold declined during the quarter as a result of negative investor sentiment caused by concerns of an upcoming reduction in the monetary stimulus currently provided by the US Federal Reserve due to incremental improvements in the prospects for the US economy. Going forward, we believe that gold will attract investment interest through its role as a safe haven investment, store of value and alternative to fiat currency due to concerns over geopolitical issues, sovereign debt and deficit levels, bank stability, future inflation prospects, and continuing accommodative monetary policies put in place by many of the world’s central banks. While there are risks that investor interest in gold will decrease, we believe that the continuing uncertain macroeconomic environment, together with the limited choice of alternative safe haven investments, is supportive of continued strong demand for gold.

Copper prices were also volatile in the second quarter of 2013, trading in a range of $2.99 per pound to $3.47 per pound. The average price for the second quarter was $3.24 per pound and the closing price was $3.06 per pound, with the decline during the quarter related to concerns over declining Chinese growth and the expected reduction of monetary stimulus in the United States. Copper’s strength lies mainly in strong physical demand from emerging markets, especially China. Copper prices should continue to be influenced by demand from Asia, the availability of scrap and production levels of mines and smelters in the future. In the near term, copper prices will also be influenced by the outlook for global economic growth. In particular, a continued slowdown in Chinese economic growth could have a negative impact on copper prices.

 

 

BARRICK SECOND QUARTER 2013   19   MANAGEMENT’S DISCUSSION AND ANALYSIS


Utilizing option collar strategies, the Company has protected the downside on approximately half of our remaining expected 2013 copper production at an average floor price of $3.50 per pound and can participate on the same amount up to an average of $4.25 per pound. Our realized price on all 2013 copper production is expected to be reduced by approximately $0.04 per pound as a result of the net premium paid on option hedging strategies. Our remaining copper production is subject to market prices.

We have provisionally priced copper sales for which final price determination versus the relevant copper index is outstanding at the balance sheet date. As at June 30, 2013, we have recorded 60 million pounds of copper sales subject to final settlement at an average provisional price of $3.06 per pound. The impact to net income before taxation of a 10% movement in the market price of copper would be approximately $18 million, holding all other variables constant.

Silver

Silver prices do not significantly impact our current operating earnings, cash flows or gold adjusted operating costs. Silver prices, however, will have a significant impact on the overall economics for our Pascua-Lama project, which is currently in the construction phase. In the first five full years of production, Pascua-Lama is expected to produce an average of 35 million ounces of silver annually.

In the second quarter, silver prices traded in a wide range of $18.23 per ounce to $28.38 per ounce, averaged $23.14 per ounce and closed the quarter at $18.86 per ounce. The silver price is driven by factors similar to those influencing investment demand for gold. The physical silver market is currently in surplus and investment demand is expected to be the primary driver of prices in the near term.

During the second quarter, we closed out our silver hedge book, which had consisted of 65 million ounces of option collars from 2013 to 2018, for net proceeds of $189 million. $45 million of the gains related to our silver hedge book remain in other comprehensive income and will be recognized in net income on the original contract maturity dates.

Currency Exchange Rates

The results of our mining operations outside of the United States are affected by US dollar exchange rates. The largest single exposure we have is to the Australian dollar/US dollar exchange rate. We also have exposure to the Canadian dollar through a combination of Canadian mine operating costs and corporate administration costs, as well as exposure to the Chilean peso as a result of the construction of our Pascua-Lama project and mine operating costs. In addition, we have exposure to the Papua New Guinea kina, Peruvian sol, Zambian kwacha, Tanzanian shilling, Dominican peso and Argentinean peso through mine operating and capital costs.

Fluctuations in the US dollar increase the volatility of our costs reported in US dollars, subject to protection that we have put in place through our currency hedging program. As a result of the strong US dollar, as well as recent declines in commodity prices, the currencies of Australia, Canada and Chile traded to weaker levels during the quarter. In the quarter, the Australian dollar traded in a range of $0.91 to $1.06 against the US dollar, while the US dollar against the Canadian dollar and Chilean peso traded in ranges of $1.00 to $1.06 and CLP 466 to CLP 518, respectively.

In the second quarter, we recorded gains in earnings of approximately $75 million from our Australian, Canadian and Chilean peso hedges, primarily impacting our operating and corporate administration costs.

 

 

BARRICK SECOND QUARTER 2013   20   MANAGEMENT’S DISCUSSION AND ANALYSIS


AUD Currency Contracts

 

      Contracts
(AUD
millions)
     Effective
Average
Hedge
Rate
(AUDUSD)
     % of Total
Expected
AUD
Exposure1
Hedged
     % of
Expected
Operating
Cost
Exposure
Hedged
    

Crystallized  

OCI 2 (USD  

millions)  

 

2013

     295         0.97         34%         42%         127     

2014

     338         0.92         18%         23%         109     

2015

     707         0.92         42%         51%         -     

2016

     479         0.90         30%         37%         -     

CAD Currency Contracts

 

      Contracts
(CAD
millions)3
     Effective
Average Hedge
Rate (USDCAD)
     % of Total
Expected CAD
Exposure1
Hedged
    

% of  

Expected  

Operating Cost  

Exposure  

Hedged  

 

2013

     224         1.02         84%         100%     

2014

     201         1.00         39%         46%     

CLP Currency Contracts

 

      Contracts
(CLP
millions)  4
     Effective
Average
Hedge
Rate
(USDCLP)
     % of Total
Expected
CLP
Exposure1
Hedged
     % of
Expected
Operating
Cost
Exposure
Hedged
    

Crystallized  

OCI 2 (USD  

millions)  

 

 

2013

     -         -         -         -         7     

 

2014

     60,000         500         28%         68%         9     

 

2015

     78,000         513         16%         43%         -     

 

1 

Includes all forecasted operating, administrative, sustainable and eligible project capital expenditures.

2 

Reclassification from OCI to earnings/PP&E: $127 million (AUD), $7 million (CLP) will be in 2013 and $109 million (AUD), $9 million (CLP) in 2014.

3

Includes $283 million CAD contracts with a cap and floor of $1.00 and $1.08, respectively.

4 

Economic collar contracts that are an economic hedge of operating, administrative and capital expenditures at various South American sites.

Fuel

Concerns over global economic growth, supply and transportation issues and geopolitical tensions in certain oil producing regions combined to create volatility in oil prices in the second quarter. The price of West Texas Intermediate (“WTI”) crude oil traded in a range of $86 to $99 per barrel in the second quarter, averaged $94 per barrel, and ended the quarter at $97 per barrel, compared to an average of $93 per barrel in the same prior year period.

In the second quarter, we recorded a hedge gain of $6 million on our fuel hedge positions (Q2 2012: $3 million).

Financial Fuel Hedge Summary

 

      Barrels1
(thousands)
     Average Price     

% of Expected  

Exposure  

 

 

  2013

     1,292         $  94         46%     

 

  2014

     1,644         95         29%     

 

  2015

     1,920         89         39%     

 

  2016

     1,680         85         35%     

 

  2017

     480         81         37%     
       7,016         $  89         36%     

 

1 

Refers to contracts for a combination of WTI, BRENT and WTI-to-BRENT swaps. As a result, our average price on hedged barrels for 2013 - 2015 is $88 per barrel on a WTI-equivalent basis.

US Dollar Interest Rates

During the second quarter, the Federal Open Market Committee of the US Federal Reserve released statements reiterating that the current 0% to 0.25% range for the benchmark rate would remain appropriate at least as long as the US unemployment rate remains above 6.5%, projected inflation remains below 2.5% and longer-term inflation expectations continue to be well anchored. In addition, we expect the US Federal Reserve to continue to use monetary policy initiatives, such as purchases of agency-backed mortgage securities and longer-term Treasury securities, in an effort to keep long-term interest rates low and increase employment, though fluctuations to the monthly amounts of monetary stimulus are expected in the remainder of 2013. We expect such initiatives to be followed by incremental increases to short-term rates once economic conditions normalize.

At present, our interest rate exposure mainly relates to interest receipts on our cash balances ($2.4 billion at June 30, 2013); the mark-to-market value of derivative instruments; the fair value and ongoing payments under US dollar interest-rate swaps; and to the interest payments on our variable-rate debt ($1.0 billion at June 30, 2013). Currently, the amount of interest expense recorded in our consolidated statement of income is not materially impacted by changes in interest rates, because the majority of debt was issued at fixed interest rates. The relative amounts of variable-rate financial assets and liabilities may change in the future, depending on the amount of operating cash flow we generate, as well as the level of capital expenditures and our ability to borrow on favorable terms using fixed rate debt instruments.

 

 

BARRICK SECOND QUARTER 2013   21   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

REVIEW OF FINANCIAL RESULTS

 

Revenue

  ($ millions, except

  per ounce/pound

  data in dollars)

   For the three months
ended June 30
    

For the six months  

ended June 30  

 
      2013      2012      2013      2012    

  Gold

           

  000s oz sold

     1,815         1,690         3,562         3,473    

  Revenue1

     $2,729         $2,816         $5,691         $5,938     

  Market price2

     1,415         1,609         1,523         1,651     

  Realized price2,3

     1,411         1,608         1,518         1,651     

  Copper

           

  millions lbs sold

     135         116         250         234     

  Revenue1

     $421         $396         $804         $841     

  Market price2

     3.24         3.57         3.42         3.67     

  Realized price2,3

     3.28         3.45         3.41         3.62     

  Oil & gas sales

     $42         $34         $80         $76     

  Other metal sales

     $51         $32         $105         $67     

 

1 

Represents revenues on a 100% consolidated basis.

2 

Per ounce/pound weighted average.

3 

Realized price is a non-GAAP financial performance measure with no standard meaning under IFRS. For further information and a detailed reconciliation, please see page 48 of this MD&A.

Gold revenues for the three and six month periods ended June 30, 2013 were $2,729 million and $5,691 million, respectively, down 3% and 4%, respectively, compared to the same prior year periods due to lower realized gold prices partially offset by higher sales volumes. Copper revenues for the three month period ended June 30, 2013 were $421 million, up 6% compared to the same prior year period as higher sales volumes were partially offset by lower realized copper prices. Copper revenues for the six month period ended June 30, 2013 were $804 million, down 4% compared to the same prior year period as lower realized copper prices were partially offset by higher sales volumes.

Realized gold prices for the three and six month periods ended June 30, 2013 were $1,411 per ounce and $1,518 per ounce, respectively, down $197 and $133 per ounce, respectively, compared to the same prior year periods. The decrease in realized prices reflects the sharp decrease in market gold prices in second quarter 2013, which resulted in average market prices of $1,415 per ounce and $1,523 per ounce for the three and six month periods ended June 30, 2013, compared to market gold prices of $1,609 per ounce and $1,651 per ounce for the same prior year periods. Realized copper prices for the three and six month periods ended June 30, 2013 were $3.28 per pound and $3.41 per pound, down 5% and 6% respectively, compared to the same prior year periods due to the significant decrease in market copper prices in second quarter 2013.

Production Costs

  ($ millions, except per

  ounce/pound data in

  dollars)

   For the three months
ended June 30
     For the six months  
ended June 30  
 
      2013      2012      2013      2012    

  Cost of sales

           

  Direct mining cost

     $ 1,301         $ 1,262         $ 2,619         $ 2,520     

  Depreciation

     453         388         849         761     

  Royalty expense

     78         79         174         158     

  Cost of sales - gold

     1,562         1,433         3,065         2,856     

  Adjusted operating costs1,2

     552         591         558         568     

  All-in sustaining costs1,2

     919         1,061         931         1,000     

  Cost of sales - copper

     270         296         577         583     

  C1 cash costs1,2

     $ 1.75         $ 2.21         $ 2.08         $ 2.13     

  C3 fully allocated costs1,2

     $ 2.27         $ 2.78         $ 2.61         $ 2.73     

 

1 

Per ounce/pound weighted average.

2 

Adjusted operating costs, all-in sustaining costs, C1 cash costs and C3 fully allocated costs are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please see pages 47 - 48 of this MD&A.

Cost of sales applicable to gold for the three and six month periods ended June 30, 2013 were $1,562 million and $3,065 million, respectively. This compares to cost of sales of $1,433 million and $2,856 million for the same prior year periods. The increase over the same prior year periods reflects higher sales volumes and higher direct mining costs, including higher labor, energy, maintenance and consumable costs, which were largely driven by an increase in ore tons processed, partially offset by an increase in capitalized production phase stripping costs.

Gold adjusted operating costs for the three and six month periods ended June 30, 2013 were $552 per ounce and $558 per ounce, respectively, both down compared to the same prior year periods. The decrease reflects the same factors impacting cost of sales applicable to gold, which was more than offset by the impact of higher production levels. All-in sustaining costs for the three and six month periods ended June 30, 2013 were $919 per ounce and $931 per ounce, respectively, down 13% and 7%, respectively, compared to the same prior year periods, primarily reflecting lower adjusted operating costs and decreases in general & administrative costs and sustaining capital expenditures.

Cost of sales applicable to copper for the three and six month periods ended June 30, 2013 were 9% and 1% lower, respectively, from the same prior year periods, primarily due to lower unit operating expenses during the quarter at Lumwana resulting from the termination of one of the mining contractors and lower depreciation expense as a result of the impairment charges recorded

 

 

BARRICK SECOND QUARTER 2013   22   MANAGEMENT’S DISCUSSION AND ANALYSIS


in the fourth quarter of 2012, which more than offset the cost associated with higher sales volumes.

C1 cash costs for the three and six month periods ended June 30, 2013 were $1.75 per pound and $2.08 per pound, respectively, down 21% and 2%, respectively, from the same prior year periods. The decrease is primarily due to the reduction in contract mining costs at Lumwana as a result of a reduction in waste stripping as a result of our re-sequencing of the mine plan to better balance mobile equipment availability. C3 fully allocated costs per pound for the three and six month periods ended June 30, 2013 were $2.27 per pound and $2.61 per pound, respectively, down 18% and 4%, respectively, from the same prior year periods, primarily reflecting the effect of the above factors on C1 cash costs.

Corporate Administration

     For the three months      For the six months  
  ($ millions)    ended June 30      ended June 30  
      2013      2012      2013      2012  

  Corporate administration expense

     $ 43         $ 57         $ 88         $ 105   

Corporate administration costs for the three and six month periods ended June 30, 2013 were $43 million and $88 million, down 25% and 16%, respectively compared to the same prior year periods.

Other Expense (Income)

     For the three months      For the six months  
  ($ millions)    ended June 30      ended June 30  
      2013      2012      2013      2012  

  Operating segment administration1

     $ 53         $ 49         $ 99         $ 106   

  Corporate social responsibility

     28         21         40         38   

  Currency translation losses2

     24         19         41         -   

  Severance and demobilization

     63         -         76         -   

  Project care and maintenance charges

     37         -         69         -   

  Changes in estimate of rehabilitation costs at closed mines

     (47)         15         (52)         16   

  Other items

     46         20         73         38   

  Total other expense

     $ 204         $ 124         $ 346         $ 198   

 

1 

Relates to general and administrative costs incurred at business unit offices.

2 

Amounts attributable to currency translation losses on working capital balances.

Other expense for the three and six month periods ended June 30, 2013 was $204 million and $346 million, respectively, compared to $124 million and $198 million, respectively, for the same prior year periods. The increase in other expense is primarily due to higher project care and maintenance charges and

severance and demobilization costs, partially offset by changes in the estimates of rehabilitation costs at our closed sites.

Exploration and Evaluation

     For the three months      For the six months  
  ($ millions)    ended June 30      ended June 30  
      2013      2012      2013      2012  

  Exploration:

           

Minesite programs

     $ 13         $ 16         $ 26         $ 31   

Global programs

     37         50         69         94   

  Evaluation costs

     8         19         11         31   

  Exploration and evaluation expense

     $ 58         $ 85         $ 106         $ 156   

Exploration and evaluation expense for the three and six month periods ended June 30, 2013 were $58 million and $106 million respectively. This compares to E&E expenditures for the same prior year periods of $85 million and $156 million respectively. The decrease is primarily due to decreased global exploration costs, as part of our cost reduction program.

Capital Expenditures1

     For the three months      For the six months  
  ($ millions)    ended June 30      ended June 30  
      2013      2012      2013      2012  

  Total project capital expenditures2

     $ 686         $ 700         $ 1,301         $ 1,330   

  Total capital expenditures

  – minesite expansion

     131         44         242         71   

  Total capital expenditures

  – minesite sustaining

     299         415         594         719   

  Total capital expenditures

  – mine development

     349         380         666         701   

  Capitalized interest

     91         177         138         254   

  Total consolidated capital expenditures

     $ 1,556         $ 1,716         $ 2,941         $ 3,075   

 

1 

These amounts are presented on a 100 % cash basis consistent with the amounts presented on the consolidated statement of cash flows.

2 

On an accrual basis, our share of project capital expenditures for the three and six months ended June 30, 2013 is $565 million and $1,279, respectively, including capitalized interest.

Capital expenditures for the three and six month periods ended June 30, 2013 decreased by $160 million and $134 million, respectively, over the same prior year periods. The overall decrease is primarily due to a decrease in sustaining capital, most notably at Cortez and Lumwana; partially offset by an increase in minesite expansion expenditures at Cortez, Goldstrike and Bulyanhulu. Capitalized interest decreased compared to the same prior year periods, primarily due to Pueblo Viejo entering commercial production in January 2013.

 

 

BARRICK SECOND QUARTER 2013   23   MANAGEMENT’S DISCUSSION AND ANALYSIS


Finance Cost/Finance Income

 

     For the three months      For the six months  
  ($ millions)    ended June 30      ended June 30  
      2013      2012      2013      2012  

  Interest incurred

     $ 206         $ 177         $ 387         $ 336   

  Interest capitalized

     (61)         (143)         (151)         (268)   

  Accretion

     16         17         33         29   

  Finance cost

     $ 161         $ 51         $ 269         $ 97   

  Finance income

     $ 2         $ 3         $ 5         $ 6   

Finance costs for the three and six month periods ended June 30, 2013 were $161 million and $269 million, respectively, compared to $51 million and $97 million for the same prior year periods. Interest costs incurred for the three and six month periods ended June 30, 2013 were $206 million and $387 million, respectively, up 16% and 15%, respectively, over the same prior year periods. The increase in interest costs incurred reflects higher total debt levels compared to the same prior year periods. Interest capitalized for the three and six month periods ended June 30, 2013 decreased by $82 million and $117 million, respectively, compared to the same prior year periods, primarily due to Pueblo Viejo entering commercial production in January 2013.

  Impairment Charges

 

     For the three months      For the six months  
  ($ millions)    ended June 30      ended June 30  
      2013      2012      2013      2012  

  Copper goodwill

     1,033         -         1,033         -   

  Australia Pacific goodwill

     649         -         649         -   

  Capital projects goodwill

     397         -         397         -   

  ABG Goodwill

     185                  185            

  Total goodwill impairment charges

     $ 2,264         -         $ 2,264         -   

  Pascua-Lama

     $ 5,111         -         $ 5,111         -   

  Buzwagi

     423         -         423         -   

  Jabal Sayid

     401         -         401         -   

  Kanowna

     107         -         107         -   

  North Mara

     79            79      

  Granny Smith

     73         -         73         -   

  Plutonic

     14         -         14         -   

  Darlot

     25         -         25         -   

  Exploration

     89         -         89         -   

  Pierina

     98         -         98         -   

  Highland

     -         -         -         85   

  Available for sale investments

     13         25         17         31   

  Other

     10         -         11         2   

  Total after-tax asset impairment charges

     $ 6,443         $ 25         $ 6,448         $ 118   

  Total after-tax impairment charges

     $ 8,707         $ 25         $ 8,712         $ 118   

  Related income tax effects and NCI

     $ 620         $ 3         $ 620         $ 4   

  Total impairment charges/(reversals)

     $ 9,327         $ 28         $ 9,332         $ 122   

Impairment charges for the three and six month periods ended June 30, 2013 were $8.7 billion and $8.7 billion, respectively, compared to $25 million and $118 million for the same prior year periods. The charges for second quarter 2013 primarily related to asset impairment charges at Pascua-Lama ($5.1 billion), Buzwagi ($423 million), Jabal Sayid ($401 million), various Australian mine sites ($219 million), Pierina ($98 million), various exploration sites ($89 million); and goodwill impairment charges in our global copper ($1.0 billion), Australia Pacific ($649 billion), and Capital Projects ($397 million) segments. The charges for 2012 were primarily related to the write down of our investments in Highland Gold. Refer to pages 41 - 44 for further information.

 

 

BARRICK SECOND QUARTER 2013   24   MANAGEMENT’S DISCUSSION AND ANALYSIS


Income Tax

Income tax recovery was $213 million in the second quarter 2013. After adjusting for the impact of net currency translation gains on deferred tax balances and the impact of impairment charges and non-hedge derivatives, the underlying effective tax rate for income in the second quarter 2013 was 30%.

We record deferred tax charges or credits if changes in facts or circumstances affect the estimated tax basis of assets and therefore the amount of deferred tax assets or liabilities to reflect changing expectations in our ability to

realize deferred tax assets. The interpretation of tax regulations and legislation and their application to our business is complex and subject to change. We have significant amounts of deferred tax assets, including tax loss carry forwards, and also deferred tax liabilities. Potential changes of any of these amounts, as well as our ability to realize deferred tax assets, could significantly affect net income or cash flow in future periods. For Pascua-Lama, and certain of the Australia Pacific segment entities, we have not recognized deferred tax assets that arose subsequent to the impairment booked in second quarter 2013.

 

 

Operational Overview

 

   For the three months ended June 30      For the six months ended June 30  

 

  Gold

   2013      2012      % Change      2013      2012      % Change  

  Production (000s oz)1

     1,811         1,742         4%         3,608         3,623         -   

  Ore tons mined (000s)

     43,104         40,365         7%         85,091         76,972         11%   

  Waste tons mined (000s)

     140,630         127,935         10%         265,954         258,602         3%   

  Total tons mined (000s)

     183,734         168,300         9%         351,045         335,574         5%   

  Ore tons processed (000s)

     42,375         37,222         14%         81,218         74,222         9%   

  Average grade (ozs/ton)

     0.053         0.054         (2%)         0.053         0.055         (4%)   

  Recovery rate

     80.6%         86.7%         (7%)         83.8%         88.8%         (6%)   

 

  Copper

                                               

  Production (millions lbs)

     134         109         23%         261         226         15%   

  Ore tons mined (000s)

     18,704         17,791         5%         35,384         33,643         5%   

  Waste tons mined (000s)

     28,245         35,680         (21%)         52,096         61,450         (15%)   

  Total tons mined (000s)

     46,949         53,471         (12%)         87,480         95,093         (8%)   

  Ore tons processed (000s)

     20,135         17,179         17%         37,739         34,285         10%   

 

  1

Reflects our equity share of production.

 

Gold production for the three months ended June 30, 2013 increased by 4% over the same prior year period, due to higher production in North America and Australia Pacific, partially offset by lower production from South America. Gold production for the six months ended June 30, 2013 was comparable to the same prior year period, as higher production in North America and Australia Pacific was offset by lower production from South America.

Copper production for the three and six month periods ended June 30, 2013 increased by 23% and 15%, respectively, over the same prior year periods, primarily due to higher production at Lumwana, partially offset by slightly lower production at Zaldívar.

Tons Mined and Tons Processed - Gold

Total tons mined for the three and six month periods ended June 30, 2013 were 9% and 5% higher than the same prior year periods. Ore tons processed for the three and six month periods ended June 30, 2013 were

14% and 9% higher than the same prior year periods. The increases in tons mined were primarily due to increased mining activity at Cortez, Round Mountain, Pierina and Pueblo Viejo, partially offset by decreased mining activity at Goldstrike and Ruby Hill. The increase in ore tons processed was primarily due to increases at Pierina, Cortez and Veladero, partially offset by a decrease at Bald Mountain.

Average Mill Head Grades - Gold

Average mill head grades for the three and six month periods ended June 30, 2013 decreased by approximately 2% and 4%, respectively, compared to the same prior year periods, primarily due to lower ore grades from Goldstrike, Bulyanhulu, Turquoise Ridge, Cortez, and Veladero, partially offset by higher grades processed at Porgera, Plutonic, North Mara and Cowal.

 

 

BARRICK SECOND QUARTER 2013   25   MANAGEMENT’S DISCUSSION AND ANALYSIS


Tons Mined and Tons Processed - Copper

Total tons mined for the three and six month periods ended June 30, 2013 were 12% and 8% lower than the same year prior periods. The decrease in tons mined was due equally to Lumwana and Zaldívar. The increase in ore tons processed was also equally due to Lumwana and Zaldívar.

Review of Operating Segments Performance

Barrick’s business is organized into seven primary business units: four regional gold businesses, a global copper business, an oil & gas business, and a Capital Projects business. In July 2013, we sold our oil & gas business (refer to note 4 for further details), therefore we will no longer have the business unit going forward. Barrick’s Chief Operating Decision Maker reviews the operating results, assesses performance and makes capital allocation decisions

for each of these business operations at a business unit level. Therefore, these business units are operating segments for financial reporting purposes. Segment performance is evaluated based on a number of measures including operating income before tax, production levels and unit production costs. Our business unit structure adds value by enabling the realization of operational efficiencies, allocating resources to individual mines/projects more effectively and understanding and managing the local business environment, including labor, consumable costs and supply and government and community relations. Income tax, corporate administration, finance income and costs, impairment charges and reversals, investment write-downs and gains/losses on non-hedge derivatives are managed on a consolidated basis and are therefore not reflected in segment income.

 

 

North America

 

 

  Summary of Operating Data

   For the three months ended June 30      For the six months ended June 30    

 

 
    

 

2013

     2012      % Change      2013      2012      % Change    

 

 

  Total tons mined (000s)

     108,177         99,283         9%         204,428         200,968         2%     

  Ore tons processed (000s)

     16,406         14,567         13%         30,433         29,596         3%     

  Average grade (ozs/ton)

     0.069         0.065         6%         0.070         0.067         4%     

  Gold produced (000s/oz)

     928         854         9%         1,800         1,742         3%     

  Cost of sales ($ millions)

     $ 685         $ 580         18%         $ 1,282         $ 1,115         15%     

  Adjusted operating costs (per oz)1

     $ 475         $ 477         -         $ 481         $ 482         -     

  All-in sustaining costs (per oz)1

     $ 797         $ 894         (11%)         $ 789         $ 850         (7%)     

 

 

 

  Summary of Financial Data

   For the three months ended June 30      For the six months ended June 30    

 

 
     2013      2012      % Change      2013      2012      % Change    

 

 

  Segment income ($ millions)2

     $ 675         $ 782         (14%)         $ 1,483         $ 1,630         (9%)     

  Capital expenditures ($ millions)3

     $ 399         $ 365         9%         $ 686         $ 621         10%     

 

 

 

  1

Adjusted operating costs and all-in sustaining costs are non-GAAP financial performance measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please see page 47 of this MD&A.

  2

Segment income excludes income taxes.

  3

Amounts presented represent our share of expenditures for minesite expansion, minesite sustaining as well as mine development on an accrual basis excluding capitalized interest.

 

Gold production for the three and six month periods ended June 30, 2013 were higher by 9% and 3%, respectively, compared to the same prior year periods, primarily due to higher production as a result of the start of commercial production at Pueblo Viejo, partially offset by lower production at Goldstrike and Bald Mountain. Production at Cortez was higher than the same prior year period for the three month period and lower for the six month period.

Pueblo Viejo production for the three and six month periods ended June 30, 2013 was 122 thousand ounces and 218 thousand ounces, respectively, after achieving commercial production in January 2013. The increase in

tons milled during the second quarter resulted from the ramp up of the autoclave facility and progress in resolving issues with certain components which affected production during the first quarter. Production in the first half of 2013 was lower than expected as a result of these ongoing modifications and repairs to the autoclave facility. The modifications are being implemented on all four autoclaves as they are available for maintenance and we anticipate being able to achieve and sustain planned production levels during the second half of the year. The new 215 megawatt power plant is expected to be commissioned on schedule in the third quarter. Production at Goldstrike decreased by 26% and 16% for the three and six month periods ended June 30, 2013,

 

 

BARRICK SECOND QUARTER 2013   26   MANAGEMENT’S DISCUSSION AND ANALYSIS


respectively, mainly as a result of the processing of lower grade ore at the autoclave facility partially offset by increased process throughput. Production at Bald Mountain decreased by 54% and 45%, respectively, compared to the same year prior year periods mainly as a result of a decrease in ore tons placed on the leach pads as the mine goes through a significant development phase in 2013. Production at Cortez increased by 11% for the three month period ended June 30, 2013 and decreased by 4% for the six month period ended June 30, 2013, mainly as a result of greater ore tons placed on leach pads at lower grades and lower recoveries. Leach tons placed in second quarter 2013 were significant enough to offset the lower grades and recoveries, resulting in increased production; whereas, the leach tons placed during the six month period were not sufficient to offset the lower grades and recoveries.

Cost of sales for the three and six month periods ended June 30, 2013 were higher by 18% and 15%, respectively, compared to the same prior year periods, primarily as a result of bringing Pueblo Viejo into commercial production combined with higher processing costs at Goldstrike. This increase was partially offset by an increase in capitalized production phase stripping costs at Cortez, Bald Mountain, and Goldstrike. Adjusted operating costs were in line at $475 per ounce and $481 per ounce, respectively, for the three and six month periods ended June 30, 2013 compared to the same prior year periods primarily due to Cortez producing more ounces at a lower adjusted operating cost. Lower costs at Cortez are due to increased capitalized production phase stripping. All-in sustaining costs for the three and six months periods ended June 30, 2013 were lower by 11% and 7%, respectively, compared to the same prior year periods due the impact of higher ounces sold, partially offset by higher mine development capital expenditures.

Segment income for the three and six month periods ended June 30, 2013 was $675 million and $1,483 million, respectively, a decrease of 14% and 9% over the same prior year period. The decrease was primarily due to lower realized gold prices and the increase in cost of sales described above, partially offset by higher sales volumes. Capital expenditures for the three and six month periods ended June 30, 2013 were higher by 9% and 10%, respectively, compared to the same prior year periods, primarily due to increased minesite expansion capital.

We continue to expect full year production to be in the range of 3.55 to 3.70 million ounces and now expect adjusted operating costs to be in the range of $475 to $525 per ounce and all-in sustaining costs to be in the range of $750 to $800 per ounce for the region, both lower than our previous ranges of $495 to $545 per ounce and $820 to $870 per ounce, respectively.

Goldstrike Thiosulfate technology project

Construction of the thiosulfate technology project, including the retrofitting of the existing plant and the construction of new installations, continued during the quarter. This project allows for continued production from the autoclaves and brings forward production of about 3.5 million ounces in the mine plan. First gold production is expected in the third quarter 2014, with an average annual contribution of about 350 to 400 thousand ounces over the first full five years. Total project costs are expected to be about $450 million.

Goldrush and Cortez District

Over 40% of the exploration budget is allocated to North America, primarily Nevada. The Goldrush project is advancing through prefeasibility, and a number of development options are being considered, including open pit mining, underground mining, or a combination of both. These trade-off studies will provide a better understanding of the potential of this quality asset and the economic drivers for development, which will form the basis of the prefeasibility study. The overall project schedule remains on track. This district is a cornerstone of Barrick’s current and future success and is located in a mining area well provided with significant infrastructure and expertise.

 

 

BARRICK SECOND QUARTER 2013   27   MANAGEMENT’S DISCUSSION AND ANALYSIS


  South America

 

  Summary of Operating Data    For the three months ended June 30      For the six months ended June 30  
     

 

2013

     2012      % Change      2013      2012      % Change  

  Total tons mined (000s)

     37,613         32,969         14%         74,916         65,091         15%   

  Ore tons processed (000s)

     17,673         14,297         24%         34,475         28,249         22%   

  Average grade (ozs/ton)

     0.026         0.030         (13%)         0.026         0.031         (16%)   

  Gold produced (000s/oz)

     296         327         (9%)         666         778         (14%)   

  Cost of sales ($ millions)

     $ 214         $ 161         33%         $ 450         $ 418         8%   

  Adjusted operating costs (per oz)1

     $ 439         $ 459         (4%)         $ 424         $ 440         (4%)   

  All-in sustaining costs (per oz)1

     $ 821         $ 929         (12%)         $ 765         $ 773         (1%)   

 

  Summary of Financial Data

   For the three months ended June 30      For the six months ended June 30  
     

 

2013

     2012      % Change      2013      2012      % Change  

  Segment income ($ millions)2

     $ 209         $ 227         (8%)         $ 526         $ 670         (21%)   

  Capital expenditures ($ millions)3

     $ 100         $ 97         3%         $ 184         $ 182         1%   

 

1 

Adjusted operating costs and all-in sustaining costs are non-GAAP financial performance measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please see page 47 of this MD&A.

2 

Segment income excludes income taxes.

3 

Amounts presented represent expenditures for minesite expansion, minesite sustaining as well as mine development on an accrual basis excluding capitalized interest.

 

Gold production for the three and six month periods ended June 30, 2013 were lower by 9% and 14%, respectively, compared to the same prior year periods. The decrease in production reflects lower production levels across all of our mines, particularly at Lagunas Norte and Veladero. Production at Lagunas Norte decreased by 6% and 20% for the three and six month periods ended June 30, 2013, respectively, primarily as a result of the scheduled decrease in head grade and a build-up of ounces placed on the leach pad. Production at Veladero decreased by 11% and 7% for the three and six month periods ended June 30, 2013, respectively, primarily as a result of the scheduled decrease in head grade and increased recoverable inventory in the leach pad.

Cost of sales for the three and six month periods ended June 30, 2013 were higher by 33% and 8%, respectively, compared to the same prior year periods. The increases were primarily due to generally higher commodity and labor inflation. Adjusted operating costs per ounce were lower by 4% and 4%, to $439 per ounce and $424 per ounce, respectively, for the three and six month periods ended June 30, 2013 compared to the same prior year periods, primarily due to increased silver by-product credits and increased ounces placed on the leach pad at Veladero, partially offset by inflationary pressures in commodities and labor. All-in sustaining costs for the

three and six months periods ended June 30, 2013 were $821 per ounce and $765 per ounce, respectively, lower by 12% and 1%, respectively, compared to the same prior year periods, reflecting higher silver credits at Veladero, partially offset by higher sustaining capital expenditures.

Segment income for the three and six month periods ended June 30, 2013 was $209 million and $526 million, respectively, a decrease of 8% and 21%, respectively, over the same prior year periods. The decrease was primarily as a result of lower realized gold prices, partially offset by increased silver by-product revenue and capitalized production phase stripping. Capital expenditures for the three and six month periods ended June 30, 2013 were higher by 3% and 1%, respectively, compared to the same prior year periods, reflecting construction of Phase 5 leach pad and the Carbon-in-Column process plant at Lagunas Norte and the ARD water treatment plants at Pierina.

We continue to expect full year production to be in the range of 1.25 to 1.35 million ounces and now expect adjusted operating costs to be in the range of $475 to $525 per ounce, lower than our previous range of $550 to $600 per ounce. We continue to expect full year all-in sustaining costs to be in the range of $875 to $925 per ounce for the region.

 

 

BARRICK SECOND QUARTER 2013   28   MANAGEMENT’S DISCUSSION AND ANALYSIS


  Australia Pacific

 

  Summary of Operating Data    For the three months ended June 30      For the six months ended June 30  
     

 

2013

     2012      % Change      2013      2012      % Change  

  Total tons mined (000s)

     25,610         26,407         (3%)         47,961         52,041         (8%)   

  Ore tons processed (000s)

     6,582         6,859         (4%)         13,012         13,329         (2%)   

  Average grade (ozs/ton)

     0.081         0.075         8%         0.080         0.075         7%   

  Gold produced (000s/oz)

     465         445         4%         912         871         5%   

  Cost of sales ($ millions)

     $ 450         $ 490         (8%)         $ 906         $ 938         (3%)   

  Adjusted operating costs (per oz)1

     $ 739         $ 842         (12%)         $ 763         $ 797         (4%)   

  All-in sustaining costs (per oz)1

     $ 1,033         $ 1,201         (14%)         $ 1,065         $ 1,154         (8%)   

 

  Summary of Financial Data

  

For the three months ended June 30

     For the six months ended June 30  
     

 

2013

     2012      % Change      2013      2012      % Change  

  Segment income ($ millions)2

     $ 245         $ 247         (1%)         $ 519         $ 539         (4%)   

  Capital expenditures ($ millions)3

     $ 117         $ 131         (11%)         $ 231         $ 248         (7%)   

 

1

Adjusted operating costs and all-in sustaining costs are non-GAAP financial performance measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please see page 47 of this MD&A.

2 

Segment income excludes income taxes.

3

Amounts presented represent expenditures for minesite expansion, minesite sustaining as well as mine development on an accrual basis excluding capitalized interest.

 

Gold production for the three and six month periods ended June 30, 2013 were higher by 4% and 5%, respectively, compared to the same prior year periods, mainly due to increased production at Cowal and Porgera, partially offset by lower production at KCGM.

Production at Cowal increased by 42% and 40% for the three and six month periods ended June 30, 2013, respectively, as a result of higher grade ore being mined from the open pit. Production at Porgera increased by 18% and 15% for the three and six month periods ended June 30, 2013, respectively, benefiting from higher throughput and grade in 2013 with fewer operational disruptions compared to 2012. Production at KCGM decreased by 14% and 17% for the three and six month periods ended June 30, 2013, respectively, mainly due to lower grades from the open pit.

Cost of sales for the three and six month periods ended June 30, 2013 were lower by 8% and 3%, respectively, compared to the same prior year periods. The decreases were primarily due to lower direct operating costs across the region as sites continue to optimize their cost profiles, particularly with respect to natural gas, power and contract labor, a decrease in our effective Australian dollar exchange rates and an increase in capitalized production phase stripping costs at Porgera. Adjusted operating costs per ounce were down 12% and 4%, to $739 per ounce and $763 per ounce respectively, for the three and six month periods ended June 30, 2013 compared to the same prior year periods, primarily due

to a reduction in cost of sales and the impact of increased production on unit production costs. All-in sustaining costs for the three and six months periods ended June 30, 2013 were $1,033 per ounce and $1,065 per ounce, respectively, lower by 14% and 8%, respectively, compared to the same prior year periods, reflecting lower direct operating costs across the region, increased production and a reduction in capital expenditures.

Segment income for the three and six month periods ended June 30, 2013 was $245 million and $519 million, respectively, a decrease of 1% and 4% over the same prior year period. The decrease was primarily due to lower realized gold prices, partially offset by a reduction in cost of sales.

Capital expenditures for the three and six month periods ended June 30, 2013 were lower by 11% and 7%, respectively, compared to the same prior year periods, reflecting lower sustaining capital expenditures at all sites, partially offset by an increase in capitalized production phase stripping at Porgera and Cowal.

We continue to expect full year production to be in the range of 1.70 to 1.85 million ounces and now expect adjusted operating costs to be in the range of $800 to $900 per ounce and all-in sustaining costs to be in the range of $1,100 to $1,200 per ounce for the region, both lower than our previous ranges of $880 to $950 per ounce and $1,200 to $1,300 per ounce, respectively.

 

 

BARRICK SECOND QUARTER 2013   29   MANAGEMENT’S DISCUSSION AND ANALYSIS


  African Barrick Gold

  100% basis

 

  Summary of Operating Data    For the three months ended June 30      For the six months ended June 30  
     

 

2013

     2012      % Change      2013      2012      % Change  

  Total tons mined (000s)

     16,690         13,046         28%         32,124         23,890         34%   

  Ore tons processed (000s)

     2,319         2,028         14%         4,463         4,124         8%   

  Average grade (ozs/ton)

     0.082         0.087         (6%)         0.079         0.084         (6%)   

  Gold produced (000s/oz)

     165         153         8%         311         298         4%   

  Cost of sales ($ millions)

     $ 210         $ 196         7%         $ 414         $ 374         11%   

  Adjusted operating costs (per oz)1

     $ 894         $ 935         (4%)         $ 919         $ 912         1%   

  All-in sustaining costs (per oz)1

     $ 1,416         $ 1,536         (8%)         $ 1,507         $ 1,465         3%   
  Summary of Financial Data    For the three months ended June 30      For the six months ended June 30  
      2013      2012      % Change      2013      2012      % Change  

  Segment income ($ millions)2

     $ 2         $ 53         (96%)         $ 33         $ 111         (70%)   

  Capital expenditures ($ millions)3

     $ 101         $ 82         23%         $ 206         $ 143         44%   

 

1

Adjusted operating costs and all-in sustaining costs are non-GAAP financial performance measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please see page 47 of this MD&A.

2

Segment income excludes income taxes.

3

Amounts presented represent expenditures for minesite expansion, minesite sustaining as well as mine development on an accrual basis excluding capitalized interest.

 

Gold production at ABG for the three and six month periods ended June 30, 2013 totaled 165 thousand ounces (Barrick’s share 122 thousand ounces) and 311 thousand ounces (Barrick’s share 230 thousand ounces), respectively, were higher by 8% and 4%, respectively, compared to the same prior year periods. The increase in production was primarily due to higher production at North Mara and Buzwagi, partially offset by lower production at Bulyanhulu and Tulawaka.

Production at North Mara increased by 52% and 67% for the three and six month periods ended June 30, 2013, respectively, mainly as a result of the processing of higher grade ore due to the opening of higher grade areas of the pit as a result of the waste stripping program that was undertaken over the past year, combined with an increase in mill recovery rates due to the higher grades and a gold plant upgrade that was completed in 2012. Production at Buzwagi increased by 36% and 21% for the three and six month periods ended June 30, 2013, respectively, mainly due to increased throughput and higher recoveries, partially offset by lower grades. Production at Bulyanhulu decreased by 21% and 29% for the three and six month periods ended June 30, 2013, respectively, mainly due to lower head grade and mining equipment availability issues, which had a negative impact on tons mined compared to the same prior year period. Towards the end of the current period, grades and equipment availability began to improve and further improvements are expected during the second half of 2013. Production at Tulawaka decreased compared to the same prior year periods as mining operations came to an end in first quarter 2013.

Cost of sales for the three and six month periods ended June 30, 2013 increased by 7% and 11%, respectively, compared to the same prior year periods, primarily due to higher direct mining costs as a result of increased mining activity as more tons were mined at Buzwagi and North Mara and higher tons processed at Buzwagi, overall cost inflation in input costs, and an increase in royalty rates (effective second quarter 2012), partially offset by an increase in capitalized production phase stripping costs at Buzwagi and North Mara. Adjusted operating costs per ounce were down 4% and up 1%, to $894 per ounce and $919 per ounce respectively, for the three and six month periods ended June 30, 2013 compared to the same prior year periods. The decrease in second quarter adjusted operating costs reflects the same factors impacting cost of sales, which was more than offset by the impact of higher production levels on unit production costs. All-in sustaining costs for the three month period ended June 30, 2013 were $1,416 per ounce, lower by 8%, compared to the same prior year periods due to lower adjusted operating costs and lower sustaining capital expenditures at North Mara. All-in sustaining costs for the six month period ended June 30, 2013 were $1,507 per ounce, higher by 3%, compared to the same prior year period due to higher adjusted operating costs and an increase in capitalized stripping costs at Buzwagi and North Mara in the second quarter, offset by the effect of greater sales volumes.

Segment income for the three and six month periods ended June 30, 2013 was $2 million and $33 million, respectively, a decrease of 96% and 70% over the same prior year period. The decrease was primarily due to the

 

 

BARRICK SECOND QUARTER 2013   30   MANAGEMENT’S DISCUSSION AND ANALYSIS


lower realized gold price and higher cost of sales. Capital expenditures for the three and six month periods ended June 30, 2013 were higher by 23% and 44%, respectively, compared to the same prior year periods, primarily due to higher minesite expansion capital expenditures at Bulyanhulu related to the CIL expansion project and higher capitalized stripping costs at Buzwagi, partially offset by lower sustaining capital at all sites.

 

We continue to expect full year equity gold production reflecting our 73.9% ownership of ABG to be in the range of 0.400 to 0.450 million ounces at adjusted operating costs of $925 to $975 per ounce and at all-in sustaining costs of $1,550 to $1,600 per ounce for the region. This all-in sustaining cost guidance does not take into account the implementation of ABG’s operational review.

 

  Capital Projects

   Summary of Financial and Operating Data

 

  ($ millions)    For the three months ended June 30      For the six months ended June 30  
     

 

2013

     2012      % Change      2013      2012      % Change  

  Segment income (loss)

     (155)         (32)         384%         (217)         (47)         362%   

  Capital expenditures - initial capital1

                 

Pascua-Lama

     440         533         (17%)         1,028         854         20%   

Pueblo Viejo2

     -         160         (100%)         -         253         (100%)   

Cerro Casale

     3         1         300%         6         11         (45%)   

Donlin

     2         5         (60%)         6         8         (25%)   

  Capital expenditures - Infrastructure1

                 

Pascua-Lama

     12         8         50%         35         8         338%   

Pueblo Viejo2

     -         24         (100%)         -         28         (100%)   

  Total capital expenditures

     $ 457         $ 731         (37%)         $ 1,075         $ 1,162         (7%)   

  Currency hedge impact (gain) / loss3

     (27)         (4)         575%         (35)         (9)         289%   

  Adjusted capital expenditures

     430         727         (41%)         1,040         1,153         (10%)   

  Capital commitments4

                                $ 469         $ 1,704         (72%)   

 

1 

Amounts presented represent our share of capital expenditures on an accrual basis excluding capitalized interest.

2 

Amounts reflect our Pueblo Viejo project cost before reaching commercial production up to December 2012. Amounts from January 2013 are recorded in North America segment.

3 

Amounts presented include impacts of our hedge and non-hedge contracts for pre-production capital at our Pascua-Lama and Cerro Casale projects.

4 

Capital commitments represent purchase obligations as at June 30 where binding commitments have been entered into for long lead capital items related to construction activities at our projects.

 

The decrease in capital expenditures in second quarter 2013 primarily relates to the decrease of expenditures at Pueblo Viejo, as it entered commercial production in January 2013 and amounts are now recorded in the North America segment, combined with the lower spending at our Pascua-Lama project as a result of reduced construction activities.

In addition, $89 million and $134 million in care and maintenance costs and severance and demobilization costs related to Pascua-Lama and Jabal Sayid were recognized in other expense for the three and six month periods ended June 30, 2013, respectively.

An update on our Pascua-Lama project is provided on pages 16 to 17 of this MD&A.

 

 

BARRICK SECOND QUARTER 2013   31   MANAGEMENT’S DISCUSSION AND ANALYSIS


  Global Copper

 

  Summary of Operating Data    For the three months ended June 30      For the six months ended June 30  
     

 

2013

     2012      % Change      2013      2012      % Change  

  Copper produced (millions of lbs)

     134         109         23%         261         226         15%   

  Cost of sales ($ millions)

     $ 270         $ 296         (9%)         $ 577         $ 583         (1%)   

  C1 cash costs (per lb)1

     $ 1.75         $ 2.21         (21%)         $ 2.08         $ 2.13         (2%)   

  C3 fully allocated costs (per lb)1

     $ 2.27         $ 2.78         (18%)         $ 2.61         $ 2.73         (4%)   
  Summary of Financial Data   

 

For the three months ended June 30

     For the six months ended June 30  
      2013      2012      % Change      2013      2012      % Change  

  Segment income ($ millions)2

     $ 128         $ 89         44%         $ 179         $ 247         (28%)   

  Capital expenditures ($ millions)3

     $ 123         $ 214         (43%)         $ 224         $ 347         (35%)   

 

1 

C1 cash costs and C3 fully allocated costs are non-GAAP financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see page 48 of this MD&A

2 

Segment income excludes income taxes.

3 

Amounts presented represent expenditures for minesite expansion, minesite sustaining as well as mine development on an accrual basis excluding capitalized interest.

 

Copper production for the three and six month periods ended June 30, 2013 was 134 million pounds and 261 million pounds, respectively, 23% and 15% higher than the same prior year periods. Production at Lumwana increased by 81% and 56% for the three and six month periods ended June 30, 2013, respectively, primarily due to higher mill throughput and the processing of higher grade ore. Production at Zaldívar decreased by 5% and 7% for the three and six month periods ended June 30, 2013, respectively, mainly due to lower production from the heap leach as a result of lower sulfides recovery; partially offset by higher production from the dump leach due to better ore grades and more tons processed.

Cost of sales for the three and six months periods ended June 30, 2013 were 9% and 1% lower, respectively, from the same prior year periods, primarily due to lower unit operating expenses during the quarter at Lumwana resulting from the termination of one of the mining contractors and lower depreciation expense as a result of the impairment charges recorded in the fourth quarter of 2012, which more than offset the cost associated with higher sales volumes. C1 cash costs for the three and six month periods ended June 30, 2013 were $1.75 per pound and $2.08 per pound, respectively, down 21% and 2%, respectively, from the same prior year periods. The decrease is primarily due to the reduction in contract mining costs at Lumwana as a result of a reduction in waste stripping as a result of our re-sequencing of the mine plan to better balance mobile equipment availability. C3 fully allocated costs per pound for the three and six month periods ended June 30, 2013 were $2.27 per pound and $2.61 per pound, respectively, down 18% and 4%, respectively, from the same prior year periods, primarily reflecting the effect of the above factors on C1 cash costs.

Segment income for the three and six month periods ended June 30, 2013 was $128 million and $179 million, respectively, an increase of 44% and decrease of 28% over the same prior year period. The increase in the quarter was the result of higher copper sales volumes combined with lower unit costs at Lumwana, which more than offset the lower realized price. The decrease for the six month period was the result of lower realized copper prices and higher unit costs at Zaldívar. Capital expenditures for the three and six month periods ended June 30, 2013 were lower by 43% and 35%, respectively, compared to the same prior year periods, reflecting lower capital expenditures at Lumwana as development of the Chimiwungo pit is complete and lower capital expenditures at Jabal Sayid as the process infrastructure construction is now complete.

We now expect full year copper production to be in the range of about 500 to 540 million pounds, within our original guidance range of 480 to 540 million pounds at C1 cash costs in the range of $1.95 to $2.15 per pound and C3 fully allocated costs in the range of $2.50 to $2.75 per pound, both lower than our previous ranges of $2.10 to $2.30 per pound and $2.60 to $2.85 per pound, respectively.

Jabal Sayid

During the second quarter, $18 million was invested in the HCIS compliance project which includes the installation of safety and security infrastructure. While this work is progressing, the number of employees at site has been reduced to minimize costs until approval to commence operations is received. Management is also using the opportunity in 2013 to study alternate hauling/hoisting options from the underground mine with the goal of improving LOM cash flow when it comes into production.

 

 

BARRICK SECOND QUARTER 2013   32   MANAGEMENT’S DISCUSSION AND ANALYSIS


Once Jabal Sayid comes into production, the average annual copper output in concentrate is expected to be 100 to 130 million pounds at C1 cash costs of $1.50 to $1.70 per pound3 in its first full five years of operation.

Since the Company acquired its interest in the Jabal Sayid project through its acquisition of Equinox Minerals in 2011, the Deputy Ministry for Mineral Resources (“DMMR”), which oversees the mining license, has questioned whether such change in the indirect ownership of the project, as well as previous changes in ownership, required the prior consent of DMMR. We are progressing discussions with DMMR to try to resolve this situation. Should this not be successful, alternatives, such as further curtailing or suspending activities on site until a resolution is achieved, are being studied.

 

 

 

 

3 

Does not include escalation for future inflation.

 

 

BARRICK SECOND QUARTER 2013   33   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

  FINANCIAL CONDITION REVIEW

  Summary Balance Sheet and Key Financial Ratios

 

  ($ millions, except ratios and share amounts)    As at June 30, 2013      As at December 31, 2012  

  Total cash and equivalents

     $ 2,422         $ 2,097   

  Working capital

     3,415         2,884   

  Non-current assets

     33,142         41,721   

  Other assets

     916         776   

  Total Assets

     $ 39,895         $ 47,478   

  Non-current liabilities excluding long-term debt

     5,578         6,330   

  Debt

     15,793         13,943   

  Other liabilities

     2,453         2,569   

  Total Liabilities

     $ 23,824         $ 22,842   

  Total shareholders’ equity

     13,521         21,972   

  Non-controlling interests

     2,550         2,664   

  Total Equity

     $ 16,071         $ 24,636   

  Dividends

     $ 400         $ 750   

  Debt

     $ 15,793         $ 13,943   

  Total common shares outstanding (millions of shares)1

     1,001         1,001   

  Key Financial Ratios:

                 

Current ratio2

     1.77:1         1.30:1   

Debt-to-equity3

     0.98:1         0.57:1   

Debt-to-total capitalization4

     0.49:1         0.46:1   

Adjusted return on equity5

     15%         18%   

 

1 

Total common shares outstanding do not include 7.6 million stock options. The increase from December 31, 2012 is due to the exercise of stock options.

2 

Represents current assets divided by current liabilities as at June 30, 2013 and December 31, 2012.

3 

Represents debt divided by total shareholders’ equity (including minority interest) as at June 30, 2013 and December 31, 2012.

4 

Represents debt divided by capital stock and long-term debt as at June 30, 2013 and December 31, 2012.

5 

Represents adjusted net earnings divided by average shareholders’ equity as at June 30, 2013 and December 31, 2012.

 

Balance Sheet Review

Total assets were $40 billion at June 30, 2013, a decrease of $7.6 billion, or 16%, compared to December 31, 2012. The decrease primarily reflects impairments against the carrying value of non-current assets, including $5.1 billion against our Pascua-Lama project and $2.3 billion in goodwill impairments in our global copper, Australian Pacific, Capital Projects and African Barrick Gold segments. Our asset base is primarily comprised of non-current assets such as property, plant and equipment and goodwill, reflecting the capital intensive nature of the mining business and our history of growing through acquisitions. Other significant assets include production inventories and cash and equivalents. We typically do not carry a material accounts receivable balance, since only sales of concentrate and copper cathode have a settlement period.

Total liabilities increased by $1.0 billion or 4% compared to December 31, 2012, largely due to a net increase in debt of $1.85 billion, offset by a decrease in provisions and accounts payable.

Shareholders’ Equity

 

  As at July 17, 2013    Number of shares  

  Common shares

     1,001,152,326   

  Stock options

     7,482,064   

Comprehensive Income

Comprehensive income consists of net income or loss, together with certain other economic gains and losses, which, collectively, are described as “other comprehensive income” or “OCI”, and excluded from the income statement.

For the second quarter 2013, other comprehensive income was a loss of $274 million on an after-tax basis. The loss reflected losses of $73 million on hedge contracts designated for future periods, caused primarily by changes in currency exchange rates, copper prices, and fuel prices, reclassification adjustments totaling $109 million for gains on hedge contracts designated for the second quarter 2013 that were transferred to earnings or PPE in conjunction with the recognition of the related hedge exposure; $21 million of crystallized hedge gains which no

 

 

BARRICK SECOND QUARTER 2013   34   MANAGEMENT’S DISCUSSION AND ANALYSIS


longer qualified for hedge accounting treatment; $20 million of losses recorded as a result of changes in the fair value of investments held during the year; $77 million in losses for currency translation adjustments, partially offset by $15 million of losses transferred to earnings related impaired investments; and an $11 million gain due to tax recoveries on the overall decrease in OCI.

Included in accumulated other comprehensive income at June 30, 2013 were unrealized pre-tax gains on currency, commodity and interest rate hedge contracts totaling $230 million. The balance primarily relates to currency hedge contracts that are designated against operating costs and capital expenditures, primarily over the next three years including $235 million remaining in crystallized hedge gains related to our Australian dollar contracts that were settled in the third quarter of 2012, $45 million in crystallized hedge gains related to our silver contracts as well as $15 million in crystallized hedge gains related to our Chilean peso contracts that were settled in the second quarter of 2013. These hedge gains/losses are expected to be recorded in earnings at the same time the corresponding hedged operating costs/depreciation are recorded in earnings.

Financial Position and Liquidity

Our capital structure comprises a mix of debt and shareholders’ equity. As at June 30, 2013, our total debt was $15.8 billion (debt net of cash and equivalents was $13.4 billion) and our debt-to-equity ratio and debt-to-total capitalization ratios were 0.98:1 and 0.49:1, respectively. This compares to debt as at December 31, 2012 of $13.9 billion (debt net of cash and equivalents was $11.8 billion), and debt-to-equity and debt-to-total capitalization ratios of 0.57:1 and 0.46:1, respectively. The majority of our outstanding long-term debt matures at various dates beyond 2013. In May 2013, we issued $3.0 billion of debt (refer to note 18 for further details), using $2.0 billion of the net proceeds to repay existing indebtedness on our $4.0 billion revolving credit facility that expires in January 2018 (“2012 Credit Facility”).

At current market gold and copper prices, we expect to generate negative free cash flow in 2013. This is primarily due to expected full year total capital expenditures of about $4.5 to $5.0 billion, including $1.8 to $2.0 billion at our Pascua-Lama project. We also have approximately $0.6 billion of debt maturing in the remainder of 2013 and dividend payments that will also impact our overall liquidity. As part of our disciplined capital allocation strategy, we are constantly evaluating our capital expenditures and making reductions where the risk-adjusted returns do not justify the investment.

We are also making divestments of non-core assets and assets that do not meet our investment criteria, completing the sale of our oil & gas business in third quarter 2013. The company’s Board of Directors has authorized reducing the quarterly dividend to $0.05 per share as a further prudent step to improve liquidity4.

Our primary source of liquidity is our operating cash flow. Other options to enhance liquidity include drawing the $4.0 billion available under our 2012 Credit Facility (subject to compliance with covenants and the making of certain representations and warranties, this facility is available for drawdown as a source of financing), further asset sales and securities issuances. The key financial covenant in the 2012 Credit Facility (undrawn as at June 30, 2013) requires Barrick to maintain a consolidated tangible net worth (“CTNW”) of at least $3.0 billion (Barrick’s CTNW was $6.3 billion as at June 30, 2013). Our credit ratings and general market conditions, among other things, impact our ability to access the market for debt securities as well as our cost of borrowing and the terms of such borrowing. In April 2013, Moody’s and S&P each downgraded their ratings on our long-term debt, to Baa2 and BBB, respectively, and re-iterated those investment grade ratings (defined as Baa3 and BBB- or higher, respectively) upon our successful issuance of $3 billion of debt securities during the quarter.

 

LOGO

 

4 

The declaration and payment of dividends is at the discretion of the Board of Directors and will depend on the company’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

 

 

BARRICK SECOND QUARTER 2013   35   MANAGEMENT’S DISCUSSION AND ANALYSIS


Cash and equivalents and cash flow

Total cash and cash equivalents as at June 30, 2013 were $2.4 billion5. At quarter end, our cash position consisted of a mix of term deposits, treasury bills and money market investments. Our cash position is primarily denominated in US dollars.

Our primary source of liquidity is operating cash flow. In the first half of 2013, we generated $2.0 billion in operating cash flow, compared to $2.3 billion of operating cash flow in the first half of 2012. The decrease in operating cash flow primarily reflects lower net earnings, partially offset by a decrease in income tax payments. The most significant driver of the change in operating cash flow is market gold and copper prices. Future changes in those market prices, either favorable or unfavorable, will continue to have a material impact on our cash flow and liquidity. The table below illustrates the impact of changes in gold and copper prices on our earnings and cash flow on an annualized basis, assuming the mid-point of our expected 2013 production levels.

 

      Change in price      Annualized
approximate
impact on adjusted
net earnings and
operating cash flow
 

  Gold

     +/-100/oz         +/-$500 million   

  Copper

     + $0.50/ lb1         +$ 120 million   

  Copper

     - $0.50/lb1         -$90 million   

 

1 

Using copper collars, approximately 50% of our expected 2013 production is hedged at a range of $3.50/lb to $4.25/lb.

The increase in working capital primarily relates to an increase in inventories and a decrease in accounts payable and other current liabilities. The increase in inventory is related to an increase in ore in stockpiles, principally at Goldstrike and Veladero, partially offset by a decrease at Cortez (refer to the table below for a summary of changes in our working capital balances).

 

 

 

5 

Includes $321 million cash held at ABG, which may not be readily deployed outside ABG.

Working Capital

     As at June 30,     As at December 31,  
  (in $ millions)   2013     2012  

  Raw materials

   

Ore in stockpiles1

    $ 2,010        $ 1,976   

Ore on leach pads

    667        590   

  Mine operating supplies

    1,160        1,096   

  Work in process

    294        328   

  Finished products

    234        150   

  Other current assets

    70        125   

  Accounts receivable

    424        449   

  VAT and fuel tax receivables2

    880        739   

  Accounts payable and other current liabilities

    (2,324)        (2,569)   

  Working capital

    $ 3,415        $ 2,884   

 

1 

Includes long-term stockpiles of $1,542 million (2012: $1,555 million).

2 

Includes long-term VAT and fuel tax receivables of $613 million (2012: $513 million).

The principal uses of operating cash flow are to fund our capital expenditures, including construction activities at Pascua-Lama and dividend and interest payments.

Cash used in investing activities amounted to $3.1 billion in the first half of 2013, a decrease of $54 million compared to the same prior year period, primarily due to a decrease in capital expenditures. Capital expenditures, on a cash basis, were $2.9 billion for the six month period ended June 30, 2013, a decrease of 4% compared to the same prior year period. The decrease is primarily due to a decrease in sustaining capital, most notably at Cortez and Lumwana; partially offset by an increase in minesite expansion expenditures at Cortez, Goldstrike and Bulyanhulu. Project capital expenditures were largely unchanged as increases at Pascua-Lama were more than offset by decreases at Pueblo Viejo and Jabal Sayid.

 

 

BARRICK SECOND QUARTER 2013   36   MANAGEMENT’S DISCUSSION AND ANALYSIS


Summary of Cash Inflow (Outflow)

 

  ($ millions)    For the three months ended June 30      For the six months ended June 30  
      2013      2012      2013      2012  

  Operating inflows

     $ 896         $ 919         $ 1,992         $ 2,293   

  Investing activities

           

  Capex - minesite sustaining

     $ (304)         $ (443)         $ (599)         $ (757)   

  Capex - mine development

     (349)         (380)         (666)         (701)   

  Capex - minesite expansion1

     (131)         (44)         (242)         (71)   

  Project capex - initial capital1

     (664)         (802)         (1,259)         (1,498)   

  Project capex - infrastructure1

     (108)         (47)         (175)         (48)   

  Other

     (34)         -         (157)         (77)   

  Total investing outflows

     $ (1,590)         $ (1,716)         $ (3,098)         $ (3,152)   

  Financing activities

           

  Net change in long-term debt

     $ 994         $ 630         $ 1,839         $ 623   

  Dividends

     (200)         (200)         (400)         (350)   

  Funding from non-controlling interests

     19         118         32         258   

  Other

     (22)         (79)         (21)         (89)   

  Total financing (outflows) inflows

     $ 791         $ 469         $ 1,450         $ 442   

  Effect of exchange rate

     (9)         (4)         (11)         4   

  Change in cash and equivalent

     88         (332)         333         (413)   

 

1 

The amounts include capitalized interest of $91 million for the three months ended June 30, 2013 (2012: $177 million) and $138 million for the six months ended June 30, 2013 (2012: $254 million).

 

Financing activities in the first half of 2013 reflect the issuance of $3.0 billion in debt, partially offset by debt repayments of $1.2 billion and dividend payments of $400 million, resulting in a net financing cash inflow of $1,450 million. This compares to a net financing cash inflow in the first half of 2012 of $442 million, which primarily consists of $2.0 billion in debt securities, $258 million in funding received from non-controlling interests, partially offset by $1.4 billion of debt repayments and dividend payments of $350 million.

Financial Instruments

As of June 30, 2013, we had 24 counterparties to our derivative positions. We proactively manage our exposure to individual counterparties in order to mitigate both credit and liquidity risks. For those counterparties with which we hold a net asset position (total balance attributable to the counterparties is $79 million), four hold greater than 10% of our mark-to-market asset position, with the largest counterparty holding 30%. We have 17 counterparties with which we are in a net liability position, for a total net liability of $103 million. On an ongoing basis, we monitor our exposures and ensure that none of the counterparties with which we hold outstanding contracts has declared insolvency.

 

 

BARRICK SECOND QUARTER 2013   37   MANAGEMENT’S DISCUSSION AND ANALYSIS


  Summary of Financial Instruments

  As at June 30, 2013

  Financial Instrument   Principal/Notional Amount            Associated Risks  
          

•  Interest rate

  Cash and equivalents

         $ 2,422       million   

•  Credit

          

•  Credit

  Accounts receivable

         $ 424       million   

•  Market

          

•  Market

  Available-for-sale securities

         $ 30       million   

•  Liquidity

  Accounts payable

         $ 1,840       million   

•  Interest rate

  Debt

         $ 15,893       million   

•  Interest rate

  Restricted share units

         $ 20       million   

•  Market

  Deferred share units

         $ 4       million   

•  Market

  CAD      425       million   

•  Credit

  CLP      138,000       million   

•  Market/liquidity  

  AUD      1,820       million   

•  Interest rate

  Derivative instruments - currency contracts

  ZAR      1,269       million     
          

•  Market/liquidity

          

•  Credit

  Derivative instruments - copper contracts

         147       million lbs   

•  Interest rate

          

•  Market/liquidity  

          

•  Credit

  Derivative instruments - energy contracts

  Diesel      7       million bbls   

•  Interest rate

 

Receive float interest rate swaps

     $ 111       million   

•  Market/liquidity  

  Derivative instruments - interest rate contracts

  Receive fixed interest rate swaps      $ 200       million   

•  Interest rate

 

Commitments and Contingencies

Capital Expenditures Not Yet Committed

 

 

We expect to incur capital expenditures during the next five years for both projects and producing mines. The projects are at various stages of development, from preliminary exploration or scoping study stage through to the construction execution stage. The ultimate decision to incur capital expenditures at each potential

site is subject to positive results which allow the project to advance past decision hurdles. Two projects were at an advanced stage at June 30, 2013, Pascua-Lama and Jabal Sayid (Please refer to pages 16-17 and pages 32-33 for further details.)

 

 

Litigation and Claims

 

We are currently subject to various litigation as disclosed in note 22 to the consolidated interim financial statements, and we may be involved in disputes with other parties in the future that may result in litigation. If

we are unable to resolve these disputes favorably, it may have a material adverse impact on our financial condition, cash flow and results of operations.

 

 

BARRICK SECOND QUARTER 2013   38   MANAGEMENT’S DISCUSSION AND ANALYSIS


Contractual Obligations and Commitments

     

Payments due

As at June 30, 2013

 
  ($ millions)      2013 1      2014         2015         2016         2017      

 

 
 

 

2018 and
thereafter

 

  
  

     Total   

  Debt2

                   

Repayment of principal

     $ 560        $ 1,140         $ 198         $ 1,606         $ 106         $ 12,091         $ 15,701   

Capital leases

     19        41         38         32         28         34         192   

Interest

     583        616         596         572         535         5,972         8,874   

  Provisions for environmental rehabilitation3

     68        135         117         74         78         2,079         2,551   

  Operating leases

     22        23         22         16         14         53         150   

  Restricted share units

     1        14         5         -         -         -         20   

  Pension benefits and other post-retirement benefits

     12        23         22         22         22         104         205   

  Derivative liabilities4

     31        39         50         30         4         -         154   

  Purchase obligations for supplies and consumables5

     432        329         228         89         89         270         1,437   

  Capital commitments6

     677        2         -         -         -         -         679   

  Social development costs

     54        30         27         25         7         62         205   

  Total

     $ 2,459        $ 2,392         $ 1,303         $ 2,466         $ 883         $ 20,665         $ 30,168   

 

1 

Represent the obligations and commitments for the remainder of the year.

2 

Debt and Interest - Our debt obligations do not include any subjective acceleration clauses or other clauses that enable the holder of the debt to call for early repayment, except in the event that we breach any of the terms and conditions of the debt or for other customary events of default. The debt and interest amounts include 100% of the Pueblo Viejo financing, even though we have only guaranteed our 60% share. We are not required to post any collateral under any debt obligations. Projected interest payments on variable rate debt were based on interest rates in effect at June 30, 2013. Interest is calculated on our long-term debt obligations using both fixed and variable rates.

3 

Provisions for Environmental Rehabilitation - Amounts presented in the table represent the undiscounted future payments for the expected cost of provisions for environmental rehabilitation.

4 

Derivative Liabilities - Amounts presented in the table relate to derivative contracts disclosed under note 18 to the consolidated interim financial statements. Payments related to derivative contracts cannot be reasonably estimated given variable market conditions.

5 

Purchase Obligations for Supplies and Consumables - Includes commitments related to new purchase obligations to secure a supply of acid, tires and cyanide for our production process.

6 

Capital Commitments - Purchase obligations for capital expenditures include only those items where binding commitments have been entered into. Commitments at June 30, 2013 mainly relate to construction capital at Pascua-Lama.

 

 

ADOPTION OF ADVANCE NOTICE BY-LAW

On July 31, 2013, Barrick’s Board of Directors approved the adoption of an advance notice by-law (the “By-law”), which requires advance notice to the Company in circumstances where nominations for election as a director of the Company are made by shareholders other than pursuant to a requisition of a meeting made pursuant to the provisions of the Business Corporations Act (Ontario) (the “Act”) or a shareholder proposal made pursuant to the provisions of the Act.

Among other things, the By-law fixes a deadline by which shareholders must submit a notice of director nominations to the Company prior to any annual or special meeting of shareholders where directors are to be elected and sets forth the information and other documentation that a shareholder must provide for a notice to be valid.

In the case of an annual meeting of shareholders, notice to the Company must be made not less than 30 nor more

than 65 days prior to the date of the annual meeting. In the event that the annual meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of the annual meeting was made, notice must be made not later than the close of business on the 10th day following such public announcement.

In the case of a special meeting of shareholders (which is not also an annual meeting), notice to the Company must be made not later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting was made.

The By-law is effective immediately. At the next annual meeting of shareholders of the Company, shareholders will be asked to confirm and ratify the By-law. A copy of the By-law is available electronically on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

 

 

BARRICK SECOND QUARTER 2013   39   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

REVIEW OF QUARTERLY RESULTS

Quarterly Information

              2013                         2012                          20111  

 

  ($ millions, except where indicated)

   Q2      Q1      Q4      Q3      Q2      Q1      Q4      Q3  

  Revenues

     $ 3,201         $ 3,437         $ 4,189         $ 3,436         $ 3,244         $ 3,644         $ 3,761         $ 3,971   

  Realized price - gold2

     1,411         1,629         1,714         1,655         1,608         1,691         1,664         1,743   

  Realized price - copper2

     3.28         3.56         3.54         3.52         3.45         3.78         3.69         3.54   

  Cost of sales

     1,832         1,844         2,125         1,775         1,729         1,753         1,705         1,694   

  Net earnings (loss)3

     (8,555)         847