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Barrick Gold Corporation (NYSE:ABX)

Q4 2008 Earnings Call Transcript

February 20, 2009 9:30 am ET

Executives

Deni Nicoski – VP, IR

Aaron Regent – President & CEO

Jamie Sokalsky – EVP & CFO

Peter Kinver – EVP & COO

Alex Davidson – EVP, Exploration and Corporate Development

Patrick Garver – EVP & General Counsel

Analysts

John Bridges – JP Morgan

David Stein – Cormark Securities

Kerry Smith – Haywood Securities

Steve Butler – Canaccord Adams

Greg Barnes – TD Newcrest

Victor Flores – HSBC

Mark Liinamaa – Morgan Stanley

Heather Douglas – Thomas Weisel Partners

Patrick Chidley – BJM Financial Management

David Haughton – BMO Capital Markets

Tanya Jakusconek – National Bank Financial

Operator

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Barrick Gold fourth quarter year-end 2008 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded Friday, February 20, 2009. I would now like to turn the conference over to Deni Nicoski, Vice President, Investor Relations. Please go ahead.

Deni Nicoski

Thank you, operator. Good morning, everyone, and thank you for joining the Barrick Gold fourth quarter conference call. I'm joined here today by Aaron Regent, Jamie Sokalsky, Peter Kinver, Alex Davidson, and Patrick Garver.

Before we begin, I will bring to your attention the fact that we will be making forward-looking statements during the course of this presentation. For a complete discussion of the risks, uncertainties, and factors, which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statement, please refer to our year-end report or our most recent AIF filing.

With that, I will hand it over to Aaron Regent, President and CEO of Barrick.

Aaron Regent

Thanks, Deni. And good morning, everyone. It’s my privilege to be here as Barrick’s CEO. It’s a terrific organization, and I’m delighted to be part of the team. Since joining Barrick about five weeks ago, one of my personal priorities was to meet as many people as possible to better understand the organization of the company. I had the chance to travel to many of our sites, particularly in North and South America, and have met many of the senior leaders of the company, both here and Toronto and in our operations. And while I have made progress, I still have more to do.

What I will say is that I am very impressed with the quality of the people and the company and with our senior management team. The level of experience and expertise is deep and broad, which provides us with an excellent foundation to deal with the opportunities and challenges that will inevitably come our way. There is real enthusiasm in the company, and the enthusiasm of being with Barrick is something that will serve us extremely well in the future.

For this call, what I thought I would do is start by -- comment on some of the highlights for 2008 and then turn it over to both Peter, Alex and Jamie to provide more detail on our fourth quarter results and the year-end results. And at the end of the call, what I thought I’d do is then wrap up by providing with a sense of some of the key areas of focus that will be emphasized during the year and then we will open up to questions.

Let me begin by saying that despite the volatile gold price environment, Barrick reported strong financial results in 2008 and generated record operating cash flow. We increased the gold industry’s largest reserve base by 13.9 million ounces or 11% to 138 million ounces and grew measured and indicated resources by 28% to 65 million ounces, and inferred resources by 2.8 million ounces to 35 million ounces. So today, total gold inventory, which is reserves and resources, are now around 238 million ounces.

Our three advanced projects, Cortez Hills, Pueblo Viejo, and Buzwagi remained on schedule and in line with their pre-production capital budgets. And we expect these projects to enter production in the next three years and collectively they are expected to contribute almost 2 million ounces of lower cost annual production once in coal production.

The company maintained the gold industry’s highest credit rating in a year which balance sheets came into short focus and then unprecedented financial market turmoil. The company’s strong commitment to responsible mining was recognized when Barrick was selected for listing on the Dow Jones Sustainability World Index, which captures the top 10% of some of the world’s largest companies that has satisfied long-term economic environmental and social criteria. And for the second consecutive year, we maintained our listing on the North American Index.

Just recently, and this morning in fact, we announced the purchase of Teck Cominco's 50% interest in the Hemlo operation, thereby consolidating 100% ownership for a cash consideration of $65 million. So I think in sum, 2008 was an excellent year.

So with that, I will turn it over to Jamie to discuss our financial results in more detail.

Jamie Sokalsky

Thanks, Aaron. Operating cash flow for the year was a record $2.2 billion, as Aaron has noted, which is up 27% compared to the previous year. Our 2008 net income on a GAAP basis was lower than the prior year, largely due to $899 million in post-tax non-cash charges, which were largely related to goodwill impairments at some of our smaller operations, Kanowna, North Mara, Osborne and Barrick Energy, and also includes a write-down of our investment in Highland Gold. But on an adjusted basis, our net income increased 60% to $1.66 billion or $1.90 per share, reflecting a significantly higher realized gold price of $870 per ounce compared to the $619 per ounce a year ago.

Turning to our fourth quarter results, gold production of 2.11 million ounces at total cash costs of $471 per ounce enabled us to meet our original production guidance for the year. If we were to apply full credit for our non-gold sales, primarily our copper sales, cash costs for the quarter were some $89 per ounce lower at $382 per ounce.

Our copper production in the fourth quarter increased to $109 million pounds at total cash costs of $1.16 per pound, with a strong performance from Zaldivar as leach pad acid levels returned to normal following -- to the normal levels following supply shortages earlier in the year. The company benefited from its copper hedge position, which provided a realized price of $3.06 per pound, which was 71% higher than the average spot price.

We ended up with a net loss of $468 million a year or $0.54 per share compared to earnings of $537 million or $0.62 per share in the prior year, largely as a result of the post-tax non-cash impairment charges of $773 million or $0.89 per share, mainly related to the goodwill impairment charges that I mentioned.

On an adjusted basis, net income of $277 million or $0.32 per share compares to $597 million or $0.69 per share a year ago, reflecting the lower gold margins of $336 per ounce compared to the $429 per ounce in the prior year. The realized gold price for the quarter was a healthy $807 per ounce, and in this morning, we are trading almost $200 higher than that. Operating cash flow of $439 million reflects the lower gold and copper margins as compared to the prior year.

We started the year with $1.4 billion of cash following the $1.25 billion bond offering last year. And we have an undrawn credit facility of $1.5 billion. Our net debt is a modest $2.9 billion, and the company has scheduled repayments of less than $300 million over the next four years. Our debt-to-total book capitalization is also low at just 0.22 to 1.

When you combine this with our robust operating cash flows, particularly at the current gold prices and the project financing that the company intends to undertake for projects such as Pueblo Viejo, Barrick continues to be in a strong financial position. Having said that, we will be applying a disciplined approach to capital allocation and expenditure decisions to ensure we maximize returns on our shareholders equity. Our goal is to ensure a strong balance sheet and financial flexibility to support our operations and grow the business.

I’d just like to take a moment to outline why we continue to have a bullish outlook for the gold price. After some initial liquidation following the deleveraging frenzy, last year gold came into its own late in the year. It ended the year some 6% higher in US dollar terms despite the strength of the US dollar, one of the few things that actually went up last year. A sign of strong demand as investors have sought safe havens from the turmoil and the financial markets and the world economy, clearly many of these risks remain.

ETF inflows surged in the second half of 2008 and have continued at a remarkable level in 2009, with inflows of about 9 million ounces since the start of the year rising to a record of 47 million ounces. Clearly gold investment demand is in a long-term uptrend. We are starting to hear more about the risks of long-term inflation and reflation as the money supply grows.

And on the supply side, we feel that fundamentals remain very positive. Mine supply, which comprises about 60% of the total supply in the gold industry, is expected to decline with maturing mines, the scarcity of new discoveries, longer permitting horizons for new projects, and as well challenging financial conditions to raise financing to build new mines. Central bank sales were 358 tons last year, the lowest level ever since the signing of the first agreement and well below the 500-ton quota. And sales so far in this most recent year of agreement are also well behind in pace, indicating that central banks don’t appear to be in any hurry to sell gold.

The global foreign exchange reserves are accepted around the world. Therefore some diversification out of dollars and into gold is certainly the greater possibility. And while gold has done well in nominal terms across the range of currencies, it is worth recalling gold’s peak in 1980 of $850 per ounce translates to over $2,000 per ounce in today’s money, suggesting gold still has plenty of upside from current levels. And with the industry’s largest production and largest reserves, we expect to benefit from this rising gold price environment.

In 2009, we are expecting production of between 7.2 million to 7.6 million ounces of gold, which is slightly lower than the just over 7.6 million ounces in 2008 as a result of lower grades at Goldstrike and waste stripping at Golden Sunlight. And Peter will have more about this later. In 2010, we are targeting an increase to the 7.7 to 8.1 million ounce range at lower expected cash costs once Cortez Hills enters production.

Turning to our 2009 guidance, we expect copper production in the range of 375 million to 400 million pounds of copper at total cash costs of between $1.25 and $1.35 per pound. Our project-related capital of $1.3 billion to $1.5 billion reflects full scale construction at Cortez Hills and Pueblo Viejo. And this could increase depending on the progress at Pascua Lama. Sustaining capital of $750 million to $850 million is expected to be slightly lower than 2008 levels.

Our estimated project expenses of $250 million to $270 million relate to feasibility studies, primarily related to Reko Diq, Cerro Casale, and Donlin Creek and to development costs associated with the extension of the mine life at Golden Sunlight. And we expect exploration expenses of about $150 million to $160 million for 2009, which Alex will talk more about shortly.

Looking at our cash costs, our expected 2009 cash costs of $450 to $475 per ounce remain competitively positioned within the bottom half of the industry cost curve and we will still be generating very strong margins, particularly at today’s gold prices. Assuming a $900 gold price and the midpoint of our cost range, our 2009 cash margin would be above $440 per ounce. At today’s price, our margin moves closer to $540 per ounce, among the highest in the industry.

When you apply the industry’s largest production to this margin, this should translate to another year strong operating cash flow at current gold prices. It’s worth nothing, however, that our 2009 cost guidance would be lower by about $30 per ounce if we excluded the impact of our oil and currency hedges, assuming an oil price of $50 per barrel and an Australian dollar exchange rate of 70 cents, showing that in the long-term our cash costs are more likely in the range of $420 to $445 per ounce if you compare apples-to-apples.

If we were to remove the effect of these hedges in order to more accurately reflect the performance of the operations, our expected 2009 cash costs would be about the 30 percentile. It’s also important to note that the industry curve shown here, the red line reflects crediting of copper, zinc and silver revenues by some companies against their gold cash costs.

In the case of Barrick, as you know, we produced significant amounts of copper from our Zaldivar and Osborne mines. The company has hedged its copper production for 2009, which had spot prices of $1.50 per pound, would results in a realized price of around $3 per pound. If you apply a full credit for our non-gold sales, that reduces our expected 2009 cost range to $360 to $385 per ounce, putting us within the lowest quartile of the industry for costs. And that would increase our cash margin to about $530 per ounce at $900 gold.

The final point to note about our 2009 expected cash costs and production is that they are expected to vary during the year due to mine sequencing. As a result, first quarter operating performance is anticipated to be weaker with expected improvements throughout the remainder of the year, reflecting a ramp-up of Buzwagi, the crusher expansion at Veladero and higher expected grades from both Veladero and Lagunas Norte.

I’ll now turn it over to Peter Kinver to discuss our fourth quarter operating results.

Peter Kinver

Thanks, Jamie. The fourth quarter production was $2.11 million ounces at total cash costs of $471 an ounce. As Jamie mentioned, the full year production of 7.66 million ounces met our original guidance, with cash costs of $443 were within the recent estimate. Our South African operations had another strong quarter driven by excellent results from Lagunas Norte, which produced 326,000 ounces at cash costs of $124 an ounce.

Full year production at Lagunas was almost 1.2 million ounces, and again expected to deliver 1 million ounces again this year, which is our fourth year in a row. Veladero’s production was also up 13%, which reflects improved productivity and equipment utilization during the year. Production in Veladero is expected to further increase when we complete the crusher expansion that’s targeted for second half of this year.

Australia Pacific region also had its higher production quarter of the year, now that we’ve completed the East wall remediation at Cowal, which allows us access to high grade ore from the patch. The Africa region had some civil related disruptions during Q4 that impacted operating results, but performance expected to improve the ramp-up of underground development of Bulyanhulu, and with the Buzwagi mine that’s coming on line the second half of this year -- for the second quarter of the year.

The North American asset base remained strong, and we expect it to contribute over one-third of our total production for 2009, the portfolio of assets that include Goldstrike, Cortez, Round Mountain, and Turquoise Ridge. North America had its highest quarterly production of the year, as Goldstrike benefited from the completion of the waste stripping pace in the open pit that provided access to higher grade ore. Looking forward to Goldstrike, we expect production to be lower in 2009 as a result of lower grades in the current mine sequence and lower recoveries in autoclave for a conversion to an alkaline process.

Certain ore characteristics are better suited for roasting and has reduced production in the short-term, but will be treated at later stage in the mine life. Goldstrike will be a major producer for many years to come. Golden Sunlight, we have extended the life of the mine and as a result we will be waste stripping this year. South America and Australia Pacific are expected to contribute about one quarter of the 7.2 million to 7.6 million ounce guidance range and the balance expected to go to Tanzania.

Our copper business finished the year with another strong quarter, generating strong cash flow, which allows us to reinvest in our gold business. As Aaron mentioned, our advanced projects remain on schedule and in line with their pre-production capital budgets. Once Cortez Hills in Nevada begins production, the Cortez property is expected to become a 1 million ounce a year producer in its first full five years, operation cash costs of about $350 to $400 an ounce, assuming an oil price of about $75 a barrel.

Total cash costs in the current mine plan versus our previous guidance reflect inclusion of incremental lower grade heap leach ore from the existing Pipeline area, and this is due to high gold prices, which now has increased the tonnage available to process. And this is an impact on our cash costs of the project. The project continues to be in line with the $500 million initial capital budget, and we continue to find more ounces in this highly prospective area.

At PV we continue to track with 100% of the $2.7 billion pre-production capital budget, of which $1.6 billion is our share. PV is expected to contribute 600,000 to 650,000 ounces to the Barrick’s account at total cash costs of about $275 to $300 an ounce. At Buzwagi in Tanzania, construction is about 90% complete as of year-end and our first ore was fed to the crusher last week. The project is on schedule to be pouring in the second quarter, and expected 2009 production is about 200,000 ounces at cash costs of about $320 to $335 an ounce.

We had a very successful year on the reserves and resource front. We had 23 million ounces to reserves, and after depletion of about 9 million ounces, we recorded net increase of almost 14 million ounces to the proven and probable reserves. At 138.5 million ounces, our reserves continued to be high in the gold industry by 53.5 million ounces, and we have continued our track record of reserve replacement.

There were some notable successes that I’d like to highlight, and I’m quoting all numbers on an equity basis. Proven and probable reserve of 13.4 million at Cortez versus 6.9 million a year ago reflects a 40% interest that we’ve acquired early in the year, plus a further 2.4 million ounces added in the Crossroads area. Pueblo Viejo reserves increased by 1.2 million ounces and the Cerro Casale project, which we acquired in 2007, added 10.8 million ounces to the reserve.

Our investment in exploration acquisitions enable us to grow the measured and indicated resources by 29% to 65 million ounces as well as increase inferred resources by 2.8 million ounces to almost 35 million ounces. Notable additions came to a record at Donlin Creek and Cerro Casale.

In summary, we had increases across the board in reserves, M&A and resources and in the inferred category in 2008. Our total gold inventory now stands at 138 million ounces, plus our copper reserves of 6.4 billion pounds and copper resources increased 7.1 billion pounds to 12.5 billion pounds. Contained silver within the reported gold reserves is now over 1 billion ounces.

I’ll now turn it over to Alex to talk about our exploration efforts.

Alex Davidson

Thank you, Peter. And good morning, everyone. Our 2009 exploration budget is $150 million to $160 million, which is down from just over $200 million last year. And this reflects a refocusing of our efforts on targets that have the potential to make near-term contributions to our earnings and to our cash flow, particularly targets near our existing mines. Exploration in higher risk areas and exploration for targets requiring longer lead times and high capital have been slowed down at present. But the properties are all being kept in good standing.

We are also maintaining a significant successful to follow up on the good results that we expect this year and to initiate new projects in high potential areas when they arise. We also are maintaining, as we always have, a significant active grassroot program to provide new projects for our ever evolving pipeline.

Our worldwide exploration programs also continue to give us touch points that monitor the industry around the world and have often turns up excellent corporate development opportunities. So while our exploration budget is lower this year than last, I got great confidence in the quality of the programs and I’m optimistic about having another successful year on the reserve and especially on the resource front.

So let me give you a few details. The 2009 budget is weighted, as I said, towards near mine resource additions and reserve conversion, hence divided as follows. 43% in North America, 27% in Australia Pacific, 22% in South America, and 8% in Africa and other areas. About 40% of the total is target for Nevada where we plan to follow up on the north high grade bullion zone at Turquoise Ridge, which will be extending the drift about 1,000 feet with underground and surface drill programs, and at Cortez with two underground and two surface drills underway.

The budget in this year in Nevada is actually about the same as it was last year. The Cortez property continues to demonstrate significant exploration potential. We’ve increased reserves significantly in 2008 with the additional allowances from Crossroads area, and we’ve increased resources from Cortez Hills itself and from Horse Creek five miles to the south. As a follow-up to successful 2008 work program, the company plans to spend about $18 million on exploration in the near-mine area at Cortez in 2009, with a total of seven rigs being committed to this extensive, and I’m pleased to say, still very under explored property.

Drill programs are also planned in Nevada for Bald Mountain and Spring Valley, and of course, further at Goldstrike and South Arturo. The remainder of the budget is largely divided between South America and Australia Pacific and will be used to further evaluate near-mine targets around Porgera, Lagunas Norte, Veladero, Zaldivar, and early stage targets in Papua New Guinea and Peru.

And with that, I’ll turn it back to Aaron.

Aaron Regent

Thanks, Alex. I thought I would conclude by adding a few remarks to highlight areas that will be of particular focus for us this year. I think it’s self-evident of meeting our production and cost targets are must in addition to keeping our projects on track and on budget. Cost control and containment will be a particular area of focus to ensure that we are able to maximize our margins and fully benefit from rising gold prices.

Capital allocation and capital efficiency will also be emphasized to ensure that our dollars are targeted to key priorities and they were maximizing the values of the dollars we spend, whether it be in operations, projects or day-to-day expenditures. Barrick has a successful track record of growth, exploration, project development and acquisitions, and that will continue to be a major theme for us, and most importantly, ensuring that all of our employees go home unharmed and healthy every day.

So in summary, we entered 2009 feeling very good about how we are positioned. The outlook for gold is very positive. And with the largest production base in the world, we will be a major beneficiary. Within the industry’s largest reserve base and significantly increased resources, consistent with our strong track record, it’s a reflection of the quality of our land positions, our exploration team, and the acquisitions we’ve made, which continued to demonstrate exploration upside.

We have three new projects expected to deliver at lower cost production in the next three years, all of which are on schedule and in line with the pre-production capital budgets, and collectively will contribute almost 2 million ounces per year once in full production.

So that concludes our formal remarks. And operator, we’d now be happy to take questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) And our first question comes from the line of John Bridges with JP Morgan. Please go ahead.

John Bridges – JP Morgan

Morning, Aaron and everybody. Wondered if you could give us a little bit of color on where you are with the feasibility study at Cerro Casale and these ounces. Presumably those ounces have come through using Canadian standards for reserve determination, when do you think you are going to have some sort of a hard feasibility study for that project?

Aaron Regent

Well, why don’t I -- I'll comment on the schedule and then I’ll ask Pat to comment on reserves. In terms of the schedule, the pre-feas [ph] was completed at the end of 2008, which -- provided the data which went into our reserve/resource calculations. The ore feasibility study is underway right now and we anticipate having that completed in the third quarter plus or minus of this year.

Patrick Garver

John, this is Patrick. I might just add to Aaron’s comments by saying, as you know, there are some differences between Canadian reporting standards under National Instrument. 43-101 and those that apply in the states under Industry Guide 7. And we have taken the project into reserves for Canadian purposes, which is appropriate given the status of the project having completed the pre-feasibility, but we needed to complete the final feasibility before we can do anything for US purposes.

John Bridges – JP Morgan

Okay. And then maybe a question for Pete on Zaldivar. That project seems to be on and off. Presumably the high cost of sulfuric acid was a fact last year. What do you see going on with that project? How many years of lives have we put into our models for that?

Peter Kinver

I’m not sure where your question is heading, John, but I mean the production is actually pretty flat. And in the life of mine, it is remarkably flat over the next, and I’m guessing now, probably between 10 and 14 years. But if you need that number, we can get it to you. But it is pretty flat production. It was impacted -- sorry, John. It was impacted, as Jamie mentioned, in Q1 and Q2 last year, we had acid availability and we were under-dosing the leach pads. And we did suffer a bit, but we managed to pull back towards Q3 and Q4.

John Bridges – JP Morgan

Okay, great. Great. Thanks again, and thanks for the extra hour to read your 116-page report.

Aaron Regent

Okay. You’re welcome.

Operator

Our next question comes from the line of David Stein with Cormark Securities. Please go ahead.

David Stein – Cormark Securities

Thanks. Good morning, guys. And my first question is I guess to Jamie. On the line of credit, can you tell us what the interest rate on that is? And if you drew it all down, how quickly you would have to pay it back?

Jamie Sokalsky

Sure, David. The line of credit is $1.5 billion, largely took about four years in duration committed for the bulk of that. The interest rate is very attractive. It’s about LIBOR -- just LIBOR plus 32 basis points. It’s the approximate rate on that. So it’s very attractive pricing. And because it is a committed facility out until largely April of 2013, we can draw it and keep it outstanding until that time.

David Stein – Cormark Securities

Okay, that’s great. And then maybe another question for you and/or Aaron. You mentioned the gold outlook and potential for gold to go to $2,000. I’m just wondering, in that scenario, is there anything that Barrick would do differently than they have done over the last few years or do you just sort of enjoy the ride going forward?

Aaron Regent

I think sitting back and enjoying the ride is perhaps a bit of a passive description. And I don’t think that describes what we are doing. I think our strategy is one that is meant to be sustainable over the medium to long-term. And clearly with the higher gold prices we are going to be a major beneficiary. I don’t think Jamie suggested we are forecasting the $2,000 gold price. I think he was just comparing on an apples-to-apples basis where the prices historically were, just to give a data point for people to think about. But I guess I should say, in short-term they probably are some things at the margin we can do, which will be additive to the company in creating value. But our strategy is I guess, as I said, more of a mid to long-term focus.

Jamie Sokalsky

Maybe I could just add, David. As we mentioned, we have a very large gold inventory totaling 238 million ounces with a lot of projects near-term and later stage. And if we see gold prices moving up higher, we have the ability to really capitalize on the leverage of some of those later-term projects. And I don’t think anyone in the industry has the leverage that we have in existing operations and future projects to capitalize on a rising gold price of that nature.

David Stein – Cormark Securities

Just to clarify, and I certainly don’t disagree with sort of the gold outlook. Do you mean -- by leverage, do you mean that you could borrow additionally on the value of those assets because they would be much higher or you could actually fast track them in terms of time?

Jamie Sokalsky

Well, I think a number of things. All of the aspects of getting them into production, I think borrowing capacity would be enhanced by a rising gold price. But really by leverage it’s by being the largest gold producer and then getting additional projects into production, we would generate the most cash flow and earnings as a result of that price. So it’s really, I think, a combination of things; production, financing, the fact we are producing 7.2 million to 7.6 million ounces now, which is by far the largest in the industry. It’s today and in the future benefiting from that rising gold price.

David Stein – Cormark Securities

Okay. I’ll leave you at that. Thank you very much, guys.

Jamie Sokalsky

You’re welcome.

Operator

And our next question comes from the line of Kerry Smith with Haywood Securities. Please go ahead.

Kerry Smith – Haywood Securities

Thanks, operator. I had a couple of questions. First one, perhaps Jamie can answer. You talk in the release there is $4.2 billion of CapEx to be spent over the next four years. I was wondering if you could just break out expenditures there because it’s for Buzwagi, Pueblo Viejo, Pascua Lama and Cortez. I’m wondering if you can just split that out.

Jamie Sokalsky

Sure, Kerry. If you look at what we’ve said, Cortez Hills is about $500 million and that’s in line with that capital budget. We are spending about $1.6 billion, which is our share of the Pueblo Viejo project. Pascua Lama, we are talking about a project there. In the last guidance that’s in the sort of $2.7 billion, $2.8 billion area. And so -- Buzwagi is about $400 million. We largely spent that. So -- then there is -- so if you look at that, what we’ve got as a go-forward basis from here, those are the prime components of that $4.2 billion.

Kerry Smith – Haywood Securities

Okay. But if you add all those numbers up, it’s over $4.2 billion. So I was just curious how much of that $4.2 billion is actually budgeted for Pascua Lama.

Jamie Sokalsky

Well, if you add those numbers -- I mentioned those numbers. Some of that has already been spent, Kerry. So, Buzwagi is 90% complete and Cortez is well advanced. So we will be updating the market in the second quarter on Pascua Lama, but the numbers that we talked about are in the range. And so we don’t have a number that we are going to talk about with Pascua until the second quarter when we talk about the overall project. But that’s the general ballpark of where those numbers are comprised.

Kerry Smith – Haywood Securities

Okay, that’s fine. And just for Peter, the great decline in ’08 from ’07 in North American operations, it was like sort of 15%. And I’m presuming the grade would be pretty flat now on a go-forward basis, or will the grade come off again in ’09?

Peter Kinver

Well, we are still working through those numbers, but as you say, one of the biggest contributors there was -- well, Eskay Creek close, which although was a small mine, but a very high grade mine. The biggest contributor there was probably Goldstrike. And we are currently working through the grades for the coming years.

Kerry Smith – Haywood Securities

Okay.

Peter Kinver

Yes, we don’t anticipate to see such a large drop the following year.

Kerry Smith – Haywood Securities

Okay. It just seemed to me that with the forecast there that the grade probably wasn’t coming off that much if you include the $30 ounce increase from the oil hedge. So I thought the grade might be kind of flat. Okay, that’s fine. And how much of the reserve increase was due to the higher gold price that you used?

Peter Kinver

About 8 million ounces, all -- well, there is about 8 million ounces. It was not new project. That was basically through the drill bit, and roughly half of that was through gold price of the 8 million.

Kerry Smith – Haywood Securities

So, about 4 million then, okay.

Peter Kinver

Yes. And that’s a guesstimate.

Kerry Smith – Haywood Securities

Yes, that’s fine. And on Pueblo Viejo, the $2.7 billion of CapEx, that number was generated back when the steel prices were a lot higher and there was lot of strain on labor cost. Do you have any expectation that the number could possibly be even 5% lower on a go-forward basis, or do you have any comment there?

Peter Kinver

Difficult to say at the moment, Kerry, but obviously there are some very positive signs. And for example, rebar has come down from $1,100 to about $600 a ton. So we hope as we wrestle with the suppliers we see some benefits.

Kerry Smith – Haywood Securities

Okay. And just one last question if I could. The mine permit (inaudible) expires in June of ’09, I’m just wondering what you actually do with a project like that. Can you extend it or does it expire? It says you have to have it into production by then, which obviously won’t happen. I’m just curious what you are going to do there.

Alex Davidson

Kerry, it’s Alex. What it says is we have to have commenced mining operations by that time period. And we have been -- we complied with that as we put power into the site and we’ve been building infrastructure. So we don’t -- we expect that that will get extended with no problem.

Kerry Smith – Haywood Securities

Okay, thanks very much.

Operator

And now our next question comes from the line of Steve Butler. Please go ahead.

Steve Butler – Canaccord Adams

A question for you -- good morning, guys. A question for you on Cortez property. Peter, you alluded to the increased gold price floating [ph] a higher heap leach component of the reserves. Do you have a split for us of heap leach component of reserves at Cortez? Thanks.

Peter Kinver

I hoped you weren’t going to ask that question. I don’t have the split in front of me. But you are correct that the higher gold price has made us include more material in our mine plan. And that’s one of the major contributors to the increase in cash flow. But if you need that split, I can find it for you.

Steve Butler – Canaccord Adams

No problem. We’ll be in touch with the IR team I guess. Pascua Lama, were the reserves increased there? And I know we of course await a Q2 update. I assume we await a Q2 updated feasibility study. Is that correct?

Aaron Regent

Pascua, the reserves have not changed. And in terms of Q2, what I’d tell you about Pascua is that we will continue to work on resolving a number of fiscal and permitting issues with both (inaudible) government. And I think we are encouraged by the progress that’s being made. And then with respect to the capital cost, there is a project in place in right now, revisiting the capital cost of the project given the current environment. And so that work is underway. So hopefully both of those things will converge, and we will be in a position to give you a much more fulsome description of where we stand with the project in the second quarter.

Steve Butler – Canaccord Adams

Okay. Thank you, Aaron. Lastly, just at Zaldivar, what acid prices have you guys assumed in your -- implicitly in your ’09 guidance? Are you contracted? Are you open to spot prices at Zaldivar for acid? Thanks.

Jamie Sokalsky

Steve, it’s Jamie. We are largely contracted for 2009. The prices are in about $150 per ton range for acid, in that neighborhood.

Steve Butler – Canaccord Adams

And that compares to what sort of pricing are you averaging in ’08, Jamie?

Jamie Sokalsky

In ’08, we were in prices that were well above $200, $250 per ton. So we are getting a benefit from that.

Steve Butler – Canaccord Adams

Great. That’s it. Thank you.

Aaron Regent

Thank you. You’re welcome.

Operator

And our next question comes from the line of Greg Barnes with TD Newcrest. Please go ahead.

Greg Barnes – TD Newcrest

Yes, thank you. Just wanted to circle back to Kerry’s question. I think on the project CapEx for ’09 of $1.3 billion to $1.5 billion, I assume post of that’s PV. I was wondering if you can give us a bit of a breakdown there.

Jamie Sokalsky

Yes. Greg, it’s Jamie. Most of that is PV, but we’ve also got Cortez and there is a finishing off of Buzwagi. Those are the prime components of that. And there is not a significant amount in there for Pascua Lama at this point until we land on more I guess programs in terms of the permitting tax stabilization and other fiscal matters.

Greg Barnes – TD Newcrest

So is it fair to say about a billion of that number is PV?

Jamie Sokalsky

Yes, close to that, yes.

Greg Barnes – TD Newcrest

Okay. Just a quick question to Aaron. What’s your view on the hedge, Barrick’s hedge, the $9.5 million ounces? If your view is that gold price could go to $2,000 just an example, what do you want to do with it?

Aaron Regent

Well, I think the hedge -- let me maybe start by saying, you know, the policy with respect to gold hedging is not to do any more gold hedging. And I think it would be -- we prefer that and we will closely manage their hedge book over time. I think that what we will do is we will manage it in a prudent fashion. And to the extent that we want to do something more aggressive that takes off (inaudible) capacity and we have to balance off that option versus other potential opportunities for the company. So I think I’d say it’s something that is managed and looked at quite carefully.

Greg Barnes – TD Newcrest

So you would weigh it off against -- in terms of paying it down or buying it back, I guess you would weigh it off against investment in Pascua Lama or assume your other development projects is how you would look at it?

Aaron Regent

I think so. At the end of the day, it’s a capital allocation decision. And so we have to look at -- if we deploy capital against the book, we deploy the capital somewhere else, what’s going to create most value for the organization. So I think that’s the thought process that we have to continually look at and review.

Greg Barnes – TD Newcrest

Okay. Thanks, Aaron.

Operator

And our next question comes from the line of Victor Flores with HSBC. Please go ahead.

Victor Flores – HSBC

Yes, thank you. Good morning. My questions pertain to Pueblo Viejo, and I’m just trying to get an understanding of what the milestones are for the project. So in 2008 you spent about $160 million on the project. Could you tell us what was achieved during ’08? And say, we are having this conversation a year from now, what would we expect to be achieved with the $1 billion or so that will be spent this year?

Alex Davidson

Maybe I can help. Basically last year we did a lot of site clearance, leveling the sites, knocking down old buildings, sort of pioneering sort of work. This year, as Jamie mentioned, we will spend about $1 billion, which will get us the mining fleet. I can’t remember the amount that is. But it is the mining fleet workshops, accommodation and the initial work then in the pit. That’s basically this year’s progress.

Victor Flores – HSBC

Okay, great. Thank you very much.

Operator

And our next question comes from the line of Mark Liinamaa with Morgan Stanley. Please go ahead.

Mark Liinamaa – Morgan Stanley

Hello. In the prepared comments, there were some talk about challenging financing conditions for new mines continuing in light of the momentum in the gold story. Are you seeing any of that change hit the margin? And if not, are there any regions in the world that you are finding particularly interesting to look at for growth opportunities ex the organic portfolio? Thanks.

Jamie Sokalsky

Mark, maybe -- it's Jamie. Maybe I can talk about the financing aspect and perhaps Alex can talk about some of the other regions. Certainly for companies like Barrick, we are able to attract some very large financial institutions and banks. Looking at Pueblo Viejo, we are targeting to have a $1 billion financing there in cooperation with Goldcorp, which will include some very large export credit agencies and some commercial banks. So I think for the right projects with robust economics and this rising gold price, there will be some financing capacity and a good sponsor for that project like Barrick. I think having said that, I believe that some of the smaller, large -- smaller company, large dollar projects, the financing conditions are going to remain challenging that notwithstanding that the rising gold price, the ability for many banks to extend credit and lend is going to remain challenged.

Alex Davidson

Yes. As far as the growth opportunities go, we have -- we target for both exploration and corporate development, areas that we know have high potential and produce large deposits and overlay that with areas that have support of government. So -- and we are largely in a lot of those areas now and that’s where we focus both our exploration and our development activities. In South America we are probably open to most of the continent, but we are particularly focused on Peru, Chile and Argentina. We made a big effort in ’07, ’08 to get into -- increase our efforts in Papua New Guinea because that area certainly has both those attributes. Tanzania is another place that we are still actively looking at exploration. And really we are looking at a few other areas, but I would say that the areas that we are in, we are kind of doubling down in our organic exploration growth.

Mark Liinamaa – Morgan Stanley

Thanks very much, guys. Good luck.

Operator

And our next question comes from the line of Heather Douglas with Thomas Weisel Partners. Please go ahead.

Heather Douglas – Thomas Weisel Partners

Hi, good morning. My first question is just an accounting question. In 2008 you capitalized almost all of your interest. I think it was about $200 million and you expensed only $21 million. How will that phase in if you deliver your projects?

Jamie Sokalsky

Heather, it’s Jamie. In 2009 we are anticipating capitalizing about another $250 million of interest expense. And that’s largely related to some of the bigger projects like Pueblo Viejo, Cortez Hills and Pascua. So as those projects start to come into production, then we will begin to expense the interest as for the accounting rule. So we will start to see in 2010, 2011 and going forward in a -- unless other projects come on to the drawing that we would start to reduce some of that capitalization and expense interest.

Heather Douglas – Thomas Weisel Partners

So, by 2012, based on your current projects, you would be 100% expensed?

Jamie Sokalsky

Well, there would still be a little bit -- I guess, again, all things being equal, it would be capitalized, but yes, largely we would be expensing more interest.

Heather Douglas – Thomas Weisel Partners

Okay. And I have a follow-up question on the hedge -- on the hedge book. As it stands with your current agreements with your various counterparties, when do you have to start delivering into the book?

Jamie Sokalsky

Well, Heather, it’s Jamie again. The agreements provide for generally around ten years before the termination date. And so while we have allocated them to the projects, they are still subject to the very strong, very favorable terms that we have negotiated in the past on these agreements. And so we do not have to start delivering. We have the ability to deliver any time within that largely ten-year time horizon for the bulk of the contracts. So it’s at our option within that time period under these committed agreements. Having said that, we’ve allocated them against the projects. And as those projects come into production, we’ve allocated them in the years from 2012 onward as the initial protection for our project financing that we are anticipating for that portfolio of projects.

Heather Douglas – Thomas Weisel Partners

Okay. And I’m going to step in a third one in terms of strip ratios. I notice on page 30 of your release, you show that the bulk of the increase of cost from ’08 to ’09 is related to mining and waste stripping. And you’ve mentioned about Golden Sunlight. Are there any other of your major open pits that we should be expecting a significant increase in strip ratio this year?

Peter Kinver

Heather, it’s Peter. Yes, you are correct. The strip ratio is increasing about 16% this year. And Golden Sunlight is 14 million tons. Buzwagi is 28 million tons. Veladero is 9 million and Goldstrike is 5 million. That’s what accounts for the increase.

Heather Douglas – Thomas Weisel Partners

Okay, thank you.

Operator

And our next question comes from the line of Patrick Chidley with BJM Financial Management. Please go ahead.

Patrick Chidley – BJM Financial Management

Hello, thanks very much for the extended title [ph] for the company. But I wanted to ask just a couple of questions about the Nevada assets. Operationally, what is the forecast production profile next few years for Bald Mountain? And what are you now thinking about that asset?

Peter Kinver

Well, Alex has talked about the exploration potential, which is pretty good. The current level of production is roughly 85-odd thousand ounces. And that’s going to remain at that level for a couple of years as we bring in some of the new exploration potential. And maybe Alex can talk a little bit about the work we are doing in the area.

Alex Davidson

Yes. Patrick, at Bald Mountain, we had a fair amount of success last year (inaudible) and we named RBM, where we added about 700,000 ounces in inferred resource. And we are continuing to work to expand that, and that will go to probably 1 million ounces anyway. We are also carrying out work in the north area to upgrade, again, inferred resources at both the top and rat [ph] pits and a couple of other areas on the Bald Mountain property. So the exploration potential there is still very good. As Peter said, for the next few years, the production is sort of flat in that range as indicated.

Patrick Chidley – BJM Financial Management

You got what, nearly 2.9 million ounces of reserves there and doing nearly 5,000 [ph] ounces a year. It just seems -- I had heard [ph] I think last time, a couple of years ago now that you were rising some permits to really starting ramping that production up at that operation. I take it that the permitting hasn’t gone anywhere then positively?

Peter Kinver

Yes, you’re correct. It’s a sort of slow process. Once we get those permits in place, then we will look at investing some more money in new equipment et cetera and then boosting that production up.

Patrick Chidley – BJM Financial Management

All right. Just a second question, again, probably Alex could give us some more detail on this. Turquoise Ridge, you did talk about the research, the gold bullion zone there, and just wondering if that’s been added to resources and what kind of size that zone turned out to be.

Alex Davidson

Yes, we are -- I think we talked about -- it's about 8 million tons, about -- at about half -- 0.6 ounces, about 4.8 million ounces. We are looking at that now. And an inferred resource of about 2.3 million ounces at north zone. The program in ’09 will be to extend the drift another 1,000 feet, and a 50,000-foot drill program will continue to evaluate the extent of that mineralization in that new zone. So it’s coming out -- I mean, the zone is behaving itself and will be certainly a viable and high grade zone in the future.

Patrick Chidley – BJM Financial Management

So just to clarify, at the bullion zone you added, was it 2.3 million ounces in inferred and 4 --?

Alex Davidson

That’s the total north zone. It was measured -- at the end of the year, 2008 end of year measured and indicated resource was about 4.8 million ounces. That would be on 100% basis, (inaudible) about 75% us and 25% Newmont. And then the inferred resource is another 2.3 million ounces, again at a 100% interest.

Patrick Chidley – BJM Financial Management

So, a sizable deposit for Barrick?

Alex Davidson

Yes. And it’s -- as I indicated, I guess it was the July conference call that that one is turning out very well.

Patrick Chidley – BJM Financial Management

Great. All right. Okay, well, I’ll turn the floor over to someone else. Thanks.

Aaron Regent

Operator, I’m just looking at time. So perhaps we could take two more callers.

Operator

Very well, sir. Our next question comes from the line of David Haughton with BMO Capital Markets. Please go ahead.

David Haughton – BMO Capital Markets

Yes, good morning. And thank you for extending the question time. (inaudible) Nevada, Peter, I heard what you were saying about Goldstrike. Would you characterize 2009 as a transition year?

Peter Kinver

Yes, I think it’s a transition. I mean, we -- the amount of autoclave ore -- acidic autoclave ore is basically coming to an end, which we have been saying. And it means that we are not having to find ways and means of treating the other types of ore to try and maintain the production ore. So you are correct. It’s a transition year.

David Haughton – BMO Capital Markets

And looking beyond 2009 into 2010, can we see production picking up or staying at that 1.2 million to 1.3 million ounce level?

Peter Kinver

Yes. I think we are going to struggle to pick it up, but we are looking at all our options. Any material that we do not treat now in the auto clave is not wasted. It’s basically tagged on to the ends of the life of the mine. So we are looking at ways now trying to fill this gap I suppose that we have in the autoclave.

David Haughton – BMO Capital Markets

Okay. Switching over to East Africa with the exception of Buzwagi, the area has been below expectation. Do you see scope for improvement there?

Aaron Regent

Perhaps I can answer this one. You are correct. We’ve had our share of challenges there. But I’m pleased to say that Bulyanhulu -- last year we had a strike at Bulyanhulu. We sometime recover from that, but things are looking much better there. Tulawaka has performed very well for Barrick, has met all expectations. And we do expect Buzwagi to meet our expectations. North Mara has a set of issues, currently sits very close to the Kenyan border. And that is putting challenges on the operation where we have sporadic incursions of people coming onto the mine, which is causing tension. I’m pleased to say the government has given us a great deal of support lately. And the January performance for North Mara was we met expectations.

David Haughton – BMO Capital Markets

Okay. Given that Buzwagi is coming on, and Alex mentioned earlier on that there is some exploration potential in that area, I take it it’s still a pretty core part of the world for you?

Aaron Regent

Alex?

Alex Davidson

Yes, for sure. We are exploring around Buly [ph] and around Buzwagi still. Buzwagi is our -- going through the crusher at the moment and we will be pouring in Q2, walk [ph] with a great success. So certainly Tanzania remains a key area for us.

David Haughton – BMO Capital Markets

All right. Thank you very much.

Operator

And our last question comes from the line of Tanya Jakusconek with National Bank Financial. Please go ahead.

Tanya Jakusconek – National Bank Financial

Great, thank you. I just made it. I just have a few questions. I just want to come back to Peter on Goldstrike again. And I just want to make sure that I understand that the options that you were looking at, which was to put the low grade material through the autoclave just hasn’t panned out, and that material now is going to be put through the roaster at the end of the mine life. Is that correct, Peter?

Peter Kinver

Well, it’s partially correct. There is two sides to this issue. We were running out of acidic material. So we came up with the prices of treating acidic material using the alkaline method, which has been successful. And we certainly extended the life of the autoclave. However, the ore that we are releasing -- the fresh ore that we are releasing from the pits, when it gets classified, in our models we assume we have a reasonable amount of this material we could treat. But as we are now releasing these benches, we are finding there is a greater proportion of material that should be roasted. So we are having to readjust our mine plans. As you pointed out, it’s not a question of losing the ounces of ore, it’s the reclassification. So it’s really -- it's been successful, but the reclassification has reduced the amount of ore available.

Tanya Jakusconek – National Bank Financial

Okay. So then I should move it back then to the end of the mine life and sort of run the complex for the next few years in the sort of 1.2 million ounce range? Would that be fair?

Peter Kinver

Yes, I think that would be fair.

Tanya Jakusconek – National Bank Financial

Okay. And then just a question for Jamie. Jamie, maybe it’s in the press release and I haven’t had a chance to look through it. Maybe if you could remind me, just what is your book value for Pascua Lama, Donlin Creek and Cerro Casale? I guess Cerro Casale would also have the acquisition cost tied to it.

Jamie Sokalsky

Yes. For Pascua, we have about $780 million on the books at the end of 2008. And in that number would be a lot of capitalized interest as well. Cerro Casale is about $800 million, which was the acquisition cost, Tanya. And Donlin Creek, there isn’t a lot. That’s under $100 million. We are expensing all of the development work there because it’s not in reserves for US purposes. So it’s not a significant amount of money. It’s under $100 million.

Tanya Jakusconek – National Bank Financial

Okay. And you had mentioned that on the project development the feasibility studies you were expensing so far. I was just trying to get a better idea for what then is coming through in terms of these book values. And then just lastly on your hedge book, just to make sure that your counterparties, you still have 20 of them, Jamie?

Jamie Sokalsky

There are 17 counterparties that we have positions with, Tanya.

Tanya Jakusconek – National Bank Financial

And no one has more than 10% of your hedge book?

Jamie Sokalsky

We allocated some ounces after December 31 to another counterparty. So one has 13% of the ounces mark-to-market, and none of the others have more than 10%.

Tanya Jakusconek – National Bank Financial

Okay. And then just lastly, none of the counterparties have basically asked for the right to start delivering?

Jamie Sokalsky

No, the -- what -- where we are is, we have, as you know, the ability to deliver any time within that time period of the ten years I talked about earlier. We have this evergreen feature in the contract. So if the counterparties do not notify us that the contracts get extended for or the agreements get extended for another year, during 2008 three of the counterparties indicated that the agreements -- they weren’t going to extend it for another year. So those agreements are now around nine-year type facilities.

Tanya Jakusconek – National Bank Financial

Okay. So three of them have come back and said, okay, we want to start delivery nine years from now?

Jamie Sokalsky

Currently that’s the termination agreement of the -- termination date of the agreement. That’s right. And 14 continued to extend for a further year.

Tanya Jakusconek – National Bank Financial

Okay. Okay, good. Thank you very much.

Jamie Sokalsky

You’re welcome.

Operator

And we have no further questions. I’ll turn the call back to you, sir.

Aaron Regent

Okay. Well, thank you everyone for joining the call today. And I think that concludes it. And we look forward to speak with you again announcing our first quarter results.

Operator

And ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you would please disconnect your lines.

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Source: Barrick Gold Corporation Q4 2008 Earnings Call Transcript
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