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As part of the world's top six gold producers series, the last article was discussing Newmont (NEM), ranked 2nd. Today, we will look at the world's biggest gold producer in the gold industry. This article will provide in-depth analysis of its assets, financial health and the future outlook of the company. This series is intended to offer an insight for potential investors to guide them on wise investment decisions in the gold (GLD) market.

Barrick Gold (ABX)

Barrick is the gold industry leader in production, reserves and market capitalization. The company operates mines, advanced exploration and development projects located across the world. The company also has a large group of assets on some of the most prolific and prospective mineral trends. The portfolio is literally packed with 22 gold mines and three copper mines in operation, while five promising projects are under development.

(click to enlarge)

Source: Barrick Gold

Strategically speaking, Barrick is currently focusing on company-wide cost management. Overhead cost review is under way to maximize the all-sustaining production costs. Moreover, the company cut or deferred $4 billion in previously budgeted capex with the objective of returning more capital to its shareholders over time. However, Barrick still pursues any opportunity to optimize its portfolio of impressive assets.

Furthermore, Barrick holds a 73.9% equity interest in African Barrick Gold (ABG), a company listed on the London Stock Exchange that owns gold mines and exploration properties in Africa.

Top Producing Mines In North America

North America is Barrick's largest producing region, with production of 3.49Moz of gold in 2012, representing 47% of the company's total production at total cash costs of $500/oz. The region has 59.5Moz of proved and probable gold reserves accounting for 42% of the company's total reserves.

Goldstrike, U.S.

Source: Barrick Gold

The Goldstrike deposit is located on the Carlin Trend, the most prolific gold mining district in the Western Hemisphere, about 37 miles northwest of Elko, Nevada. The operations include the Betze-Post open-pit mine and the Meikle and Rodeo underground mines which are located just north of the Betze-Post pit along the same mineralized trend. The Goldstrike mine consists of two processing facilities: an autoclave circuit which is used to treat non-carbonaceous sulfide ore and the roaster used for treating carbonaceous ore.

In 2012, Goldstrike produced 1.17Moz of gold at total cash costs of $541/oz. Production in 2013 is expected to be about 0.87-0.94Moz at total cash costs of $680-$700/oz, primarily due to reduced autoclave capacity associated with construction of the thiosulphate project which is expected to be completed in mid-2014. Goldstrike's proved and probable mineral reserves as of 2012 were estimated at 12.3Moz of gold. According to the NRH, Goldstrike is ranked 27th on the world's top 50 producing mines by global resources.

Cortez, U.S.

Source: Barrick Gold

The Cortez open-pit mine is located 62 miles southwest of Elko in Lander County, Nevada. The Cortez property covers approximately 1,081 square miles on one of the world's most highly-prospective mineral trends.

Cortez is processing lower-grade oxide ore with heap leached method while higher-grade non-refractory ore is treated in a conventional mill using cyanidation and a carbon-in-leach process.

(click to enlarge)

Source: Barrick Gold

Cortez produced 1.37Moz at total cash costs of $282/oz. The deposit is one of the world's largest and lowest-cost gold mines and the property has also an excellent upside exploration potential. Production in 2013 is anticipated to be around 1.17-1.24Moz at total cash costs of $255-$275/oz. Proved and probable mineral reserves at Cortez as of 2012 were estimated at 15.1Moz of gold. According to the NRH, the Cortez operation is ranked 20th on the world's top 50 producing mines by global resources.

Pueblo Viejo, Dominican Republic

Source: Barrick Gold

Pueblo Viejo is a joint-venture located in the Dominican Republic, about 62 miles northwest of the capital city of Santo Domingo. Barrick holds a 60% interest and operates the mine, while Goldcorp (GG) owns the remaining interest. The mine achieved commercial production in January 2013 and is expected to ramp-up to full capacity in the second half of the year. A 215 MW dual fuel power plant at an estimated cost of about $180 million (Barrick's share) is expected to start operations during the year.

For 2013, Barrick's share of production from Pueblo Viejo is anticipated to be around 0.5-0.65Moz of gold at total cash costs of $375-$425/oz. In the first full five years of operation, the company is anticipating production to be about 0.63-0.68Moz at total cash costs of $300-$350/oz. The company has estimated for the end of 2012, that Pueblo Viejo had proved and probable gold reserves of 15Moz (Barrick's share) and a mine's life of at least 25 years. According to the NRH, Pueblo Viejo deposit is ranked 7th on the world's top 50 producing mines by global resources.

Top Producing Mine In South America

In 2012, the South America region produced 1.63Moz of gold at total cash costs of $467/oz. In 2013, gold production is expected to be in the range of 1.25-1.35Moz and total cash costs of $550-$600/oz. The region has 51.7Moz of gold which accounts for 37% of the company's overall proved and probable gold reserves.

Veladero, Argentina

Source: Barrick Gold

The Veladero mine is located in the San Juan Province of Argentina, about 232 miles northwest of the city of San Juan in the highly prospective Frontera District. Veladero is a conventional open-pit mine where ore is crushed by a two-stage crushing process and transported by conveyor and trucks to the leach pad area.

In 2012, Veladero produced 0.76Moz of gold at total cash costs of $510/oz. Proved and probable mineral reserves as of 2012 were estimated at 10Moz of gold. Veladero is expected to produce between 0.57-0.61Moz of gold in 2013 at total cash costs of $630-$670/oz. Veladero is ranked 36th on the world's top 50 producing mines by global resources according to the NRH.

Top Producing Mines In Australia Pacific

The region produced 1.82Moz of gold in 2012 at total cash costs of $803/oz. In 2013, gold production is expected to be in the range of 1.7-1.85Moz at total cash costs of $880-$950/oz. The Australia Pacific region contained 16.6Moz of proved and probable gold reserves at the end of 2012, representing 12% of Barrick's total reserve base.

Porgera, Papua New Guinea

Source: Barrick Gold

The Porgera gold mine is a joint-venture located in the Enga Province in the highlands of Papua New Guinea, about 81 miles west of the town of Mount Hagen. The Porgera mine is operated and owned at 95% by Barrick and the remainder is owned by Papua New Guinea government. Both open-pit and underground mining methods are used.

In 2012, Barrick's share of production totaled 0.44Moz of gold at total cash costs of $955/oz. Proved and probable mineral reserves as of 2012 was estimated at 6.2Moz of gold. Porgera is ranked 35th on the world's top 50 producing mines by global resources according to the NRH.

Yilgarn South, Australia

Source: Barrick Gold

Yilgarn South is composed of three mine deposits: Darlot, Granny Smith and Lawlers mines, located in the Yilgarn South region. In 2012, this region produced 0.45Moz of gold at total cash costs of $768/oz.

The Darlot gold mine is a trackless underground operation located on the Yandal Greenstone Belt about 422 miles northeast of Perth, Western Australia. Ore is treated by conventional carbon-in-leach at the on-site mill. Proved and probable mineral reserves as of 2012 were 0.34Moz of gold.

The Granny Smith underground gold mine is located 590 miles northeast of Perth and 14 miles south of Laverton in the state of Western Australia. The processing plant consists of a two-stage fresh ore crushing circuit using carbon-in-leach process. In 2012, proved and probable mineral reserves were 1.9Moz of gold.

The Lawlers mine is an underground operation located on the Norseman/Wiluna Greenstone Belt about 410 miles northeast of Perth, Western Australia. Sulfide and oxide ores are treated at the on-site mill. Proved and probable mineral reserves as of 2012 were estimated at 0.39Moz of gold.

Top Projects Under Development

Gold Rush Project, U.S.

Source: Q4 2012 Financial Results Presentation

The Goldrush discovery is located approximately 4 miles from the Cortez mine in Nevada. As this project advances through pre-feasibility, a number of development options are being considered including open-pit mining, underground mining or a combination of both. In addition, shallow mineralization has been encountered to the west and high-grade mineralization has been encountered to the north which provides interesting development options.

Drilling in 2012 doubled and upgraded the resource base as the measured and indicated resources of 8.4Moz were assessed, representing an increase of more than 500% from 2011.

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Source: Barrick Gold

The greater Cortez area contains substantial district-scale opportunities including a new parallel exploration trend identified to the west of Goldrush and the northern, eastern and southern extensions of the Goldrush system.

Exploration drilling programs will be focused on growing and upgrading the resource base, delineating the extent of the system and exploring the potential for extensions to the north and south. A scoping study has been recently completed, and a pre-feasibility study is underway in parallel with continuing exploration work and technical studies.

Donlin Gold Project, U.S.

Source: NOVAGOLD

The Donlin Gold Project in Alaska is a joint-venture between Barrick holding 50% in ownership while NOVAGOLD (NG) holds the remaining interest.

During late 2012, the permitting process continued following the submission of the draft Plan of Operations and permit application. Formal confirmation was also received that the permit application package was sufficient to initiate the Environmental Impact Statement process with the Notice of Intent filed.

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Source: NOVAGOLD

Barrick expects to advance the permitting process at reasonable costs in the coming years with the objective to define a project that satisfies the investment criteria of the company. This will provide the company with the option to make a construction decision in the future should investment conditions warrant.

Donlin Gold has measured and indicated resource potential of about 19.5Moz of gold (Barrick's share) and life expectancy of the mine is estimated at 27 years. According to the NRH, Donlin is ranked 4th on the world's top 50 undeveloped deposits by global resources.

Pascua-Lama Project, Argentina/Chile

Source: Barrick Gold

The Pascua-Lama project is located on the border of Chile and Argentina in the Frontera district at an elevation of 12,467 to 17,060 feet, about 6 miles from Barrick's Veladero mine. Pascua-Lama is expected to be one of the world's largest, lowest cost mines and once in production, the mine is expected to contribute, according to Barrick, significant free cash flow for many years to come.

Source: Barrick Gold

As of 2012, Pascua-Lama has proved and probable reserves of 17.9Moz of gold, 676Moz of silver contained within the gold reserves and a mine's life expectancy of 25 years. According to the NRH, Pascua-Lama is ranked 11th on the world's top 50 undeveloped deposits by global resources.

Cerro Cassale Project, Chile

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Source: Kinross Gold

The Cerro Cassale Project is a joint-venture between Barrick, 75% interest and the remaining 25% interest with Kinross Gold (KGC). The porphyry mine is located in the Maricunga district of Region III in Chile, about 80 miles north of the Pascua-Lama project which is expected to provide opportunities for construction and operating synergies.

Cerro Casale is one of the world's largest undeveloped gold-copper deposits with gold reserves of 17.4Moz and 4.3 billion lbs of copper contained within gold reserves (Barrick's 75% share).

Approval of the Environmental Impact Assessment was received in January 2013 from the environmental authorities of northern Chile. Notification of the permit grant on substantially the same terms as the application follows an 18-month permitting evaluation period.

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Source: Kinross Gold

Project scenarios are being prepared as a series of cases for evaluation. Options being evaluated include staged and simplified processing options as well as alternative sources of power supply. Evaluation of further district opportunities will be assessed based on the results of exploration drilling on satellite ore bodies that could potentially be included in the project plan and pursuing potential synergies relating to infrastructure requirements.

Barrick expects to have preliminary exploration drill results completed by the second half of 2013 at which point, a re-evaluation will be made whether the project meets its investment criteria. Further exploration to determine the extended district resource base and studies to define selected project cases would follow this determination. Based on the current data, the mine has an estimated life expectancy of 20 years. Cerro Cassale is ranked 8th on the world's top 50 undeveloped deposits by global resources according to the NRH.

Financial Highlights

On January 23, 2013, Barrick Gold was named to the Global 100, a listing of the most sustainable corporations in the world by Corporate Knights, a Canadian media and investment research company. It is the first time Barrick has been included on the list which has been announced annually at the World Economic Forum in Davos, Switzerland since 2005.

The Global 100 recognizes companies that are world leaders in managing environmental, social and corporate governance issues. To determine the Global 100, Corporate Knights screened approximately 4,000 mid-sized and large-sized public companies, arriving at a short list of 350 companies that were evaluated across a range of sustainability metrics.

In addition to being ranked in the Global 100, Barrick was also recently named by Corporate Knights as the top performing company in a sustainability ranking of the Canadian mining sector. Barrick has also been ranked as a world leader in social and environmental responsibility for five consecutive years by the Dow Jones Sustainability Index and is listed on the NASDAQ Global Sustainability Index of the top 100 companies.

For 2012, Barrick reported operating cash flow of $5.44 billion, a record for the company, up from $5.32 billion the year before and $4.59 billion in 2010. The long-term debt decreased a little last year with $12.1 billion compared to $13.2 billion in 2011. However, it is still high compared to $6.6 billion in 2010 and $6.2 billion in 2009.

Source: Google Finance

Revenue has increased slightly last year to $14.55 billion compared to $14.24 billion in 2011 and $11 billion in 2010. The trend should continue for 2013 as Pueblo Viejo asset is expected to start production and add about 0.5-0.65Moz of gold to total production. Barrick produced 7.42Moz of gold and 468M lbs of copper last year for a total cash cost of $584/oz and all-sustaining cash costs of $945/oz.

Source: Q4 2012 Financial Results Presentation

Barrick has a PEG Ratio of 13.82. Compared to its peers with a low PEG ratio like Newmont with a 0.03 ratio, AngloGold Ashanti (AU) with 0.12 or Kinross Gold with 0.19, it is obvious that Barrick is overvalued at this time given its earnings performance of $3.83 billion, but with a net loss of $0.67 billion for last year. However, compared to Goldcorp with a PEG ratio of 22.32, Barrick is doing much better in that department.

ABX PEG Ratio Chart

To determine earnings quality, investors can rely on cash from operations. The company can show a positive earnings on the income statement, while also bearing little or negative cash flow. This is not a good situation to be in for a long time, because it means that the company doesn't have enough cash on hand and has to borrow money to keep operating. At some point, the bank will stop lending and wants to be repaid.

Little or negative cash from operations could also indicate that there is a fundamental operating problem. So, let's take a look at Barrick and its peers to see how they perform on this important aspect in the chart below.

ABX Cash from Operations TTM Chart

As we can see, Barrick is the clear-cut leader, and can count on more than enough cash to keep operating without the need to lend money if the earnings are not up to expectations. Having $5 billion in liquid money is a strong statement of Barrick's ability to operate adequately its assets and fund its projects without relying too much on its capex.

Future Outlook

Priorities for this year are to meet the expected production within its cost guidance, identify ways to further reduce costs company-wide, ramp-up Pueblo Viejo to full capacity in H2 2013, advance Pascua-Lama and Goldrush in line with plans and finally, to actively pursue new opportunities to optimize its portfolio.

Barrick is estimating that it will produce between 7.0-7.4Moz of gold at total cash costs of $610-$660/oz and 480-540M lbs of copper at total cash costs of $2.10-$2.30/lb in 2013. The company is also assessing its total capex for 2013 between $5.7-$6.3 billion, a decrease from last year with $6.37 billion.

The company has assessed a new paradigm guidance for 2013. As a matter of fact, Barrick claims that investors are demanding a fundamental change: investors are looking for a company able to deliver profitable production and greater return of capital instead of funding growth only for growing purposes. In short, returns should drive production, not the other way around.

To do so, Barrick intends to rank and prioritize its investment options and find other ways to further reduce in 2013, the expected cut of $100M for its total cash costs of production and recalibrate production targets to a higher-quality profitable base of 8Moz of gold by 2016. Furthermore, the company will seek to optimize its portfolio by replacing non-core shorter life assets, high-cost operating assets and even sell its oil and gas unit, Barrick Energy.

Bottom Line

As we have seen in this article, Barrick operates a few world-class assets around the globe, such as the new Pueblo Viejo mine, and is doing well to operate within its allocated cash flow. Moreover, the deposits under development are also world-class assets that will ensure a stable growth for the company in the coming years. Donlin, Reko Diq and Cerro Cassale projects represents the world's top ten deposits with the best potential.

Since 2006, the dividend yield has steadily progressed to reach 2.78% annually. I believe it clearly represents the financial health of the company, offering a nice yield which is over the industry (1.17%) or sector (1.75%) average without the associated risk that involve a higher dividend yield.

Source: Q4 2012 Financial Results Presentation

In conclusion, Barrick is the best-positioned company in the gold industry right now. It has strong financials and a solid base of operating assets to sustain its production level. The future looks very promising with the current projects, and I like the management's commitment of reducing the all-sustaining cash costs by monitoring its company-wide operating activities.

Even with its stock price a little overvalued at this time, given all the intangibles, Barrick represents a nice addition to any portfolio. Investors should expect a steady growth of the share value going long with protection against stock market possible pull backs while the stock's dividend will serve as hedging against inflation. This concludes my "World's Top 6 Gold Producers" series with the thought of bringing some light on the most profitable gold producers in the world.

Source: World's Top 6 Gold Producers: 1st Place, Barrick Gold