Barrick Gold Corporation Q1 2009 Earnings Call Transcript

Apr.29.09 | About: Barrick Gold (ABX)

Barrick Gold Corporation (NYSE:ABX)

Q1 2009 Earnings Call

April 29, 2009 4:30 pm ET


Deni Nicoski - VP of IR

Aaron Regent - President and CEO

Jamie Sokalsky - EVP and CFO

Peter Kinver - EVP and COO

Alex Davidson - EVP, Exploration and Corporate Development

Patrick Garver - EVP and General Counsel


John Bridges - JPMorgan

Barry Cooper - CIBC World Markets

Mark Liinamaa - Morgan Stanley

David Stein - Cormark Securities Inc.

Patrick Chidley - BJM

Michael DiNapoli - Citadel Investment Group


Welcome to the Barrick Gold Corporation Q1 2009 Results Conference Call. (Operator Instructions).

I would now like to turn the conference over to Mr. Nicoski, Vice President, Investor Relations. Please go ahead, sir.

Deni Nicoski

Thank you, Operator. 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 the call over to Aaron Regent, President and CEO of Barrick.

Aaron Regent

Good afternoon, and thank you, Deni. In our presentation today, with respect to our formal remarks, Jamie Sokalsky and myself will be covering most of the results for the quarter, but joining us are other members of our senior team including Peter Kinver, Alex Davidson, Patrick Garver, Kelvin Dushnisky and his board. So to the extent when we get into questions, we have others who will be able to help us as well.

Just before I discuss the quarter, I would like to talk and highlight what I've been doing for the last three months or so, relatively short period since I've been with Barrick. But, I've had the chance to travel extensively throughout and visit many of the company's operations throughout the world and visit our projects as well.

I continue to be impressed with the asset portfolio and the quality of our projects as well as the quality of our people. It has reaffirmed my view that Barrick is well positioned in a strong gold price environment. We have the industry's largest production reserves and a suite of high quality advanced projects, which we expect to have a positive impact in our production and cost of 2010.

So, if I could turn to the results for the quarter. In summary, our operations performed on plan and remain on track to meet our operating guidance for 2009 of 7.2 million to 7.9 million ounces at a net cash cost of $360 to $385 per ounce when you apply the credit for non-gold sales or total cash cost of $4.50 to $4.75 per ounce.

Our development projects remain on schedule and budget and Buzwagi is ready to pour first gold shortly, and this is the first of three mines in construction that we expect to bring into production in the next three years.

Net income was $371 million or $0.42 per share, or $0.34 per share on an adjusted basis in what we expect to be the lowest gold production quarter for us in 2009. We continue to expect higher production in subsequent quarters and lower cash costs in the second half of the year.

During the quarter, we raised $750 million in debt securities, completing our $2 billion shelf prospectus, and further strengthening our liquidity and Jamie will discuss this further in a moment.

Then subsequent to quarter end, we closed the Hemlo transaction and have acquired the remaining 50% interest from Teck Cominco for a cash consideration of $65 million.

Turning to our operations; first quarter operating results were on plan, with production at 1.76 million ounces at a net cash cost of $404 per ounce or total cash cost of $484 per ounce.

If you remove the effects of the company's oil and foreign exchange hedges, cash costs would have been $45 per ounce lower. Quarter one copper production was also on plan with production of 95 million pounds at total cash costs of $1.32 per pound.

The North American region had a strong quarter, exceeding budget with production of 735,000 ounces at a total cash costs of $495 per ounce. The Goldstrike operation produced about 400,000 ounces at total cash costs of $435 per ounce, with access to higher open pit grades.

At Cortez, production of 92,000 ounces at total cash costs of $671 per ounce, reflected lower than expected grades at the pipeline pit. Production and costs are expected to improve in subsequent quarters with access to higher grade material.

The South American business unit produced about 400,000 ounces in quarter one at total cash costs of $291 per ounce.

Lagunas Norte mine delivered another quarter of solid results with production of about 240,000 ounces at total cash costs of $131. Production is expected to increase in the second half of the year due to higher grades.

Production of 90,000 ounces at Veladero at total cash costs of $623 per ounce reflected expected lower grades, and higher stripping during the first half of the year. We're expecting a stronger second half at Veladero with access to high grade ore and higher throughput following completion of a crusher expansion to expand processing capacity from 50,000 to 85,000 tons per day.

Production for the Australian Pacific business unit of about 490,000 ounces was on plan, with the Porgera and Kalgoorlie open pits performing as expected. Total cash costs of $610 per ounce are expected to improve in subsequent quarters, with anticipated improved performance at a number of mines including Kanowna and some of the smaller operations.

Production for the African business unit was 130,000 ounces in quarter one at total cash costs of $561 per ounce. Both Bulyanhulu and North Mara are showing signs of improved performance following a somewhat disruptive 2008.

So, in total, we're on track with our full year guidance for both gold and copper. Hard gold production anticipated in subsequent quarters and approved cost expected in the second half of the year, primarily on higher expected grades at Cortez, Lagunas, and Veladero, which will also benefit from a crusher expansion that I mentioned and with new production from Buzwagi.

I would like to provide you with an update of where we stand with our three most advanced projects which we expect will begin to have a positive impact on our production and cash costs within a year. Importantly, they remain on schedule and within their respective preproduction capital budgets.

At full capacity, these projects represent almost 2 million ounces of average annual production in their first full five years at lower total cash costs than the average of our current portfolio of mines.

As I mentioned, Buzwagi is ready to pour first gold shortly in line with its 400 million preproduction capital budget. In the last week, we have added cyanide and carbon to our CIL tanks process 3 through to tailings thickening and pump thickened tailings to the tailing storage facility prior to pouring first gold.

Buzwagi is the sixth new mine in the last six years to be constructed on time, continuing our strong track record of execution and building new projects on schedule.

One other comment, Buzwagi has been completed with 13 million man hours with only one lost time injury. This is a phenomenal achievement.

Cortez Hills in Nevada is a key project for us that is on track to deliver 1 million ounces next year. Current activities are focused on stripping with three shovels active in the open pit. And we have made good progress with construction of the conveyor and (bulk earth) rigs for the heap leach pad nearing completion.

In addition, the paste backfill plant was also completed during the quarter. Our 60% owned Pueblo Viejo project in the Dominican Republic is another world-class deposit and a key asset which is expected to be a large, long life, low cost producer for the company. Work is significantly advanced on a number of fronts, including the establishment of site services and construction of camps and offices.

The engineering and design phase of the project is now two-third complete. Upgrading of the access road is nearly complete and development road (inaudible) has commenced, and fabrication of [auto plays] is also well underway. The project continues to be on track for startup in quarter four 2011 and is in line with its preproduction capital budget of 2.7 billion.

The next project in line for development is Pascua-Lama which sits on the board of Chile and Argentina. We're pleased with the progress made recently on securing premise and improvers as well as other binational matters on both sides of the border. We've also taken the opportunity to re-estimate the capital costs and working with potential suppliers and contractors in this process. We look forward to providing you with a full update on this project in the second quarter.

I would now like to hand it over to Jamie to take you through our financial results.

Jamie Sokalsky

Thanks, Aaron. Quarter one net income was $371 million or $0.42 per share, compared to net income of $514 million or $0.59 per share in the first quarter of 2008. On an adjusted basis, net income of $298 million or $0.34 per share, excludes a one-time credit to tax expense due to the adoption of a US dollar functional currency for Canadian tax purposes and that compares to $537 million or $0.62 per share in the prior year period.

Lower adjusted income in the first quarter of this year, reflects lower realized prices and higher cash costs compared to the prior year period.

Our first quarter operating cash flow of $349 million, reflects these lower net income levels and the movements in working capital, which had the effect of reducing the cash flow in the quarter.

Our underlying cash flow though as reflected by EBITDA was a healthy $655 million, despite our expectation that the first quarter would be the lowest gold production quarter of the year.

The realized gold price for the quarter was $912 per ounce, which was slightly higher than the average market price of $908 per ounce. We also benefited significantly from our copper hedge position, realizing $2.93 per pound which is $1.37 higher than the average market price of $1.56 per pound for the quarter.

We're doing lots on the cost management front. While we expect our next generation of projects to have a significant positive impact on cash costs, we're not being complacent with the cost management initiatives. We're going to continue to look for ways to actively manage our cost structure.

Our supply team has been closely monitoring declines in input costs and we're working with suppliers to capture price declines as soon as possible. Some examples of the key commodities where we have seen notable price decreases are natural gas and ammonia both used in the production of explosives.

The economic slowdown has changed the labor market, and this is providing further opportunities in some of the regions in which we operate. For example, in Australia, we've seen a substantial drop in turnover rates.

While this hasn't necessarily translated to immediate wage declines, given labor rates are quite sticky, we expect less inflationary pressure going forward and have seen greater efficiencies, since we're able to staff vacant positions with higher quality personnel.

We're also seeing tangible benefits from technical services initiatives in the processing area, which has made improvements on two fronts. Energy utilization in the milling circuits and better metal recoveries from flotation processes. These are just a few examples of some of the cost management initiatives we're currently undertaking.

I'd like to spend some time discussing our project gold sales contracts, as some questions around the contracts have come up in recent meetings with investors. I think that this slide puts the hedge position into better context relative to our overall gold portfolio. As you may recall, the company has a legacy position of 9.5 million ounces that has been allocated to our portfolio of projects.

We've converted 4.1 million ounces into floating contracts, which participate fully with gold price movements, thereby gaining leverage to a rising gold price on these contracts. In essence, the fixed gold price component of these contracts has been closed out. This leaves just 5.4 million ounces of fixed price contracts, which represents just over half of this 9.5 million ounce position, which do not participate in movements in the gold price. That represents less than 4% of Barrick's total reserves of 138.5 million ounces.

So, that gives Barrick 133.1 million ounces of unhedged reserves, which is the largest unhedged position of any gold company by a margin of 48 million ounces. This next chart portrays this point in a different way by comparing the sensitivity of the potential increase in the mark-to-market in a number of rising gold price scenarios and shows the potential revenue increase that results.

Significantly, the mark-to-market on the floating price contracts, as I've mentioned, as represented by the smaller red portion on this slide, does not move with changes in the gold price, given the fact that the fixed gold price has been closed out on those contracts, reflecting the fact that we've regained the gold price leverage on these contracts.

So, the only position that changes with the gold price on this chart is the fixed portion, which is denoted in yellow. So, for example, an increase in the gold price to $1500 per ounce today immediately increases the mark-to-market by $3 billion.

However, if we were to assume 7.5 million ounces of annual gold sales over a 10-year period, which is primarily the term of the current agreements, we would expect to generate an additional $45 billion in pre-tax revenue compared to the $900 spot price, which far exceeds the change in the mark-to-market. This is what many bankers would term right way exposure.

Clearly, this highlights the fact that a rising gold price relative to hedge position is hugely beneficial to Barrick. I'll take a second to talk about the counterparties and the trading agreements on this next slide. In this environment, we've been also asked questions about our current counterparties and trading agreements, which is understandable given what's happened to the banks.

We currently have contracts in place with 17 counterparties, with the largest counterparty only representing 13% of the total position and no other counterparty having in excess of 10% of the total ounce or mark-to-market position.

In essence, we have spread this position out very prudently. The contract terms, as we've always said, are company friendly and allow Barrick a great deal of flexibility.

For example, Barrick has a unilateral right to deliver at anytime during the contract periods, which primarily range from 9 to 15 years, but are generally approximately 10 years in length with evergreen extension features.

These are 10-year committed facilities where we have the right to decide where we want to deliver within that time horizon, not ask for permission from the banks. There are no credit downgrade provisions and the company is not subject to any margin calls.

Finally, there are only two principal financial covenants. Minimum net worth of $2 billion, where we are at over $15 billion at quarter end and maximum long-term debt to net worth of less than 2-to-1, and we have been consistently well below 1-to-1 on that covenant.

As Aaron mentioned, we've maintained our financial strength and flexibility, and this is a key competitive advantage for us in today's uncertain economic environment. Recently, we completed the sale of an additional $750 million in debt securities to strengthen our liquidity and fund construction of our projects.

This was done at very attractive coupon rates of 6.95%, similar to the rates for the 10-year bonds that we did when we issued $1.25 billion in debt securities last fall, despite the widening spreads in the intervening period. This bond issue then completed our $2 billion debt shelf prospectus.

So as a result, at the end of March, our cash position has grown to $2.1 billion from a year-end balance of $1.4 billion and our $1.5 billion credit facility remains fully undrawn and available. Also importantly, scheduled repayments are less than $300 million over the next four years and our debt-to-total book capitalization is a modest 0.27 to 1.

I'll take a few moments to give you a brief overview as to why we continue to have a positive outlook on the gold price. Clearly, the financial crisis has reaffirmed gold as an attractive investment, which is further reinforced by the current policy measures undertaken by governments around the world to support the global economy. This significant uncertainty is expected to continue and should last in people's minds for a long period of time.

The policy response creates the risk of high inflation in the future, which has historically been good for gold. But, even if investors are concerned about deflation, gold is expected to continue to perform well as a store of wealth or a store of value.

Gold has performed well in both high inflation and deflationary environments. In fact, between 1929 and 1938 in the Great Depression, gold was one of the few assets that actually held its store of value.

The gold ETFs, exchange-traded funds have provided a new channel to invest in gold, making it much easier for investors to get direct exposure and this does have the effect of expanding the universe of gold investors. The ETFs are now at 52 million ounces, which is up 14 million ounces just since the start of the year.

I think we barely scratched the surface on this instrument globally for investors to participate in. Then the ETF was surprisingly strong last year given the need for investors to raise liquidity as we saw the financial crisis unfold. It shows that this is really a sticky position that has continued to build and should continue to build in the future.

There has also been a significant change in sentiment by central banks, who have been reducing their gold sales, but even more importantly have begun to purchase gold to diversify their currency reserves.

There are huge imbalances to the global reserves worldwide. Foreign exchange reserves in central banks exceed $7 trillion, a $5 trillion increase since the start of the decade alone. And two-thirds of that is in US dollars and the largest proportion of that is held by only 16 countries and OPEC.

Those global imbalances can't continue. Russia and, most recently, China, have added to their gold reserves to diversify their currency reserves overall, and this is a significant signal, the fact that China has been buying this gold and added over 400 tons to their reserves and is likely to buy more is not only a very good signal for them, but also is a significant signal I think to many other central banks around the world.

Perhaps, there is a chance that as the IMF talks about selling gold, that a country like China, or others, could buy that gold. The market can absorb any sale of IMF gold. There has been discussion that this gold would be sold under the Central Bank Gold Agreement.

As many of you may have just seen, European Central Bank official has just come out the member of the governing board has stated that the Central Bank Sales Agreement will be renewed. I think this is also a positive signal to the market.

So as a relatively small market, which the gold market is, a small reallocation investment to gold could have a large impact on demand and many managed funds are still underweight commodities and gold.

Supply continues to be constrained as gold miners really struggle to maintain production around the world with mine supply expected to decline. We've updated our work in this area and the fact that it is getting harder to finance gold mines, it's clearly more difficult to find permit and build the mines. They're more expensive, longer, means that supply is likely to decline more than people think.

So, against this backdrop of declining supply and strong demand, particularly investment demand and perhaps even more Central Bank buying, this should continue to be bullish for gold prices and Barrick is uniquely positioned to be a major beneficiary of a higher gold price.

With that, I'll now hand it back to Aaron to wrap it up.

Aaron Regent

Thanks, Jamie. Well, in summary, operations were on plan in quarter one and we anticipate higher gold production in the remaining quarters as well as lower cost in the second half of the year. This lag is very close to pouring first gold and our other projects are on track, and we're on track to bring two new low cost mines into production in the next three years.

We've made significant progress on Pascua-Lama, and we look forward to updating you further in the third quarter. As Jamie, highlighted we continue to be very optimistic on the outlook for gold. When you look at our 2010 production, which is higher than 2009, we will be a further beneficiary.

So, overall, we feel that Barrick is well positioned to be a major beneficiary of a very positive outlook for the gold industry.

So with that, operator, we would now like to open the call up to questions. Thank you. Operator?

Question-and-Answer Session

The first one is going to be from John Bridges from JPMorgan. Please go ahead with your question.

John Bridges - JPMorgan

Okay. I don't know what happened there. I would like to ask about Pascua-Lama. You mentioned that you have made significant progress. I know you're going to talk in detail about it next quarter, but could you give us some indication as to what that significant progress is and what sort of timeline we can expect going forward?

Aaron Regent

Sure. I misspoke. I think I should have said in the second quarter, not the third quarter, I apologize about that. So it should be sooner than third quarter. John, let me tell you about the three different areas of focus that we've had with Pascua-Lama. It's really into three categories. One is kind of the permitting side and issues around the binational agreement. The second is with respect to the capital costs of project and operating costs and the focus there. And then the third is with respect to our financing plans for the project.

So, we've been very busy on all three fronts and have made, I'd say considerable progress and at this point have a lot of momentum behind the project. So, all of that is I think coming together nicely, which should put us in a position where we can give you a more fulsome report shortly in the second quarter.

John Bridges - JPMorgan

So, the significant progress was it any particular part of that?

Aaron Regent

I'd say across the board. If you look at the permitting side of the binational issues, we've had extensive discussions with both the Chilean and Argentinean governments and we've made a lot of progress there certainly on the firming up the capital costs and operating costs.

We've spent a lot of time going back to all of our suppliers, looking to see how we might be able to improve on the cost flow of the project. We've made a lot of progress there. Certainly on the financing side, we've talked and looked at various structures to secure project financing and talked to a number of interested parties and have got good encouragement on that front as well. So it's across the board.

John Bridges - JPMorgan

As a follow-up, I see in your guidance, you reduced your planned project expense this year. Was there any particular project that fell out of the plans?

Jamie Sokalsky

No, John. It's Jamie. It's really; it's just a minor tweaking of our overall budgets as we're now four months into the year. Really no major changes to the project CapEx guidance.


Our next question is going to come from the line of Barry Cooper with CIBC.

Barry Cooper - CIBC World Markets

Couple of questions. Yesterday, your joint venture partner put out, I guess, a we'll call it prefeasibility or scoping study that could be modified with respect to Donlin Creek and with that. Jamie indicated that you just completed that financing for around 7% in that project, as it stands, offers 7.7% internal rate of return on an after-tax basis. I am just wondering, given your short time frame there, that you've been there, Aaron, but nonetheless putting you a little bit on the hot seat, is that a project that you would approve?

Aaron Regent

Well, Barry, look, I think that we've just received the bankable feasibility study and the next step is to sit down with our partner to discuss it and I don't want to pre-conclude anything until we've had those discussions. But, what I would say is this is a deposit that has a lot of gold in it.

If we're in a world where the gold price is going to continue to rise, it does provide enormous option value for us. So I think on that basis, I think it has potentially interesting strategic value for the company. But, as I said, I think the next step for us is to sit down with our partners and then we'll determine what the next steps are.

Barry Cooper - CIBC World Markets

Right. I guess it is probably fair to say then on a pecking order though, it is ranking below most of the other projects such as obviously Pascua and obviously completing Cortez and certainly Pueblo Viejo and maybe some other ones that you're looking at?

Aaron Regent

I think that's absolutely right and that we have Pueblo Viejo and Cortez are already underway. So, the train has left the station on those, if you will. The next one that we're concentrated on is Pascua-Lama. So, I would say if there is a project that is up next, that is the one.

Then the other big three projects we have, Cerro Casale, Reko Diq and Donlin Creek are kind of the next generation. We're basically completing feasibility studies on each of those and similar to what I just laid out for Donlin Creek, we'll have to finish those studies and then determine what's the best course of action.

But the good thing is that there is a lot of metal tied up in those deposits. So that it does provide us with a lot of option value.

Barry Cooper - CIBC World Markets

Just may be a question for Peter then. You're underground now at Cortez and getting more out of it from the underground sources. I am just wondering what you're seeing there relative to what you expected off of the drill-hole information and whatnot?

And looking at Q1, probably Cortez seems to be one of the ones of your operations that seems to be most further stock base with respect to production and cost given the guidance that you gave us a couple of months ago.

Peter Kinver

Barry, we've basically just started to get into these high grade sections of the underground. But generally, what we see looks pretty optimistic and as we found those types of ore bodies, the drilling from surface tends to be conservative when we actually get down and expose the ore body.

There was a very little impact in Q1 from that high grade or from underground. So, I'm not concerned. As we release those underground ores, we'll definitely catch up those ounces and maintain guidance.

Barry Cooper - CIBC World Markets

How's the ground condition, Peter?

Peter Kinver

It is actually pretty good. The other good news is that we anticipated finding a fair amount of water down there, and so far we are not finding large amounts of water. So, between the ground and the water, looks favorable.


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

Mark Liinamaa - Morgan Stanley

Could you comment at all about any of your non-gold projects to make us sort of -- I know they're very early stage, but any options there and any new thoughts on non-gold possibilities?

Aaron Regent

Sure. With respect to those two projects, Kabanga is obviously a large nickel deposit that the company acquired through I guess resources years ago. And having a bit of an experience with the nickel business, I would say it is a pretty attractive deposit, but clearly given where nickel prices are today.

But I was going to say that given where nickel prices are today, that's a project that it probably makes sense to complete the feasibility study and then put it in abeyance for the moment any way until better conditions, market conditions are realized. But that's something we'll sit down with our partners and decide what the best course of action is.

Sedibelo is the platinum project in South Africa and I would say that it is a project that we're very focused on right now and deciding what the best course of action is with that particular deposit. But, for a number of reasons, it's probably best if I leave it at that. But there is a lot of work that we're doing with respect to that project right now.

Mark Liinamaa - Morgan Stanley

But philosophically about non-gold?

Aaron Regent

Philosophically, well, look we're a gold company and that is our business and that's our focus. So, I've said this to others that inevitably, when you're building a gold mine often you're going to have by-product metals come with it including copper or silver or other metals. So, we would anticipate that it will be a portion of our revenues, which would be non-gold, but our primary focus will be gold.

Mark Liinamaa - Morgan Stanley

Just quickly, on Cortez, the litigation, you had a ruling in favor of you and now they're appealing. Has there been any material change as to expect that that should be anything other than in your favor?

Aaron Regent

Perhaps I could ask Pat.

Patrick Garver

Sure. Where we stand with the litigation as we have had rulings by both the federal district court in Nevada and the non-circuit court of appeals, which have related to some plaintiff efforts to get an injunction to prevent us from constructing the project and I can say to-date the rulings have been consistent and strongly in our favor and we're very hopeful that that will continue to be the case.

There's always, in any litigation, a theoretical possibility that things can go sideways on you. But both, because of the nature of the work that was done on the project and because of the equities associated with building this project in this environment, we just feel very positive about this.

The next court hearing will be in June or July which will be on an appeal of the denial of the injunction. Again, we're very bullish. But, any time you walk in the courthouse door, you have to be mindful of a measure of risk.


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

David Stein - Cormark Securities Inc.

I wanted to ask you a question about your 2010 production. I appreciate that you're giving us a little bit of guidance here. Beyond the hedges rolling off which I guess that will be a positive factor next year and obviously Buzwagi and Cortez Hills.

Are there any highlights with sort of the existing operations that we should be aware of that are going to change materially between this year and next year?

Peter Kinver

I think you covered most of them. But I think the one operation we expect to see a good year next year is the Veladero mine. As we get this crusher commissioned in Q3, we expect to see a big Q4 and hopefully that will run into improved run rate for the following year. So, I think you've covered most of the mines, but Veladero should have a good year as well.

David Stein - Cormark Securities Inc.

If you're going to 85,000 tons a day on the crusher, I mean is the rest of the mill sized for that throughput?

Peter Kinver

It's a heap leach. So basically and we've actually replaced the trucks with conveyor belts now. So, we should see the efficiency improvements there as well. So we put in an overland conveyer and a big bin and the crusher now will crush the rock and we placed it on the pad, so obviously it is more tons, more ounces.

David Stein - Cormark Securities Inc.

Perfect. And then other thing I want to go back to is the Pascua update. And I guess I wanted to ask you about, there was an article in Diario Financiero today that sounds a lot more definitive, very positive. They're basically saying that it's a green light that the tax issues have been settled. I was just wondering if you wanted to -- if you're able to comment on that or dispute that or have anything to add?

Aaron Regent

No. We are aware that and I would say we have been very involved in reaching an agreement on the tax matters and other binational matters. So, we're quite aware of that. That is a very important milestone for Pascua-Lama.

So, that is as I said a very encouraging development for us and so, with that and some of the other things that we're looking to finalize, as I said, there is a lot of momentum right now and we look forward to getting back to you, shortly, to give you a full debriefing on where we are with the project.


Our next question comes from the line of Patrick Chidley with BJM. Please proceed with your question.

Patrick Chidley - BJM

I just want to ask a couple of questions on the exploration not much news there in terms of things going on. I just thought you might want to maybe give us some guidance on which is your top projects and if there is any movement in particular to Turquoise ridge and the Louisiana Cortez hills.

Alex Davidson

Patrick, it's Alex. All of our programs have gone underway in the first quarter. Our budget is set at $150 million to $160 million. As I mentioned in the last call, there programs are weighted more toward near-term resource addition and converting our existing lines this year.

In Nevada, we are spending about 43% of the other proposed budget, about $60 million. We are underway at Cortez, underground drilling at Cortez with two drill rigs, both upgrading the resources to reserve in some places.

We're about 20% into that program and as a result, are continuing to meet and actually in a lot of cases, exceed expectations. The drift development underground, which will allow us to drill further into the Cortez Hills lower zone is actually behind schedule, but we expect the catch up next quarter. At Horse Creek, we plan to start drilling in Q2.

And at Turquoise we also have two underground rigs going and the existing drift is being extended about another 500 feet. We'll be continuing to drill there throughout the year. No big results have come in to date. We're targeting about adding another couple of million ounces there this year.

Patrick Chidley - BJM

Is that high grade bullion there and was that included in the reserves there at the Turquoise Ridge this year or is that still under resources?

Alex Davidson

No, it was all under resource setting, Pat.

Patrick Chidley - BJM

One final question. Go ahead, Alex.

Alex Davidson

No, I was just going to say this program is going as well in South America and in Papua New Guinea and I have it for account in one of the upcoming quarter calls.

Patrick Chidley - BJM

At Bald Mountain, very large resource there and I understand there has been some permitting movement in terms of applying for the various expansions there. Any updates on what the timetable might be on the expansion at Bald Mountain?

Alex Davidson

There's always permitting going on at Bald Mountain and we're looking at expansion opportunities. We're doing an [infill] drill program right there now on that 750,000 ounce resource at RBM. So, work is going on there as well.

Patrick Chidley - BJM

Just one final question if I may? Perhaps, Jamie might be able to address this one, is what's the detail on your calculation of what you're calling net cash costs and how would you take into account the byproduct credits and maybe you can run us through that just for clarity sake?

Jamie Sokalsky

Sure, Patrick. One of the things that we've done this quarter is give more, I guess prominence to the net cash cost figure and, as you well know, the cash costs are used to really gauge the overall quality of each producer's portfolio of mines. Regardless of the sources of the gold and the non-gold, the economic profile at the end of the day and the bottom line is essentially the same.

So what we're trying to really do in giving both the net cash cost and the total cash cost is, provide an appropriate comparability for investors to, in weighing up the profile of each company and comparing the margins and the profitability. In essence doing an, apples-to-apples, trying to make it more of an apples-to-apples comparison. There are a lot of other companies that have significantly more non-gold revenue that gets credited against their gold cash costs.

So what we're doing is taking the copper margins and also including that as a credit against our cash costs. So in the quarter, there is an $80 per ounce reduction of our cash costs. So, copper is about 15% to 20% of our revenue and by really adding that statistic, we'd feel that we're providing more of a level playing field to compare our results to many of the other peers in the gold industry. So, in essence, it is a crediting of our non-gold revenue against our total cash cost and it is as simple as that.

Patrick Chidley - BJM

So the main portion of that is basically the margin at Zaldivar as opposed to sales, company has not really byproduct sales. It is more the margin from the Zaldivar mine effectively.

Jamie Sokalsky

That's right. And also, Osborne as well, but it is primarily Zaldivar. So it is the margin, not the total revenue.


Our next question comes from the line of Michael DiNapoli with Citadel Investment Group.

Michael DiNapoli - Citadel Investment Group

You've given us the production guidance for 2010 and obviously have pretty substantial undeveloped reserves. If we look out three to four years, how much production beyond Buzwagi, Cortez and Pueblo Viejo, do you need to counter the natural depletion at your current mines and then kind of maintain that level of production? Does your development pipeline right now get you to that goal?

Aaron Regent

First, we've tended only to give one year guidance. We have also kind of extended to give 2010 guidance because we do have a bit of dip in our production this year, which gets rectified next year as we bring on in particular, Cortez hills. You are going to have, like any mining company, ebbs and flows in your production profile as older mines and the newer mines come on stream.

I think the key thing for Barrick is that we have a reserve base of about 139 million ounces and a total resource base of well over 200 million ounces. So, we have a lot of options available to us, and a demonstrative ability to take those resources and turn them into production.

In addition, that's basically what we have in hand but our strategy is also one of exploration, which Alex has talked about and also acquisition. So, we have a three-pronged thrust to continue to replace our resource base and grow our production profile.

Well, thank you, everyone for joining us this afternoon. We look forward to our next call and between then having a further call on and telling you where we are with Pascua-Lama. So, with that, operator, we will terminate the call. Thank you and good evening, everyone.

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