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Barrick Gold Corp. (NYSE:ABX)

Q2 2006 Earnings Conference Call

August 3, 2006, 10:00 am ET

Executives

James Mavor - VP, IR

Gregory Wilkins - President and CEO

Peter Kinver - EVP and COO

Alexander Davidson - EVP, Exploration and Corporate Development

Jamie Sokalsky - EVP and CFO

Analysts

Mark Smith - Dundee Securities

John Hill - Citigroup

David Christie - TD Newcrest

Victor Flores - HSBC

Steven Butler - Canaccord Adams

Kerry Smith - Haywood Securities

John Bridges - JP Morgan

John Tumazos - Prudential

Larry Strauss - GMP Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold Corporation Q2 2006 results. (Operator Instructions). As a reminder this conference is been recorded Thursday August 3, 2006. And it’s my pleasure now to turn the call over Mr. James Mavor, Vice-President Investor Relations of Barrick Gold. Please proceed, sir.

James Mavor - VP, IR

Thank you operator. Good morning, ladies and gentlemen, and welcome to our Q2 conference call. Yesterday we released our Q2 results and they are available on our corporate website as well as mine statistics, and you can get them by our website or by calling our Investor Relations department. We will be mailing our office circulars for NovaGold and Pioneer Metals shortly and following their mailing we would be pleased to respond the questions in connection with our offers.

Before we begin our conference call I’ll read the forward-looking statement. Management will be making forward-looking statements during the course of this conference call and 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 for our most recent AIF filing.

I'm joined here today with our President and CEO, Greg Wilkins, and he will chair the conference call and we’ll also have an update of our operations and development project by Peter Kinver, followed by an update of our exploration by Alex Davidson and we will take the questions then. So, Greg over to you.

Gregory Wilkins - President and CEO

Thanks Jim. Good morning everyone, thank you for joining us this morning to discuss our Q2 results and to talk about the prospects going forward, and to talk a little bit about the Placer integration and what we see with respect to the work that we have been doing over the last six months.

We are obviously very pleased with the financial results, the record financial results. It’s gratifying to position the company over the last number of years to take advantage of these high metal prices and I think really these results are just the start of the demonstration of the wisdom of some of the decisions that we have been making. We have lots left to do and we have lots of value left to extract out of the company and to continue to work forward. So we are going to enjoy the results for today, but we recognize that we still have lots to do going forward.

The results were a record for us both in terms of earnings and cash flow but more importantly on a per share basis, which is really the test. There was significant volatility in the quarter with movements in the gold price reaching a high of about $730 an ounce, and lows of $550 and we continue see an average of about $600 an ounce, but it did provide us with the opportunity to aggressively bring down the price of Legacy position. And I think it’s important to note that the strong financial results were done even though we had taken down the Placer hedge book to zero.

We also concluded the transaction with GoldCorp and received proceeds of $1.6 billion. We remain on track with our full year gold production guidance and cash cost guidance and I think that’s also quite remarkable given the cost pressures that the industry continues to face but equally, challenges that we see in the mining business generally, and I think it does speak to the wisdom of having a good portfolio of assets. We are actually increasing our copper production guidance and maintaining the cost guidance for copper, so are pleased with that. And as Jim mentioned we will be shortly mailing our bid documents for both Nova and Placer, and we would appreciate answering questions once those documents are out rather than trying to speculate on the contents as we see today.

The results themselves, earnings came in at $459 million, and I think about $420 million for a couple of unusual items $0.53 per share. Operating cash flow is strong at $643 million. And just to put it into bit of context, our best year with earnings I think were in 2005 throughout the history of the company and came in at $401 million. And so in Q2 alone we were able to surpass what we had been able to do as a best year up to this point in time and I think demonstrating again the leverages that we see with higher commodity prices.

Operating cash flow I mentioned was $643 million and on a per share basis came in at $0.73. Gold production 2.1 million ounces cost of $281, copper production was 100 million pounds at $0.76 a pound. So all within the guidance, all within expectations and so we are very pleased with that performance. But I think that it really does show by being able to keep our cost in line, we can truly see the effect of the leverage as a result of the higher gold prices and copper prices as well. We expanded our margins and we really saw it come through in this quarter, going up from about $180 an ounce in Q2 ‘05 to over $300 an ounce in Q2 ’06, that’s a 72% increase. And so, it’s a function of not only increased margins but increased productions bring down the wisdom of having developed the new four mines that we opened last year and the acquisition of Placer has certainly been accretive to Barrick shareholders just from the basic operations, not talking about some of the other upside potential.

On the hedge book reduction, you may recall we started out the year at about 10.5 million ounces for the corporate sales book and in Q1 we aggressively reduced that by 4.7 million ounces. And then followed through again with, further strong Q2 reduction really an anticipation of higher metal prices, corporate sales did not touch the project sales book which continues to stand at 9.5 million ounces. But I do want to point out that there is some additional accounting that will take place in Q3 and Q4, we will take a reduction in revenue of $79 million in Q3 and residual $18 million in Q4 to fully account for the effect of the close out of these contracts. That leaves us with 2.8 million ounces from the Barrick legacy book which as we’ve said in the past we will eliminate by the end of 2009 at the latest.

We were very pleased with the acquisition of Placer and frankly we get happier and happier as time passes. The acquisition is obviously the accretive to our results given sort of the movement in the metal prices in the site from some I think initial disappointment on the production expectation at a couple of Placer’s assets as we have had a chance to go and look at them more fully, we are seeing improvement in production from those assets as we speak in the second half, which Peter will talk to, look even stronger. So, a good solid portfolio of operations and great projects and we continue to move those projects ahead, and excellent exploration potential, which Alex will comment on.

And it’s also very rewarding that the integration is going well and really, we have done the technical things with the organization set up to deal with the new company, functional reporting, the movement of the offices and transition of people and so on. That’s all great, but what’s really exciting is to see the people in the organization working together and really looking for a common objective and working strongly towards achieving that common objective. So the people side which I think is going to be the key to the success of this operation is actually moving ahead quite well.

But also on the synergies front, we continue to gain confidence to achieve our $200 million synergy’s target and, we have identified specific opportunities for that and, we will be measuring them so we were really quite on track. But I did mention the exploration upside, it’s quite significant so we have increased our exploration budget for the balance of the year, we have added about $20 million to go after specifically identified targets that we think we can turn into resources or reserves in the relatively short term. So we were very pleased with the progress we are making on that front and as I mentioned I think in the people side going as well as we could possibly hope for and that going to bode very well for us in the future.

So with that let me turn it over to Peter, walk through the operations and then we’ll ask Alex to comment more on the exploration potential and I will wrap up before we open it up for questions.

Peter Kinver - EVP and COO

Thanks Greg. Good morning everyone. I’m going to give you an overall look on where I see things today as well as a brief overview of our key assets.

But first I want to comment on some of the cost management initiatives that we have implemented as part of Placer Dome integration. This is especially important in the face of the general trends that were seeing in the mining industry today with continued inflationary cost pressures, high turnover rates and the scarcity of resources both human and capital and operating supplies. The strength, breadth, and scale gained from the Placer Dome transaction better positioned us to deal with these issues. It’s provided a number of opportunities that we can leverage and capitalize on.

Let me highlight a few of these initiatives that we have implemented in Q2 in supply chain management. The company has renegotiated a global supply contract thereby leveraging our greater North American requirements; this resulted in some good savings. We have utilized Goldstrike’s tie up and service capabilities to maintain adequate stock of spare tires (inaudible) rather than outsourcing these tires, which Placer was doing. We are actually now repairing these tires ourselves and we see that the tires that we repair have an extra tire life of 1300 hours as compared to 500 hours with outsourced tires, besides we were also showing key supplies such as tires, critical spares and equipment, of the mines in the region.

With respect to Placer Dome operations, we are doing a number of things to overcome some of the short-term challenges faced by these mines to get them back up to optimal operating performance. We are focused on rolling out standardized Barrick systems throughout the organization and growing and cascading a high performance cultural across all levels of the organization. Barrick has undertaken operations review of the major Placer Dome operations and these ORT’s or operation reviews formalized improvement projects and highlight value added opportunities that fit the company’s long term planning and benchmarks the company against peers’ performance.

Turning to our results, we’ve summarize the Q2 production and cash cost by region on this slide. Gold production is about 2.1 million ounces at a total cash cost of $281 per ounce. While I'm pleased with our operating results for the first half of the year, we are accepting even stronger performance from a number of mines in the second half which I’ll touch on as we go through the various regions.

In North America, starting with Goldstrike, the property continues to be the company’s largest produced and contributing about 1 million ounces in the first half of the year, the Goldstrike cash cost is $283 for the first half and is in line with our expectations and we benefited about $8 per ounce from the start up off of our power plant. As a note, the royalties are also up $10 per ounce year on year due to the high gold prices. Goldstrike passed the very special milestone in May, this year when it reported 30 million ounces of gold since its acquisition 20 years ago. We’re very proud of our team that’s operating the mine down there.

Cortez, the production was impacted by low grade mines and process due to the mine sequencing that occurred at the tail end of last year, during the quarter Cortez processed grades of 0.018 ounces per tone which is about half of the prior year’s grade. A positive note of starting the scene improved performance and this is because we’ve now caught up with the wise stripping and we exposed high-grade portions of the ore in the pits. We’ve also instigated a program of side slope leaching which is also going to add to our better performance in the second half of the year on the expected season catch up in the next two quarters and we are quite optimistic that we may actually beat the expectation of 200,000 ounces in the 2006.

Bald Mountain is an operation that is expected to see a substantial improvement in the second half of the year. We already saw a significant improvement on Q2 over Q1. During the first half of 2006 the focus was on mining and putting material on the pads and now we are in a leaching phase and we’ll see a better performance in the second half of the year. Moving to South America first is Lagunas Norte mine. The mine company has performed exceptionally well. Now having produced over one million ounces of gold since a start up in June last year. Primary pressure capacity has increase from 42,000 to 54,000 tones a day and as a result of this increase throughput and high recovery rates the mine remains on track to contribute over one million ounces of production in 2006 at low cash costs.

At Veladero, all grades of leaching are expected to increase as the mine transitions from lower grade ore from the Filo Mario pits to the high-grade ore in the Meikle pits in the second half of this year. Total cash costs are expected to benefit from the high volume of ounces produced. Zaldivar copper mine in Chile had a very good quarter producing 82 million pounds of copper at $0.61 a pound and we realize a price of $3.49 per pound for the copper over that period over that quarter so it contributed a lot of cash flow to the company. Copper production is forecast to be high due to higher expected ore tones and grade and we expect it now to produce about 300 million pounds, which is great given the current copper price.

In our Australia Pacific region, the Cowal mine, the mine has been ramping up production during the Q2 and therefore increase its contribution to the company wide production in the second half. The mine is set to reach the required run rate because of staffing issues, an example of manpower pressures which the industry is currently experiencing in Australia. In Africa, North Mara the mine experienced equipment availability problems during the first half of the year which changes to the mining schedule in the processing of lower-grade ore. The first half was also impacted by mine sequencing that occurred in the last quarter of 2005. Improvements in equipment availability in the second half along with accepting the high-grade ores as we move into lower elevation areas in the pit will result in better second half production and cash cost.

At South Deep in South Africa as a result of the incident at South Deep, the mine’s hoisting capacity was reduced to about 40% for the remainder of the year and the company is adjusting its full-year guidance for South Deep to about 150,000 ounces. We are still on track to meet our company wide guidance for the year. With the respect to the repair and rehabilitation of the main shaft, good progress has been made, today we prepare the shaft and steel work, and services from (inaudible) down to a floor level and alignment test to this section of the shaft is ahead of schedule, recasting the dams and the falls bottom at the base of the shaft is also in progress. We expect the main shaft to be re-commission in early 2007.

The Cortez Hills, a few comments in the progress of our develop projects; I’ll start with Cortex Hills. The Cortez Hills project involves the development of two adjacent deposits, the Cortez Hills and impediment. Barrick is 60% owner and operator of the project. Barrick’s share of the expenditures for 2006 is expected to be $40 million and Q activities consists of procurement of equipment, primarily the open pit mining fleet. The equipment is expected to be delivered starting in the second half of this year. We are also busy commissioning the water supply system, the underground portion of the project and the underground development. We’ve also done an expression program there, which Alex will be discussing later. The underground portion of the Cortez Hills project consist of 20 climbs which are shown in the slide, which should be driven from within an existing pit and for exploration and access of the area underneath the proposed Cortez Hill’s open pits. The year to date total development is just over thousand meters, which is roughly 30% of the total project development and the current achievement rates are on plan.

Pueblo Viejo, Barrick has a 60% interest in this project with 40% interest -- in May of this year. We continue to upgrade the feasibility analysis prepared by Placer Dome and we are reviewing other work completed on the project. This work is targeted for completion by year-end. We remain on track to provide project notice to the Dominican government by July 2007, which is retainer rights in the project. Review work in progress includes the following, promising metallurgical test work related to recovery of silver and potentially copper and zinc and as a result we are studying some plant modifications to accommodate improved life product credits, which would improve project revenues. We are also doing a technical evaluation of alternative power plant implications and plant configuration is under way and we will determine the timing of the power plant EIA.

An assessment to incorporate brick lined autoclaves rather than titanium based claves has been made as a result of our knowledge and experience from the Goldstrike operations. Preliminary findings indicate some upward pressures on project capital cost due to industry inflationary pressures and increased power requirements, optimization efforts are ongoing. Donlin Creek, since acquiring control of Placer Dome. Earlier this year Barrick has moved decisively to ensure that the appropriate financial, technical, and human resources are being devoted to the timely completion of the required feasibility study. The 2006 budget has been increased from $30 million to $56 million which is 100% basis. The number of drills operating on the site has been significantly increased to ensure that 80,000 meters of drilling planned for this year can be completed, ensuring that sufficient drilling information is available for the completion of the feasibility study. In addition, Barrick has assigned to this project the best qualified technical personnel from both inside Barrick and externally to ensure that the challenges and opportunities of the project are properly assessed and exploited.

Moving to Pascua-Lama, in June the appeal process was completed in Chile and the project has received definitive approval. We continue to work with the Argentine authorities providing them with information and our target their approval of project later this year. As a result the timelines of this project had been backed by about a quarter.

I would like to now turn the call over to Alex to talk about exploration.

Alexander Davidson - EVP, Exploration and Corporate Development

Thanks Peter, and good morning ladies and gentlemen. I would like to spend just a few minutes this morning updating you on our Q2 exploration activities and some of the results. And I’ll be focusing on Nevada this morning as a preview to the tours we are going to be running in early September.

We spent $40 million worldwide in the quarter or $77 million year-to-date on regional and mine site exploration. We drilled about 22 properties in the quarter and at the moment we have over 48 active around the world. Nevada is our key focus for exploration this year with 31 rigs running and about 35% of the plant 2006 exploration expenditures are going to be spent in Nevada. Q2 was actually the first full quarter of Barrick implementation on the Placer projects and I just want to talk about Cortez for a second. The exploration drilling year-to-day on the Cortez join venture is about 220,000 feet and about 200 holes, and we currently have five core rigs and three RC rigs drilling on the Cortez join venture.

Favorable result in the quarter have been received the Cortez Hills underground project, expanding the lower zone to the North and to the South. Also drilling is showing significant increases in grades from the lower or underground portion of the Cortez Hills BUTR zone, and the first hole drilled in the existing Cortez pits area has also returned a significant oxide intersection and drilling is going to continue in all these areas this quarter. Also on the pipeline side of the property, significant intercepts had been received from drilling in the deeper portion of North gap and from confirmation drilling in the gold acre Southwest extension zone. Exploration plans for the remainder of the year on Cortez are design to add resources through additional in-field drilling of the Cortez Hills BUTR underground zone and step-out drilling on the lower zone. Also we’ll be continuing to in-field drill on the Cortez pits area and we’ll be testing the western high wall of the stage 8 at pipeline North gap and that should bring in some more near surface oxide and we’ll be bringing the gold acre Southwest extension zone into resource status.

At Bald Mountain, seven drill rigs are operating in Q2 and we drilled about 130,000 feet in almost 150 holes, most of the drilling activity and the success was in the reserve development drilling in the areas of the existing pits. Also nine exploration holes were drilled in the Williams and the LJ areas late in the quarter and we are waiting for results on those holes, and we just started or we just complete a large chemical sample in Bald Mountain stock and by the trend areas and have discovered two large soil anomalies there and we are starting an in-field gravity survey throughout that area.

In South Arturo, we’ve completed about a 10,000 feet of drilling in 83 holes. Mineralization is largely drilled out now at certain 200 ft centers but there are still some possible extensions. We are doing both column leach and other met tests and preliminary results are positive. And in the hinge zone, 12 holes have been completed with 10 of those returning significant mineralization along about 2000 ft of straight line, and the hinge zone is still open to the North, to the South, and also on the East side. An initial $5 million, $3 million Barrick, and $2 million Bahamas has been approved -- was approved in June for another 100,000 feet of drilling and for the rest of this year and the program is in progress with three rigs

On Goldstrike lastly, we have 300 ground drillings on site. The North Post program is about 50% complete and we’ve drilled about 26,000 feet at North Post and Deep North Post and we’ve completed about 700 feet of development work on the Banshee Drift, and significant results have been received from both the North Post and at the Deep Post areas, and the program is going to continue for the rest of the year.

So with that I’ll turn it back to Greg and I look forward to seeing some of you on the September tours.

Gregory Wilkins

Thanks, Alex. Let me just quickly wrap up and then we’ll open the lines for questions. We are reiterating our guidance for gold production between 8.6 million ounces and 8.9 million ounces, we are reiterating our cost guidance between $275 and $290. I think actually it’s worth highlighting the benefit of having the portfolio of assets. While we had a production hit on the South Deep mine it did not actually affect our overall guidance for the company and I think we’ve seen the odd example where single mine dependency creates a fairly significant amount of risk for investors as the mining industry itself is not without its risks.

On the copper side we are increasing the outlook for copper production from 350 million pounds to 370 million pounds, reiterating our cost guidance there. On the exploration side we are increasing our guidance with respect to exploration expenditures, Alex has just walked you through some of the excellent results and as we’ve always had a program of allocating exploration capital to success, now we’re pleased that we are having the success and not just at (inaudible) but allocating additional funds in Pakistan to our project there, in Tanzania and down in the Frontera District. We are also increasing our expenditures from a project development standpoint and I really view this $150 millions we’ll spend as an investment as it will advance our pipeline of projects, albeit we have to charge into earnings because we haven’t got it to the point where we’ve met the US accounting standards for capitalization.

Our tax rate ought to be in the 28% to 30% range, which is pretty much where we expected it to be, and we will be allocating the balance of the purchase price for Placer Dome with more precision as we get more information going forward. And so on balance, we are very pleased with the outlook and whereas as we saw in Q2 numbers the leverage that we are able to achieve against these higher metal prices by keeping the line on cost is certainly delivering very tangible results for our shareholders.

And with that, operator, if we can open the lines for questions I’d appreciate it.

Question-and-Answer-Session

Operator

Thank you. [Operator Instructions] One moment please for first question. And our first question comes from the line of Mark Smith, Dundee Securities. Please proceed.

Mark Smith - Dundee Securities

Good morning, congratulations on an excellent quarter and actually bucking trend. A couple of questions, first on Cortez Hills for Alex, I guess. As you have been doing the additional drilling at Cortez Hills, have you been able to sort of confirm the findings from Placer for most of that vertical drilling that they have done on the steeply dipping --?

Alexander Davidson

Yes we have, Mark, and that’s the point I mentioned about, we are getting significant increases in grades in the in-filed drilling on that Cortez shows underground branches, we call that that steeply dipping stuff that branches off. So we are confirming and in fact and frankly increasing the grades on the in-field drilling.

Mark Smith - Dundee Securities

Okay, is it still open at depth now or is it still -- or is it restricted to a certain stratography in the horizon?

Alexander Davidson

No that branches on is the steeply dipping part and the stratography is fairly flat there, what we call the lower zone is where that flares out into -- or stands out into a more flat lying zone underneath it.

Mark Smith - Dundee Securities

Okay, got you. Okay, and can you just sort of give me a handle on where the permitting stands for Pediment and Cortez Hills?

Alexander Davidson

If I can comments on our stage -- we are 30 stages at permitting, plans of operations have been filed and scoping comments being received, so at present the project the project preliminary EIS has been prepared so it’s that stage of permitting.

Mark Smith - Dundee Securities

Okay, and Pediment is now included within the Cortez Hills plans?

Alexander Davidson

Correct.

Mark Smith - Dundee Securities

Okay good. Maybe you could just give me an idea of how things are going at Getchell or Turquoise Ridge with respect to the staffing and training that was going on there and how the ground petitions are being maintained?

Peter Kinver

It’s Peter here, yes it has been an issue turnover for all underground mines in Nevada is an issue, but we have -- I can say instituted a sort of intensive training and I’m pleased say that the turnover has got down to more acceptable levels. In respect to the ground conditions I think they have -- everybody has accepted that the ground conditions down there are not great and they have got a drip and fill mining method using expensive use of short grids and they should be coping with the difficult ground conditions down there.

Mark Smith - Dundee Securities

And maybe just one final question? Could you just give us an idea of where progress future lies in terms of the exploration that’s been ongoing and where we could see that operation going?

Peter Kinver

Yeah, in terms of the exploration we are -- you know, we are targeting two targets, one is a deep target and we are currently drilling holes to test and we just added a rig actually. That program drills about 6,000 meters and we are currently waiting for that and then we are about to start a 3600-meter surface drill program to test (inaudible) prospect, which is adjacent to the pit and we should start that this month actually.

Mark Smith - Dundee Securities

All right, thanks very much. Yeah, once again congratulation on a very good quarter.

Peter Kinver

Thanks Mark.

Operator

Our next question comes from the line of John Hill from Citigroup please proceed.

John Hill - Citigroup

Good morning everyone and I guess I’d echo those comments, also I think very impressive what the company has delivered at (inaudible) we will hope that’s a down payment on other things to come. Just switching gears a little bit on the hedging side, I mean you have obviously been so aggressive in terms of taking down the Placer positions also with some of the Barrick corporate book, and really haven’t talked much about the project hedged to 9.5 million ounces, I mean at what point would you consider perhaps tackling something like that and maybe brining down to enhance the long term economics?

James Mavor

Well, John, for the moment we are quite content to allow that hedge book to continue to accumulate additional and improve the forward looking prices, you know, I think we are going to able to utilize those contracts to support return on capital and to support project financing activities which will help diminish the risk associated with making those large CapEx projects, but you know, we continue to enjoy price accumulation in the forward prices, albeit lower than current spot prices but there is some security in having that support.

John Hill - Citigroup

Sure, understood, also perhaps Alex could you provide a couple of comments on the plans for Frontera, as we move ahead seems a lot of the other regions have sort of leapt to the fore but obviously a lot of the interesting grounds there, what’s your thought?

Alexander Davidson

No, we were actually, we are doing a fair amount of exploration on Frontera on Guanaco Zonzo, which lies to the south of Veladero. There is a number of areas that we are drilling at the moment and we have had some decent success on (inaudible) and other and some success on the silver side at a target called Agenta, so that drilling was done in the that -- towards the end of Q1 and beginning in Q2 and of course, there now winter so got to be -- Frontera will be kicking at the end -- starting up again in sort of September - October.

John Hill - Citigroup

Very good, thank you.

Operator

Now our next question comes from the line of David Christie of TD Newcrest, please proceed.

David Christie - TD Newcrest

Good morning guys, just -- Peter, on that Pascua-Lama the -- in the report it talks to propose design improvements or you are going to help economics on that project, what will it be and give a little color on that?

Peter Kinver

We from our experiences we learned in Veladero -- just give you a couple of examples, I mean we found that wind -- for example snow may not necessary be as bad as for example wind. So a lot of the mining like crush at tipping points we are trying to keep them protected from winds, buildings but having learned a lot about wind construction activity at high altitude again wind and the snow loads -- all of these you know, the experiences of getting up there is going to help us optimize the new project.

David Christie - TD Newcrest

Okay, I guess Alex just -- I was wondering if you can give a little more color on what you are seeing as far as grades and thickness?

Alexander Davidson

The -- you know, there are oxide grade kind of similar to -- in the ‘05 plus range and thickness are similar to the South Arturo in the 100ft to 200ft.

David Christie - TD Newcrest

There has been resource by the yearend or --?

Alexander Davidson

I don’t know -- we have said that we are going to have a resource on South Arturo itself later this year.

David Christie - TD Newcrest

Okay, thank you guys.

Alexander Davidson

Hey Dave just before you run on, we intent to you know -- d o a pretty fulsome update of all of the projects you know, later in the year and at that time you know we will show you sort of the totals of our reengineering elements which there has been quite a few changes not just from what David was mentioning from we’ve learned by just sort of redesign from the picture that we painted back in July of 2004.

David Christie - TD Newcrest

That’s great, thank you.

Operator

Our next question come from the line of Victor Flores HSBC, please proceed.

Victor Flores - HSBC

Yeah thanks, good morning. I was hoping you can give us just a bit of more color on the operations in East Africa, it looks like cost still seem to be an issue and I know there has been problems with grade and equipment availability and people and what not, but I was hoping that you could just flush that out for us a bit more please?

Peter Kinver

Yeah, I’m just getting my notes, Victor this is Peter here again. As we referred to North Mara, generally in Q1 this year they started off roughly 3 million tons of waste stripping behind, and that was mainly due to rescheduling from the last quarter of last year, we refocused the waste mining and the whole turn has increased the quarter on quarter that we managed to increase the gold production in North Mara from 59,000 ounces in Q1 to 83,000 ounces in Q2 and we expect to see a steady increase as the percentage of open pit ore increase, when we get the commensurate unit drop in ounces to come down at -- excuse me, Bulyanhulu, we managed to show an increase quarter on quarter from steadily 1000 to 85,000 ounces and again a drop in the cash process, general things and of course Tulawaka has gone extremely well. They went from 67,000 tons process to 105 so basically all three operations there are showing a steady improvement.

Victor Flores - HSBC

So, essentially you are not particularly worried by the high cash cost from these assets as long you are seeing a sequential improvement in the operating performance?

Peter Kinver

Well, as we said before including -- take longer to fix than we were saying it was going to take probably 18 months to 2 years to get back but we hope to see a steady improvement of the next 18 months, and certainly I think that North Mara should have a much better performance next year.

Victor Flores - HSBC

Great thank you and perhaps I could ask Alex to comment on Bizwahee?

Alexander Davidson

Bizwahee, we actually finished the exploration there and its been handed over (inaudible) guys its currently in feasibility and in permitting and sort of being progressed.

Victor Flores - HSBC

So I guess, its good news that it’s no longer in your hands and it’s now being feasibility?

Alexander Davidson

That’s right.

Victor Flores - HSBC

excellent, thank you very much.

Alexander Davidson

Thanks.

Operator

Our next question comes from the line of Steven Butler, Canaccord Adams, please proceed.

Steven Butler - Canaccord Adams

Well, couple of questions you guys, I guess primarily for Peter. How would the greats improve Peter, you have mentioned they’re improving as you go (inaudible) but how will the grades improve in of second half of the year given that you did improved nicely from Q1 to Q2 on grades at Veladero?

Peter Kinver

Well, you’re correct, the grade in Karl Marlowe is lower than (inaudible) plus we’ve also got a fair amount of contained gold, so when you look at true recovery we this year for example, I think we put about 365 mounts on the pads, I am not sure how much we pulled out but its fair bit of inventory built up like any new heat bleach and those ounces are going to start flying through in Q2.

Steven Butler - Canaccord Adams

Okay, and how are the recoveries, you alluded to the recoveries at Lagunas Norte been better than expected or better than you thought. How are the recoveries at Lagunas Norte doing?

Peter Kinver

Well, again its still early days but the all time recovery I think we will be slightly higher but the rate of recovery is certainly quicker.

Steven Butler - Canaccord Adams

Okay.

Peter Kinver

If we get up to the planned recovery lets say in 21 days as originally we planned for 28 days, something like that, so its really a question of quicker leach and slightly higher leach recovery.

Steven Butler - Canaccord Adams

Okay, and last question is on Pueblo Viejo, you guys are little to the potential for a base level credit during the future zinc and I am not sure you’ve mentioned copper, can you just give us a sense of what the grades are there, I guess it’s not on any of our models.

James Mavor

I think its bit early Steve for that, again as we give you guys a better update of all of our projects later in the year, we’ll try to address those questions for you.

Steven Butler - Canaccord Adams

Okay, thank you.

Operator

Our next question comes from the line of Steven (inaudible) please proceed.

Unidentified Participant

Hi, Greg. Greg, we often hear that it’s a challenge for large gold producers to replace their annual production with new found reserves, with respect to gold reserves and resources in the ground, where would you be comparable in terms of overall corporate mine like, for example, you are comfortable with 10 or 15 or 20 years of annual production reserves and resource, where did your comfort zone begin?

Gregory Wilkins

Well, I said -- really we would want to be on a 10 years of reserves, I mean I think that starts to give you pretty short time and given the lead time in the business but its hard to sort of take exact resource numbers because its all a function of what we really think the capability of our assets is in terms of developing new resources that ultimately be converted into reserves and that often is going to be a judgment call of Alex and Peter and our technical folks and rather than necessarily investing into the drilling and an ore body with great its going to continue out if there is great consistency would necessarily ask to go on drillages to confirm something we have a very high degree of confidence and so you know that’s a bit of an art to exactly what the number is but I can’t say that we have been very focused on vying to build out a pipeline of projects that give us that capacity, well into the future, to be able to identify new resources and then ultimately convert those resources, why we did the Pakistan deal earlier this year, and part is why did the Placer deal and clearly as why we would made bid for NovaGold.

Unidentified Participant

Thank you.

Operator

Our next question comes from the line of (inaudible) from Genuity Capital, please proceed.

Unidentified Participant

I am sorry, my question has been answered.

James Mavor

Next question.

Operator

Now our next question comes from the line of Kerry Smith - Haywood Securities, please proceed.

Kerry Smith - Haywood Securities

Greg, can I ask you a question about diamond, just on the timing the last I guess, slide that you showed of your pipeline it suggested that Dolin and a few other projects would be beyond 2009 in terms of when you’d have production, you’re obviously dedicating a lot of manpower and effort, capital to the project, can you give me some ideas to what your timetable would be today in terms of how long it might take to permit that project and when you think you might actually have that project in production?

Gregory Wilkins

Kerry, it’s a bit early to give you some definitive time lines on that, the permitting process is been commenced and its only the work associated with that is been planned out and again, I am bit hesitant because the preliminary exercises are influenced by a whole host of factors that aren’t necessarily within our control, so the exact timeframes are difficult to predict and we’re at the earlier stage on this one but you know, we’ve go the work program in place to accumulate all of the information we need to develop the pre-feasibility study and the feasibility study was in the time frames that require to earn our 70% interest and of course, we have added enormous amount of experience in building projects and so we have very good understanding and we have a very good capability to achieve that, so we are very confident that we’re going to stand our time lines that are necessary to preserve our interests.

Kerry Smith - Haywood Securities

Okay, so we have to have the -- done by November next year which we will be able to certainly, do you think that you might actually file the EIS and then kind of kick off the permittings and for may be you can give me that in terms of finding.

Gregory Wilkins

I think that give us a couple of months Kerry, we’ll do an update on the projects, I think, we’ve got such a nice pipeline of projects now that is work for a couple of hours to really go though and do a pretty thorough update of where we’re at and so we can bring our investor community up to speed on it and by the time we do that in the next month or two, we’ll be able to better answer those questions for you.

Kerry Smith - Haywood Securities

Okay, fine, could I ask also one more question to Peter, with the six months behind you now on the Placer acquisition, could you just talk a bit about the operations that you acquired that perhaps were better than what you expected and which ones were actually a little bit last and when you expect it?

Peter Kinver

Yeah, I think -- Smith mine has done really well. Its sort of a, that’s what you call a low key asset but it’s performed very well year to date. I think the Porgera mine is also despite the problems that we had in Q1 with the various things has done really well and then of course Nevada has got tremendous upside as Alex alluded to I think with the higher gold prices we’re going to certainly re-look at this is the potential of all these pits, remodel them with the higher prices and its certainly going to have, I think from upside there.

Kerry Smith - Haywood Securities

Okay, and really any assets that may be you’ve been disappointed with, or moderately disappointed perhaps?

Peter Kinver

Well, as Greg said the first couple of quarter is been a big tough and I think the 70s operations was suffering from a bit of uncertainty but now the integration has been completed and we’ve seen a really strong commitment from all the employees around the world.

Kerry Smith - Haywood Securities

Okay, good thanks Peter.

Operator

Our next question comes from the line of John Bridges - JP Morgan, please proceed.

John Bridges - JP Morgan

Hi Greg, everybody, congratulations on clearing that hedge book that’s gone very fast. Could you just give us a break down of how you cleared the 7 million ounces through -- even as you produced 4 million ounces from the mine? Now how this -- that break down go?

Jamie Sokalsky

Well hi John, its Jamie. You know since we delivered some of the Placer hedge book against production that was a few million ounces in the first half and the rest of it since we just went into the market and closed those contracts out and some of the accounting impacts out of that as Greg mentioned will flow though the second half, about a $100 million of accounting losses will flow though the second half as a result.

John Bridges - JP Morgan

Okay. and then the allocation of goodwill. When do you expect that to be done?

Jamie Sokalsky

We will have that done by the end of this year. The accounting rules John give us a year to finalize that purchase price allocation, that the allocation of some of that goodwill. We have done a lot of allocation of assets and liabilities already, you know the hedge book, the debt, obviously the working capital items so it’s really mostly the -- the property plants and equipments and asset retirement obligations, but you can expect that with an acquisition of this complexity and scale and the number of operations and you know the aspect that we got to get through our long range plans to take a look at from Barrick’s standpoint, that we expect to take most of the time period of that year, but in the mean time, what we have done is made a preliminary estimate based on the merchant model that we had at the time and as a result we have put through almost a $100 million of the additional cost that Placer would not have booked had they remained on a stand alone basis. Inventory, fair value adjustments, amortization, additional project development, expense that they would have capitalized, so we have actually put through quite an additional amount of cost that has actually if we hadn’t done that our earnings would have been -- the first half would have been around $0.14 higher.

John Bridges - JP Morgan

Right, but when you do come to the final thing, all the accounting rules require you to restate the earnings for these quarters?

Jamie Sokalsky

No, they want -- they you just deal with the perspective going forward.

John Bridges - JP Morgan

Okay, interesting. Thank you very much.

Operator

Our next question comes from the line of John Tumazos, please proceed.

John Tumazos - Prudential

Congratulations on all the progress. Could you explain the logistical reasons why you bid cash for NovaGold as opposed to mostly stock for Placer, perhaps there’s a difference in tax situation, major shareholders. Then, secondly prior to the Placer acquisition, Pasco was your major project in terms in the big projects more than a couple of years off. And now there is Pakistan, Donlin Creek, maybe Delore Creek, the Dominican Republic (inaudible) gone for now. Is it possible that something else is such a great success that you just wait a few more years and (inaudible)?

Alexander Davidson

John, let me deal with them, on the cash good side for Nova, I mean it’s different from Placer in size and scale for one thing, but to be honest, you know we are acquiring a couple of assets and really view the Nova transaction as an asset acquisition and it’s really to augment the pipeline of projects that we’ve talked about, and we want to leverage against the gold values in those projects and of course the copper value at Galore Creek, and so it’s really -- you know looking for upside leverage by fixing the price with cash and then getting the benefit rather than diluting some of our adjusting operations with potential and lots of growth potential, you know as we acquire these other projects. And frankly, you know probably the simple answer from my perspective is that I don’t think that the value of the Barrick stock category reflects the prospects that we have in front of us, so we’re not prepared to issue equity at this time and our balance sheet is robust enough that we can easily take on the cash transaction here and continue to develop the pipeline of projects that we have without equity dilution. So I think that’s a good package.

With respect to the pipeline of projects, one of the strategic value that we see from having a pipeline is that we can move them ahead based on their own timetable you know, as we found in the past and at the necessity to deliver projects to meet expectations of our board and investors you know, you find yourself you know, dealing in a very constrained environment and frankly permitting is very much in many respects a negotiation with a very large constituency of stakeholder, regulators not being the least. And so by having some alternatives and by allowing the projects to fill in based on the project timetable rather than on an imposed timetable, I think we can be way more effective in terms of getting it done, if that were to mean that we shuffled capital from one project to another project because something was more robust and we are going to generate better returns and better value for the shareholders, by all means I don’t have any expectation that we are going to build out this pipeline in anything other than what’s going to be a sequential process. We are not going to be taking on and building multibillion-dollar projects all at the same time. Its going to, its really a process here of knowing that these things take a long time, that they take a lot of capital, they take a lot of human resources to be done well, and what we want to do is be able to allocate all of those resources to the projects that will best fit will our overall strategic objective.

So having options for us and moving it forward in a timetable that is really optimal for us, I think it’s going to be a great event in going forward rather than being bound to deliver on a specific project because there is great expectations. Having said that Pascua Lama remains a robust project and we’ve debated in the past about the economic returns, if you look at the economic returns in the reengineering and in even in spite of the of the cost inflation and we’ve put that into our view of long term metal prices that’s going to be a great project for us since we are very keen to get that permitting over the goal line in the fall of this year. It’s obviously a lot of work and the Chilean side attracted a lot of attention and so that attention gets focused in Argentina as well but the information that we have assembled, the quality of the technical reviews, the mitigation with respect to the impacts on the environment, the benefits that we will see from an employment in the regions that are going to be affected, the infrastructure projects that we are prepare to support. The package adds up to a very strong package, which will benefit the local communities and our investors, and so you know, we will remain and we were very committed to gain that project over the goal line.

John Tumazos - Prudential

Thank you.

Operator

And our next question comes from the line of Larry Strauss, GMP Securities, please proceed.

Larry Strauss - GMP Securities

Hi, I would like to -- everyone else and congratulations on the progress that you are making, a couple of quick housekeeping questions for Jamie. Dealing with your hedge accounting, will there would be additional losses in the period beyond 2006 associated with the Placer hedge liquidation?

Jamie Sokalsky

Larry, no there wont be, there will be no more losses associated with the Placer book that of 2006.

Larry Strauss - GMP Securities

Okay, good and your effective the tax rate I believe in the first half you had an effective tax rate of about 20% and you are guiding to the 28% to 30% range. Is that a conservative estimate or do you really think that taxes are going to come up quite substantially in the second half?

Jamie Sokalsky

It’s a relatively conservative estimate, Larry, I’d say that it’s going to be about 30% the area though that’s without any other evaluation allowances and different items that might come in through the balance sheet. That’s just the basic tax rate and that could change based on some of these other factors, but the idea is about 30%.

Larry Strauss - GMP Securities

30% from the second half of the full year?

Jamie Sokalsky

Basically for the second half.

Larry Strauss - GMP Securities

All right thank you very much.

Jamie Sokalsky

Thanks Larry.

James Mavor

Operator, there are no more questions?

Operator

There are no further questions sir.

Jamie Sokalsky

Thank you. Then we will end the call and I just wanted to thank everybody again for their participation and for the questions and if anything comes to mind as the day’s progress and we look forward to answering those questions. So thanks again for joining us.

Operator

Thank you ladies and gentleman, this does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. We thank you, and have a good day everyone.

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Source: Barrick Gold Q2 2006 Earnings Conference Call Transcript (ABX)
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