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Barrick Gold Corporation (NYSE:ABX)

Q3 2006 Earnings Call

November 2, 2006 11:00 am ET

Executives

James Mavor - Vice President, Investor Relations

Gregory C. Wilkins - President, Chief Executive Officer, Director

Peter J. Kinver - Chief Operating Officer, Executive Vice President

Alexander J. Davidson - Executive Vice President, Exploration and Corporate Development

Patrick J. Garver - Executive Vice President, General Counsel

Jamie C. Sokalsky - Chief Financial Officer, Executive Vice President

Analysts

John Bridges - JP Morgan

Victor Flores - HSBC

Kerry Smith - Haywood Securities

John Tumazos - Prudential Equity Group

Mark Smith - Dundee Securities

David Gagliano - Credit Suisse

Michael Fowler - Desjardins Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold third quarter 2006 results conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded Thursday, November 2, 2006.

I would now like to turn the conference over to Jim Mavor, Vice President of Investor Relations, to introduce the call. Please go ahead, sir.

James Mavor

Thank you, Operator. Good morning, everyone, and thank you for joining us on Barrick's third quarter results conference call. Earlier this morning, we issued a press release and posted on our website our financial statements, MD&A, and third quarter mine statistics. Please call our investor relations department in Toronto if you would like a copy of these.

I am joined today by Greg Wilkins, our CEO, who will chair this call, and Peter Kinver, Alex Davidson, Patrick Garver, and Jamie Sokalsky. Greg will review the third quarter results and highlights, and Peter will provide an update on our operations. Then we will open it up for questions.

Before we begin, I will read the forward-looking statement. During the course of this call, management will be making forward-looking statements. For a complete discussion of the risks and uncertainties that lead to a difference between our actual financial results and performance, please see our AIF or our most recent year-end report.

Over to you, Greg.

Gregory C. Wilkins

Thanks, Jim. Good morning, everyone. Thank you for joining us this morning. As Jim mentioned, we will be reviewing the third quarter, which was quite a good quarter.

Before I actually get into that, I would like to just draw everyone’s attention to a little announcement in our press release. As you know, social responsibility in mining is important, has been important, and is growing increasingly in importance, so I am very pleased to be able to say that just two days ago at a ceremony in Ottawa, Barrick was the recipient of the Award for Excellence in Corporate, Social, and Ethical Responsibility for integrated agriculture and livestock project in Peru. It was an award that was presented by the Canadian Manufacturers and Exporters, in conjunction with the Canadian International Development Agency. It is important because it recognizes that Barrick's corporate social responsibility policies on an international basis are working very well and are at a high standard, and is just I think some recent third-party recognition of much of the hard work that our people in this area engage in.

It was certainly a good quarter for us from an operational and financial perspective. We declare victory on the integration of Placer. We ran an analyst tour down to our Nevada operations, which represent 40% of our business, and I think people were able to draw their own conclusions with respect to how well the integration has gone at the operating level, and certainly it was clear that we have a very, very strong management team and excellent exploration potential in that whole Nevada region.

We have had almost universally good feedback from that trip, and I think that is really the best way for people to judge what we are doing, is to go and see it for themselves.

Clearly the earnings and operating cash flow were good. In fact, Q3 exceeded Q2 on an adjusted basis, coming in at $0.51 a share versus about $0.50 a share. Operating cash flow eclipsed the Q2 mark at $0.92 per share of operating cash flow versus $0.73, very strong.

We have been enjoying the strength of the metal prices, primarily gold but also copper. We have seen gold continue to be volatile, which I think is actually a good thing for the gold market. We have seen it trade in a range from about $670 an ounce to the lows of $570, but a market that moves around with some volatility is clearly one that people can make money in, which I think continues to support the investor interest in the commodity. Of course, now that we are starting to see not just Barrick but the industry start to generate some higher earnings as a result of these higher metal prices, I think capital will be flowing back into the equities.

This morning, we are seeing continued strength in the gold market. It has traded up to $620 an ounce from what I last saw, and I think there are a number of compelling factors to continue to support that. Clearly investor interest, but also physical demand is good. Physical demand comes in at higher levels and we are seeing higher highs and higher lows, so I think that is going to bode well for us going into the future.

We remain on track with respect to our guidance for 2006. We are at the lower end of the range, at about 8.6 million ounces, and costs look like they will be at about $285 an ounce. Lower end of the range really, some to’ing and fro’ing, obviously with a large portfolio, but the two principal things that I draw your attention to would be the accident at South Deep, which curtailed production over most of year, certainly since May when the accident occurred with the shaft, and then Cowal has actually ramped up a little bit more slowly than we had anticipated, but is actually catching up and will be I think achieving its target levels of operation in the fourth quarter and through into the future.

Actually, Cowal is a bit of an indication of some of the challenges we have from a manpower and contractor standpoint, in that it is very difficult to attract and retain good contractors and people. That has, in fact, just slowed us down.

Copper guidance, as you know, we increased our copper guidance last quarter to 370 million pounds. We remain on track. Costs are about $0.80 a pound.

We also announced in the quarter that we have an agreement to sell our interest in South Deep to Gold Fields for a consideration of $1.525 billion, and we expect to close that transaction early in 2007.

We made our announcement in Q3 to bid for NovaGold and Pioneer in all cash deals. Pioneer we have taken up and paid for about 90% of the stock. We will take in the balance. Our offer there expires November 9th.

On October 24, we announced our best and final offer for NovaGold of $16 per common share, and extended that offer through to November 7th. I will talk a little bit more about that later in the call.

We also announced in October that we completed the issuance of $1 billion of copper-linked notes, and these proceeds will be used to repay some short-term debt maturities, and so it pushes out our debt repayments farther into the future and will be used in part to help fund our development projects.

We did $400 million tranche at 5.75% for 10 years and a $600 million tranche at 6.35% for 30 years and a very -- great strength in our balance sheet with that financing. I think it was quite novel in the way it was structured.

We also announced this morning that we have an agreement with Highland Gold to consolidate our Russian interests, except for Fedorova, but to consolidate all of our other interests, which were primarily joint venture exploration interests that we were doing with Highland. By contributing those assets into Highland in exchange for shares, we think this is an excellent way for us to focus our strategy in Russia through a vehicle that we can work with. We are going to second a couple of our senior people to Highland, and we will take on a couple of extra board seats, but we will be able to eliminate some overhead run costs that we were incurring independently, and I think Highland will be a stronger company going forward to be able to successfully implement its own business strategy.

I did mention Fedorova is out of it. Fedorova has been a project which is really a platinum palladium project that has been around for some time and in fact, drilling out there has been quite successful. We kept it out of the transaction because we are looking at bringing that forward to a feasibility study over the next year to 18 months. We think it is going to be quite a valuable asset and it is quite a large project, potentially, so we want to continue to have independent focus on it.

Lastly, on the highlights, Kabanga has been continuing to drill over the course of the year, and we have been expanding the size of the resource, and we are pleased that we are continuing to establish a fairly high grade. It is sitting around the 2.5% nickel grade extract and our partners on that project will be coming to a decision point about taking it forward to feasibility study later this year, and we are optimistic that is going to be a positive decision.

Turning to the financial and operating highlights themselves, of course, we had third quarter earnings and cash flow which were more than double prior year amounts, on a per share basis, $405 million in third quarter earnings, adjusted for some special items which really were primarily an increase in one-time accruals for the closure property of the nickel plate mine. We were actually at about $0.51 a share or $450 million, which was in excess of consensus.

Cash flow of course, at I think $0.92 per share, was quite remarkable. Recognize that we still absorbed the non-cash hit of about $79 million as it related to the close out of the Placer Dome hedge book. So we had unwound all the contracts by the end of the second quarter, as we had announced. But there was some residual accounting charge which we mentioned at the time to come through the third quarter, and it’s actually about $35 an ounce. There is $18 million to go in the fourth quarter and than a little bit in the first quarter of next year, which Jamie told me will likely be a positive contribution from an accounting perspective, but again small. So that all went quite well.

I think the one thing to point out is that we did 2.2 million ounces at costs of $281 and those costs were the same as Q2. So in spite of pressures in the industry we were able to tow the line on cost. It was against costs of $210 an ounce in the third quarter of last year, but for those of you who joined us on that call, you may recall I mentioned that Goldstrike had a very, very strong third quarter in ’05 and not to get used to those costs that we saw in the third quarter of ’05. So clearly I think it was an anomalous strength of Q3 ’05 that is reporting some of the growth in 2006.

Margins have continued to be strong. As I said, fourth quarter looks to be a very strong quarter for us. We are on track for our guidance of 8.6 million ounces; we have done 6.2 million ounces year-to-date to the third quarter.

Taking a quick look at the expanded margins, you can see the ramp up. It’s kind of interesting, high gold prices feel like they have been around some time but it was really just the fourth quarter of last year when we saw growth in gold prices. So the average prices in the third quarter of ’05 were relatively small. We had a great cost quarter as I mentioned, margins were $217 an ounce, that was really good then but you can see that through the increased metal prices and even though we have seen growth in costs, the margins have expanded quite significantly.

If you adjust for the $36, $35 an ounce for the Placer hedge accounting, we would have actually achieved $617 an ounce in the third quarter instead of $581; and that margin would have been $336 an ounce so it is even more growth.

Of course copper has also been very strong and we have enjoyed excellent copper margins relative to the price and so we are very pleased that both the copper and the gold have been contributing to increasing margins which are driving earnings and cash flow for us.

So let me turn it over to Peter. Peter will do a quick recap of the operations themselves and then we will open it up for questions.

Peter J. Kinver

Thanks, Greg. Turning to our results, we have summarized the Q3 production and cash costs by region on this slide. The quarterly production was 2.2 million ounces, the total cash cost per ounce of $281. While I am pleased with our operating results for the first nine months of the year, the fourth quarter is expected to be our strongest production quarter.

Looking at each of the regions, in North America Goldstrike, the Q3 production was lower at 356,000 ounces and cash costs of $368 an ounce were higher than each of the first two quarters of the year, because we price our stockpile ore during the quarter and the ore chemistry affects limited throughput. The ore chemistry effects related to the burning of the ore have been mitigated with burning of concentrates and we expect to seen an improvement in both production and cash flows in Q4.

At Cortez we are beginning to see a turnaround, as expected. The mine had a good operational quarter producing significantly more than the first couple of quarters in ’06 and at lower cash costs. The mine is expected to have a similar performance in Q4.

Bald Mountain expected to see a substantial improvement in the second half and delivered on that in Q3. Production was slightly higher than Q2 and substantially better than the earlier part of the year at a slightly improved cash cost. Q4 is expected to be similar to the Q3 performance. Please see that two of these Placer assets are having a better performance, certainly at Cortez and Bald Mountain.

In South America, overall operations continue to go well. At Lagunas Norte, the mine continues to perform exceptionally well. Q3 saw higher ore grades resulting in higher production and lower cash cost than the previous two quarters. The mine remains on track to contribute over 1 million ounces of production in 2006 at lower cash costs.

Veladero continued through the transition from Filo Mario into the higher grade at Amable, and resulted in a better production in Q3. The mine is expected to put forth solid operational performance in Q4 and meet full-year guidance. As Greg mentioned, Zaldivar had a very good quarter, and at these current prices, obviously producing a large contribution.

In Australia Pacific region, Cowal, as Greg mentioned, had a slower startup. I am pleased say the mine has commissioned a second mill and tonnage throughput should improve. At Kalgoorlie, they had lower production levels which continued in Q3 but we expect to have a better Q4 as we transition into softer ore, and the cash costs were impacted as a result of the lower production levels.

In Africa, North Mara production continued to improve in Q3 as a result of increased shovel efficiencies and drilling capacity resulting from two new drill rigs, that we acquired during the latter part of Q2. Also mining in the Kanowna pits, a reduction in processing stockpiles, as a result of higher production.

Gregory C. Wilkins

Thanks Peter. Just before we open up for questions I want to take a minute to review the offer for NovaGold. You all know that we increased the offer to $16 per share and this is our best and final price, given what we understand of the assets from the information that has been published. It is a significant premium to certainly the price of the Nova shares prior to the bid and perhaps more importantly it is a significant premium to the price at which Nova itself issued equity for back in February. It is a premium of almost 37% and is clearly in line with premiums that have been paid in other similar types of transactions.

It really boils down to a point where the shareholders can take the cash offer or they can take on the significant permitting, development, operating, financing and commodity price risks that are embedded in the two major projects that Nova has that are of particular interest to us, Galore Creek and Donlin Creek.

Of course we know Donlin as we are the operator earning our 70% interest which we are highly confident we will do. Galore Creek also a major project and by the numbers that have been published the total CapEx for these two projects is in the $4 billion area and as we all know, major large projects like this have suffered, and continue to suffer cost inflation. In fact Nova itself in going from pre-feasibility to feasibility noted a 60% odd increase in capital, some $700 million more capital costs for Galore Creek than in just a one-year period from that pre-feasibility to the feasibility study information they gave us.

We had anticipated that with our experience in large projects and we see the way they go even for us that was a bit of a surprise in terms of size. Of course we are still early days on that. There is a lot of work to be done on permitting.

I think as we see the way these things unfold, large capital projects like this are projects that are best handled by companies that have the size and scale of Barrick. I think the Nova guys have done an excellent job of creating value from an exploration perspective, but the transition from exploration to development is a huge one, fraught with risk and different companies have different capacities to deal with it.

So, our offer, I think, is a good for the Nova shareholders. We are hopeful and optimistic that we will be successful on November the 7th. We have a minimum tender condition of 50.1%. We are interested in being able to take control not be passing investors in the development of these major projects. So, we look forward to November 7th and we think we offer a compelling choice for the Nova shareholders.

More importantly, I think these assets augment the pipeline of development assets that we have and so they are excellent assets to have in our portfolio. But they have to be acquired at the right price. We have a significant amount of organic growth embedded in our pipeline of exploration and development assets. With or without the Nova assets, we have excellent prospects going forward. Of course, we will continue to look at other opportunities that exist within the industry.

Just in finishing up, a couple of comments on 2007. Of course we don’t intend to provide guidance on 2007 until February, which is our common practice. We are in the process of pulling together our budgets which we presented to our Board in December in our usual business cycle. We will also be providing in February a complete update on the development projects so hopefully you can set aside some time in your calendar around our release date.

But a couple of things to point out. We want to draw people’s attention to the fact that we are selling South Deep and production will not be in 2007, obviously. We are also in negotiations to sell our Paddington operations at Kanowna mine which this year will produce about 200,000 ounces in ’06 so that will be absent in the future. Goldstrike is going through a sequence of waste stripping so we will be processing a lot of stockpiles in 2007, which means that basically the open pit operation will be processing at lower grade, and so production will be something in the order of 15% lower. A mine sequencing issue, as a result of that and some inflation in the business, however offset by many of our initiatives, we are looking for cash cost to be in order of 15% to 18% higher next year.

In summary, we have an excellent portfolio of mines which we are seeing the benefit of the strong strategic fit, a very strong geopolitical profile, and of course diversifications through the grouping of operations that we have. We have an unrivaled exploration and development pipeline. The balance sheet which got even stronger through our cash flow and financing this quarter, and we have a large reserve base in gold, copper and silver; and growing with our nickel project and some of the other things that we don’t spend a lot of time focusing on, but are quietly behind the scenes adding value for our shareholders.

Operator, with that I would like to open it up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from John Bridges - JP Morgan.

John Bridges - JP Morgan

Hi Greg. I just wondered, did you give us any sort of guidance as to which way your production is going to go next year, to go with your cash cost guidance?

Gregory C. Wilkins

I think we added a couple of things about Goldstrike and we are not opening any new mines next year. We have to’ing and fro’ing within the portfolio. I just wanted to draw people’s attention to Goldstrike because of that mining sequencing issue, people may not be aware of it. Veladero is likely to get into its higher grade material a tad later than we had originally anticipated as we go into the new ore body there. But on balance, we will be providing the full guidance as we compile it all, over the course of the next month or so.

John Bridges - JP Morgan

So, flattish?

Gregory C. Wilkins

Yes, it is going to be in that order of magnitude.

John Bridges - JP Morgan

On NovaGold, in other circumstances like this companies have taken less than 50% and picked up extra in the marketplace. Is that a possibility?

Gregory C. Wilkins

We are going to see what happens on the 7th. We have the 50.1% condition. I would look at and say to myself if the significant majority of NovaGold shareholders reject the bid and its clear that $16 is not enough to clear the market, then and I think we wouldn’t waive the condition. If we have got close, we will have to give it some consideration and see what we want to do, because that would be a pretty overwhelming endorsement of the price that we are offering.

John Bridges - JP Morgan

So you are able to waive the 50.1% at your own will?

Gregory C. Wilkins

Yes. We have clearly the flexibility to waive and extend. We would have to extend it for ten days under the securities law if we waive the conditions.

John Bridges - JP Morgan

Okay. If I may, just a quick one on Kalgoorlie, could you give us guidance as to what’s going on there? Are we looking at continued lower grades or just in a bad patch now, what can we expect?

The underground, is there much future there Pete?

Peter J. Kinver

John, maybe I can answer that. The Kalgoorlie has not had a great year. There has been various issues. We had to replace a girsky, which I think we mentioned. When we got the new girsky on, we found that we weren’t getting the additional tonnage through that we had hoped. The ore appears to be harder from some of the areas of mining which has impacted throughput rates. The grade next year will be very similar, if not slightly down, next year.

But as Greg mentioned, I think what exasperates the situation for us at Kalgoorlie is a fair amount of turnover of people and this doesn’t help the continuity of those operations. But at the moment, it is receiving a great deal of focus from the region.

John Bridges - JP Morgan

Do you have better grade, mature and in prospect? Or should we expect it to drift lower over time?

Peter J. Kinver

I think next year the grade, I don’t have the numbers in front of me, but next year’s grade is slightly down on this year, and the underground potential, there certainly is potential. We have plans to look at accessing some of those ore bodies which eventually will be the final pit wall by means of underground.

John Bridges - JP Morgan

Okay, thanks guys.

Operator

Your next question comes from Victor Flores - HSBC.

Victor Flores - HSBC

Thanks. I have a few minor questions. First of all, when you mentioned lower production from Goldstrike due to stripping, I suspect you meant 15% lower from Betze-Post as opposed to Goldstrike complex?

Gregory C. Wilkins

Correct.

Victor Flores - HSBC

Okay, great thanks. Second question goes to some of the accounting issues. I see that you show cash costs for South Deep in the quarter of $100 per ounce. Is that due to a credit due to the insurance settlement?

Jamie C. Sokalsky

Yes it is Victor.

Victor Flores - HSBC

Hi Jamie. So did that insurance settlement amount make it through into the income statement?

Jamie C. Sokalsky

What is does is, yes, it comes in through the income statement as a credit against our cash costs. We haven’t finalized the insurance settlement yet. It’s not a material amount, the amount that has gone through the income statement up to this point. It’s in the neighborhood of about $15 million.

Victor Flores - HSBC

$15 million to Barrick’s account?

Jamie C. Sokalsky

Yes.

Victor Flores - HSBC

A question about Pascua. Could you just update us on the timeline for the project and some of the milestones? Because you note in the press release that you are now looking at a 2010 start up.

Gregory C. Wilkins

We are in the throes of getting the principal environmental permit done in Argentina. I think we have a couple more of the technical reports that need to filed and then the consolidated report will enable the government and the regulators to make a decision on that.

We have been told that should happen some time in the fourth quarter. With that planning, then we will be modifying the construction start date because of the winter season, because really the delivery of the permit going from the third quarter to the fourth quarter is going to restrict our ability to get the construction underway as aggressively as we had originally hoped. So that does back up the production start to 2010.

Victor Flores - HSBC

So really we are going into the spring now in Chile. So you really wouldn’t be able to get going in a big way until almost a year from now?

Gregory C. Wilkins

The winter season is our summer season. So I mean it’s not that there won’t be any work done, obviously, but in terms of being able to get on with the construction of the plant facilities themselves, you need to be able to erect your structures during the summer season. So we don’t want to be halfway into it and then have the winter season hit, put things on a hold. So we would rather more prudently undertake a construction schedule that would give us the time to do it properly.

Victor Flores - HSBC

Okay, great, thank you very much.

Gregory C. Wilkins

Thank you, Victor.

Operator

Your next question comes from Kerry Smith - Haywood Securities.

Kerry Smith - Haywood Securities

Thank you. Greg, just on the closing of the South Deep transaction, is there anything left that is outstanding that could delay it into Q1, or do you expect that it will definitely close this quarter?

Gregory C. Wilkins

We are targeting Q1, Kerry. I think I misspoke if I said otherwise, but we have been saying we anticipate closing in Q1. I do not think there are any impediments that should interfere with that timing.

Kerry Smith - Haywood Securities

Okay. Sorry, maybe I misunderstood you. Thank you.

Operator

Our next question comes from the line of John Tumazos from Prudential Equity. Please go ahead.

John Tumazos - Prudential Equity Group

Could you give us a little background on the [inaudible] contributed to Highland Gold, and the decisions to basically operate through another company in Russia? Are there issues of language and logistics and culture? Some people are predicting Russia will be the number one gold producer in the world in five or ten years, and I think that is probably a very important region to stay active.

Alexander J. Davidson

First of all, the consolidation of the ownership of the joint venture assets that we have with Highland will help us to do the exploration and development of those projects much more efficiently. What we are doing is really taking Highland’s portfolio of development projects, most of which we have a 50% interest in, and combining it with our technical expertise, our exploration guys, and our exploration projects as well.

I agree with your comments on Russia. I think it is an important place to be, and this is certainly -- Barrick is not leaving Russia at all. As a controlling shareholder in Highland, we now have exposure and control over the operations, the development projects, and the exploration in Russia and in Central Asia as well.

The major projects are Taseevskoye, which is a 50-50 joint venture, so we are putting the other half into that. That is a development project in Chita, where there is also a couple of other exploration properties around Taseevskoye, and we certainly look at Chita as one of the areas in Russia that both has high potential and is somewhat easier to operate in, being in southeastern Russia.

There are a couple of projects in Chukotka, which have high potential but is a difficult area in which to operate, as well as Mayskoye, which is Highland’s property in Chukotka, so we are looking at focusing in Chukotka, in Chita, and in Khabarovsk, where Highland will have their MMV mine and we are contributing our half of Belaya Gora, and another earlier stage exploration property.

As well, we have two or three properties in Kyrgyzstan that Barrick has been working on over the past couple of years on a 100% basis, and they are all going into Highland.

John Tumazos - Prudential Equity Group

Thank you.

Operator

Our next question comes from the line of Mark Smith from Dundee Securities. Please go ahead.

Mark Smith - Dundee Securities

Just a small issue. The $79 million you charged against the previously announced Placer Dome hedges, was that included in the reduction in net income of $0.05, or was that an additional $0.09 reduction in net income for the quarter?

Gregory C. Wilkins

Mark, that is an additional reduction in the quarter. After tax, that would be about $0.07. So our earnings would have been $0.07 higher had we had to amortize that $79 million in the quarter.

Mark Smith - Dundee Securities

You wouldn’t have considered that an unusual item, so it would be $0.58 before unusual item?

Gregory C. Wilkins

We certainly could have included that in there. As we have taken down our hedge position in the past and recognized opportunity costs, we have certainly highlighted it as an item, as we have done this quarter, but we have not included it in the traditional unusual items like the ones that we had this quarter. It is certainly fine for you to include that in your own report.

Mark Smith - Dundee Securities

Thanks very much, guys.

Operator

Our next question comes from the line of David Gagliano.

David Gagliano - Credit Suisse

Speaking of amortization, do you have any update on the timing with regard to when you will allocate the Placer Dome good will?

Gregory C. Wilkins

We will be doing that in the fourth quarter, David. As you can appreciate, it is a pretty complicated process and some of that also depends on the long-range mine planning purposes, so we are getting there. We will have that done in the fourth quarter.

David Gagliano - Credit Suisse

Great, thanks. Just switching over to Gold Strike for a second, Greg, you mentioned that the 15% dip in ’07 is primarily a mine sequencing issue. I am wondering then, should we expect Gold Strike production to rebound in 2008?

Peter J. Kinver

We are going to see a slight improvement. Not a rebound, but as we get back into higher grade and have a greater percentage, obviously the head grades will get a little bit higher and hopefully produce better ounces.

David Gagliano - Credit Suisse

Okay, so we should see a bit of a bounce then? Then, last question, on the 15% to 18% increase in cash costs in ’07 versus ’06, I am wondering if you could just give us a little visibility into where you expect those increases? Is it primarily Gold Strike or are we seeing increases elsewhere, and if so, where?

Gregory C. Wilkins

David, we are going to come out with complete guidance in February. It is a bit early to go through it in detail, but it is mostly really sort of a grade issue at Gold Strike, which we have talked about. There is still some inflationary impact on costs contributing to that 15% to 18% range. There is a fair amount of to’ing and fro’ing amongst all the mining operations relative to this year, so once we have had a chance to consolidate all of our information and get it to our board, then we will be in a position to bring it out to you guys in February.

David Gagliano - Credit Suisse

Thank you.

Operator

Our next question comes from the line of Michael Fowler. Please go ahead.

Michael Fowler - Desjardins Securities

Peter, just a follow-up on the Gold Strike question. What is the grade of the stockpiles at Gold Strike?

Peter J. Kinver

I do not have those in front of me, but they are probably -- the mix should be around about 3 grams, 2.5 grams to 3 grams.

Michael Fowler - Desjardins Securities

Thank you. Just for Jamie, what was the thinking -- I mean, you did not deliver into any contracts in the Barrick hedge book this quarter. It seems that you are bullish on gold. I was a bit surprised that you did not deliver some of the hedges.

Jamie C. Sokalsky

Michael, we actually took 300,000 ounces out of the position by essentially going into the market and closing them up by converting them into floating contracts, so we did reduce the position by 300,000 ounces, but we did not deliver any of those contracts into production. We are continuing to chip away by getting rid of committed ounces and turning them back into floating, which will allow us to ride the gold price up and when that gold price is higher, then we can actually deliver those and take advantage of higher spot prices, which are now floating on those contracts.

We still are bullish on gold. This gives us more flexibility as to riding the price up and delivering them at higher prices.

Michael Fowler - Desjardins Securities

So effectively, you are taking less of a hit on the hedge book by converting to floating rates, I guess.

Jamie C. Sokalsky

We are being opportunistic by -- we are saying when the price came back down here to well below $600, let’s open those contracts up again and if we are right and the gold price does increase substantially from here, then we deliver it at a much better price in the future, so we are being opportunistic with the timing of those contracts, but we have effectively taken them off the books.

Michael Fowler - Desjardins Securities

Okay. Thanks very much.

Gregory C. Wilkins

Thanks, Mike. I want to thank everybody for joining us today. Of course, as always, please feel free to contact Jim and our IR group if more questions arise over the course of your review of the information. We look forward to reconvening in February. Thanks again.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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Source: Barrick Gold Q3 2006 Earnings Call Transcript
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