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Barrick Gold Corporation (NYSE:ABX)

Q1 2010 Earnings Call

April 28, 2010 04:30 p.m. ET

Executives

Deni Nicoski - VP, IR

Aaron Regent - President and CEO

Jamie Sokalsky - EVP and CFO

Peter Kinver - EVP and COO

Patrick Garver - EVP and General Counsel

Analysts

John Bridges - JPMorgan

Haytham Hodaly - Salman Partners Inc.

Jorge Beristain - Deutsche Bank Securities

Anita Soni - Credit Suisse

David Haughton - BMO Capital Markets

Barry Cooper - CIBC World Markets

John Tumazos - Very Independent Research

Mark Liinamaa - Morgan Stanley

Stephen Walker - RBC Capital Markets

Heather Douglas - Thomas Weisel Partners

Greg Barnes - TD Newcrest

Operator

Welcome to the Barrick Gold Q1 2010 results conference call. (Operator Instructions) I would like now to turn the conference over to Deni Nicoski, Vice President of Investor Relations.

Deni Nicoski

Before we begin, I would bring to your attention the facts 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 statements, please refer to our yearend report or our most recent AIF filing.

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

Aaron Regent

I'm joined here today by Jamie Sokalsky, Peter Kinver and Patrick Garver and other members of the senior management team here as well who will be available to answer questions later on in the call.

I'll start by covering some of the highlights of the quarter and also provide you with an update on our projects. Then I'll turn it over to Jamie to take you through our financial results in more detail and the reasons why we think and continue to believe that the gold outlook is quite positive. Then as I said, we'll take questions at the end of the presentation.

Well, operationally we have had a good start to this year. I think it sets us up nicely to achieve our guidance of higher production and lower costs in 2010. First quarter gold production was ahead of plan and up 19% from the prior year to about 2.1 million ounces at total cash costs of $442 per ounce or net cash costs of $342 per ounce.

Total cash costs were 9% lower than the first quarter of last year. And when we apply the credit for our copper sales, net cash costs were 15% lower than the prior-year quarter.

The strong operating results drove record net income of $758 million or $0.77 per share. And on an adjusted basis, net income was $741 million or $0.75 per share. Our operating cash flow more than tripled to a record $1.1 billion, reflecting the leverage that company has to strong gold prices.

During the quarter, we also completed our Cortez Hills project on time and in line with its budget. Our successful commissioning of this operation, combined with the U.S. District Court's decision to allow mining to continue, has positioned Cortez to be a key contributor to Barrick's 2010 results. And I'll discuss this project more in a few moments.

Our two world class projects, Pueblo Viejo in the Dominican Republic and Pascua-Lama on the border of Chile and Argentina, remain on schedule that are expected to come online with their respective capital budgets.

The company completed the acquisition of an additional 25% of Cerro Casale in Chile from Kinross, and we now have a 75% interest in the project and control of it. Cerro Casale is one of the world's largest undeveloped gold-copper deposits.

And during the quarter, the IPO for African Barrick Gold closed for total net proceeds of approximately $882 million, and Barrick now currently holds 74% interest in this new company.

Turning to a regional breakdown of our operating results, North America performed ahead of plan, producing 729,000 ounces at total cash costs of $519 per ounce.

Cortez is now complete and we're off to a very good start. The Cortez property made a significant contribution to the region, producing 275,000 ounces at a cash costs of $346 per ounce, and reflects earlier than anticipated access to ore and better than expected grades.

The Goldstrike operation also performed ahead of expectations with production of about 279,000 ounces at total cash costs of $581 per ounce, primarily as a result of better than anticipated open pit and underground grades and higher roaster throughput resulting from addressing the more fuel content of current ore.

Our South American business unit produced 659,000 ounces at total cash costs of $200 per ounce. Lagunas Norte exceeded plan with production of 330,000 ounces at total cash costs of $147 per ounce on recovery of higher grade leach pad inventory. The Veladero mine contributed 267,000 ounces at total cash costs of $247 per ounce. This reflects mining of higher grades and the impact of the crusher expansion which reached full capacity of 85,000 tons per day in March.

Australia Pacific produced 512,000 ounces at total cash costs of $598 per ounce. The Porgera mine performed on plan, producing 150,000 ounces at total cash costs of $493 per ounce.

The first quarter production from African Barrick Gold was 177,000 ounces at total cash costs of $616 per ounce. African Barrick remains on track with its full year guidance of 800,000 to 850,000 ounces, which translates to 650,000 to 690,000 ounces to Barrick's account at total cash costs of around $500 to $550 per ounce.

Quarter one copper production totaled 100 million pounds at total cash costs of $1.05 per pound, which were 20% lower than the prior-year period. And we expect to meet full year guidance of 340 million to 365 million pounds of copper at total cash costs of $1.10 to $1.20 per pound.

Next slide shows the projects that we have in our pipeline. As I mentioned, Cortez Hills was complete in the first quarter. PV is expected to begin producing in the fourth quarter of next quarter. And Pascua-Lama will be producing in the first quarter of 2013.

The other four projects in our pipeline are at the feasibility stage and/or piloting stage. They're also long-life and low-cost mines which provide us with considerable development options for the future.

I'd like to provide a brief update on the status of each of these projects. The Cortez Hills project in Nevada was completed on time, on budget; however, as you all know, this project was challenged by a small component of a local Shoshone Tribe based on the assertion that the project did not fully comply with the U.S. National Environmental Policy Act, and then they asked for an injunction to be issued.

The request for a preliminary injunction was denied by the U.S. District Court, but subsequently reversed in part on appeal to the Ninth Circuit Court of Appeals with respect to two issues.

Uncertainty around the advancement of this project has now been addressed with the recent decision of the District Court in Nevada, which allows production to continue, while a Supplemental EIS is completed on the two issues identified by the Ninth Circuit. The Supplemental EIS is advancing and we expect this process to be completed by the end of the year.

As a result, we expect the Cortez property to produce about 1.1 million ounces this year at total cash costs of around $295 to $350 per ounce, which is consistent with our previous guidance. Cortez is an impressive mine and will be a major contributor to Barrick for years to come.

Turning to Pueblo Viejo, the project continues to advance according to plan. At the end of the first quarter, engineering and procurement by major EPCM contractors was over 90% complete and about two-thirds of the capital has been committed. Significant long lead time items such as autoclaves and the oxygen plant are on schedule. Site preparation earthworks are essentially complete. And about 57,000 cubic meters of concrete or about 40% of the total have been poured.

Just a reminder, our share of the gold production in the first four or five years will be around 625 to 675,000 ounces at a cash cost of $250 to $275 an ounce.

At the Pascua project on the border of Chile and Argentina, about a third of the capital has been committed, and detailed engineering is approximately 95% complete. In Chile, the Barriales camp is about 50% complete, the crusher and workshop platforms have been cleared as you can see on the slide, and mobilization of the tunneling contractor is progressing with access to the portal established.

On the Argentinean side of the project, modules for the Amarillos camp are being fabricated off site, and the early earthworks have mobilized to site. And as a reminder, average annual production from Pascua will be around 750,000 to 800,000 ounces of gold, and 35 million ounces of silver, and at a $12 silver price, this equates to about a cash cost of $20 to $50 per ounce. But if you take today's silver price, the cash cost of this mine would probably be a negative 150-plus per ounce.

In the Appendix 2 of our presentation, we have provided some photos of both Pueblo Viejo and Pascua-Lama to give you a better sense of what is happening on the ground.

At Cerro Casale in Chile we started the selection process for an EPCM contractor to advance basic engineering. The EIA is being prepared, and expect to submit in the third quarter of this year. And as a reminder, with the additional 25% interest that we acquired, we now have 75% of the project. So our share of production is now 750,000 to 825,000 ounces of gold, and 170 to 190 pounds of copper at a cash cost of $240 to $260 per ounce.

We have three other large, late-stage projects that have either completed or near-completed feasibility studies. Collectively, all these projects have about 37 million ounces of gold, about 20 billion pounds of copper and 1.6 billion pounds of nickel and represent significant unrecognized value within our portfolio.

In Reko Diq the feasibility study is being finalized, is now under review. The Environmental and Social Impact Assessment continues to progress in parallel with the study, and we continue to have a constructive dialogue with the provincial and federal governments and are optimistic that we will be able to reach an agreement on an acceptable project agreement, but other than that there is nothing new to report at this point.

At Donlin Creek, we continue to pursue ideas on how to improve this project. In particular, we are reviewing the possibility of using natural gas as a main fuel source, and continue to be encouraged by the progress that we are making. And at Kabanga, the finalization of the feasibility study continues, and we expect to have that finished in July of 2010.

That gives a quick review of our projects, and now I'd like to ask Jamie to walk you through our first quarter results.

Jamie Sokalsky

As Aaron mentioned, we've had a very good start to the year. A strong realized gold price of $1,114 per ounce, which is $5 higher than the spot price, in combination with lower cash cost than the prior-year period, resulted in gold margins of $672 per ounce on a total cash cost basis.

As you can see from this slide, it was 56% higher than in the first quarter of 2009. On a net cash cost basis, the margin was $772 per ounce, which was $261 or 51% higher than the prior-year quarter. Copper margins also increased 39% from $1.61 per pound to $2.24 per pound.

The margin expansion combined with both higher gold and copper production and sales drove a record net income of $758 million or $0.77 per share. Adjusted net income rose 149% to $741 million or $0.75 per share. This translated into a record operating cash flow of about $1.1 billion, which was over three times higher than our first quarter of 2009.

We're on track to increase production from 2009 to 7.6 to 8 million ounces of gold at lower total cash costs of $425 to $455 per ounce or net cash costs of just $345 to $375 per ounce. And we expect to continue our trend of margin expansion in 2010 at today's gold price levels, which in turn we expect will translate into higher shareholder returns on equity.

Like previously mentioned, our first quarter cash margins were a record $672 per ounce, which equates to about 60% of sales. For 2010, assuming our total cash costs guidance of $425 to $455 per ounce and a spot price of about $1,100 per ounce, our cash margins would be a record $645 to $675 per ounce.

On a net cash cost basis, margins in the first quarter of this year have risen to $772 per ounce or almost 70% of sales. For 2010, assuming our net cash costs guidance of $345 to $375 per ounce, our cash margins would continue to be well over $700 per ounce, assuming a spot price of about $1,100 per ounce.

And we continue to maintain a strong financial position with the industry's only A credit rating. At the end of the first quarter, we have an undrawn credit facility of $1.5 billion and $3.5 billion of cash despite our substantial reinvestment into the company as we developed our two world class projects, Pueblo Viejo and Pascua-Lama, and after acquiring an additional 25% interest in Cerro Casale.

Our gearing is modest, with a net debt to total capitalization of just 0.14 to 1. And as I discussed, we're generating robust operating cash flow, over $1 billion alone, in the first quarter.

We're also pleased to announce the signing of the $1.035 billion on a 100% basis in non-recourse project financing for Pueblo Viejo subsequent to the quarter-end. The lending syndicate is comprised of international financial institutions, including export credit agencies and a syndicate of commercial banks. The financing is divided into two tranches of $775 million and $260 million with long tenures of 15 and 12 years respectively, all at attractive rates.

I'd now like to wrap things up by making a few brief comments on our outlook for the gold price, which remains quite positive. The list of reasons to buy gold dwarfs the list of reasons to sell.

Despite the U.S. dollar regaining strength, gold prices have trended higher across most major currencies, including the U.S. dollar. And we've seen that most recently with the strength of the U.S. dollar and the decoupling of gold from the negative correlation that we've seen. And we believe that bodes very well for the gold price going forward.

In fact, the gold price has recently set all-time highs in terms of the euro and the British pound. And with the prospect of accommodative, monetary and fiscal policies continuing for some time and increased risk aversion over sovereign credit worries in Europe, gold is likely to be a beneficiary, as investors look for other alternatives to the major currencies of the world.

Clearly, global imbalances remain, and significant global U.S. dollar reserves appear to continue to concern countries that have significant dollar reserves. As a result, there has been a change in official sector sentiment with central banks becoming net buyers of gold in the last three quarters of 2009. And this includes countries such as China, India and Russia. And we believe that the gold price will continue to benefit as these factors are expected to persist for some time. And further support comes from expectations that mine supply will contract in the longer term.

Finally, while overall jewelry demand was lower in 2009, it's encouraging to see growth in the key Chinese market. It should continue to be supported by the high GDP growth rates in that country. As a result of some of these factors, we could very easily see new highs in the gold price.

I'll now turn it back over to Aaron.

Aaron Regent

Thanks, Jamie. We're pleased with the progress we made in the first quarter this year. Financially it was a strong quarter. We had excellent margins, good production, and good cost performance. And this has set us up nicely to deliver and meet our guidance for 2010.

Cortez Hills made a strong contribution, and we are all pleased with the district court's recent decision. I know there have been investor concerns about what the court might decide, so it's nice to have a clear view on this matter. And the bottom line is that Cortez will produce as we originally expected.

Pueblo Viejo and Pascua-Lama remain on track. We secured control over Cerro Casale, giving us increased flexibility on how to advance this project, and our other projects continue to move along.

African Barrick was successfully launched, and enhances our strategic options to create value from this operating platform. As Jamie just commented on, the outlook for gold remains positive, and with our current production base, stable cost profile and unhedged resource base, we are positioned to fully capture the upside from higher prices.

But it's key to emphasize, though, that against this backdrop, we are committed and remain focused on our efforts to grow the net asset value of the company and the (net earnings) per share for the benefit of our shareholders as we move through 2010.

So that concludes our formal remarks. And operator, at this point, we'd be happy to open up the call to questions.

Question-and-Answer session

Operator

(Operator Instructions) And our first question comes from the line of John Bridges.

John Bridges - JPMorgan

Just wondered, you're talking about the gas project at Donlin. What needs to be done there; what landmarks can we look forward to in terms of that development?

Aaron Regent

What we're looking at is different alternatives to get fuel into this site. And the regional feasibility study had us barging diesel on rivers and stores and getting it to the site. So that's the option that we developed the feasibility study around. But the alternatives that we've been developing is delivering natural gas into the site, which would entail putting a pipeline in place from the Cook inlet.

And so that's the option that we're currently analyzing. And it would probably take us a good part of this year to finalize that analysis, but clearly the benefit of that is, from a operating cost perspective that'll be beneficial to the project and clearly enhance the economics. So it's something that we're pursuing with rigor.

John Bridges - JPMorgan

Do you need permits and rights (of way) to get that in?

Aaron Regent

Yes, there'll be significant permitting in order to get the pipeline to the site. The pipeline distance will be about 500 or so kilometers, or 6 to 600 kilometers, in that order of magnitude.

John Bridges - JPMorgan

And then you're changing the setup at Goldstrike; you're going to old roster in the next few years. Could you give us a sense as to what the profile is going to be there?

Aaron Regent

Profile from a production perspective?

John Bridges - JPMorgan

Yes.

Aaron Regent

Well this year we're forecasting to produce about 1.1 million ounces or so, and that's a level that might trend down slightly next year, but we have a few projects underway right now which we're working on, which could provide some upside to those numbers. But as at this point we still haven't finished that work. But I think you can think of Cortez as probably a plus or minus 1 million tape-outs. I'll have that profile next year.

John Bridges - JPMorgan

Absolutely; and I'd like to congratulate you on finally getting that thing away. Well done.

Operator

Our next question comes from the line of Haytham Hodaly.

Haytham Hodaly - Salman Partners Inc.

Congratulations on a decent quarter here.

Jamie Sokalsky

Thanks.

Haytham Hodaly - Salman Partners Inc.

I'll start with Cortez. Can you expand a little but on the higher grades that you saw? Are you still seeing those continuing into this current quarter? And how long at this point would you foresee that continuing?

Jamie Sokalsky

Well, I guess in the first quarter we had average grades of about 0.23, which is higher than the average we're going to have for the entire year. We think the average grade that we're anticipating is about 0.15 or so. Peter, is that right?

Peter Munk

Yes. And there is also a combination that the new pits picked up a bench of ore probably a bench early. So, it was a nice surprise that we got. We were planning on lower grades in the first quarter, so getting a bench of ore really tended to kick the grade up a bit.

Haytham Hodaly - Salman Partners Inc.

So does that move your full year 0.15 up, or is that after you incorporate this?

Jamie Sokalsky

That's after incorporating the first quarter results.

Haytham Hodaly - Salman Partners Inc.

And then I guess with regards to Cortez, could you outline possibly your expected contribution from the heap this year versus the CIL?

Jamie Sokalsky

I've got it for the first quarter. I don't have the numbers for the rest of the year, but in the first quarter we got 35,000 ounces out of the ore pipeline which is basically heap leach. And then the undergrounds was 100,000 ounces, and the open pit was 140. Unfortunately, I don't have the split going forward, but the amount of ounces on the heap leach will be relatively small as compared to the new ounces coming out of the new pit. The grade from the new pit is going to be fairly high grade, so that will not go on the heap leach, that'll go to the mill.

Haytham Hodaly - Salman Partners Inc.

Maybe one last question; just with regards to your CapEx, 1.6 to 1.8, your projects. What's the largest component of that CapEx? Could you break out, just give us a general range for the different components of that CapEx is what I mean to say.

Jamie Sokalsky

The CapEx is largely going to be focused on Pueblo Viejo, which is about $700 million, and Pascua-Lama will be in the neighborhood of about $800 million. So they're relatively equal in terms of size. We'll be ramping up Pascua-Lama more significantly as the year progresses.

Haytham Hodaly - Salman Partners Inc.

Okay. I guess to follow-up on that, with regards to mine site expansion, $225 million, couple of largest components change? The mine site expansion of $225 million to $275 million, just what are some of the couple of their largest components?

Jamie Sokalsky

Bald Mountain is getting some equipment. Golden Sunlight, about $50 million; some work at Goldstrike, about $30 million; and some additional work at Veladero and at Cortez. So there are probably about five major components in there that range in size between $30 million and $70 million.

Haytham Hodaly - Salman Partners Inc.

Okay. And what was the Bald Mountain? I missed out.

Jamie Sokalsky

$75 million

Aaron Regent

The trucks increased the throughput.

Operator

Our next question comes from the line of Jorge Beristain.

Jorge Beristain - Deutsche Bank Securities

It's Jorge Beristain with Deutsche Bank. A question just on Lagunas Norte. That was a significant out-performance in the first quarter there. It ran 120,000 ounces. Just wanted to understand if that would be of a recurring nature. You mentioned that it was from heap leach inventory, but I just wasn't sure if that meant that you were running down inventories or that you were just going to continue leaching those inventories.

Jamie Sokalsky

You are correct that in Q1 we had probably about equivalent to 0.5 gram of gold, which came out of inventory. And that obviously resulted in a great Q1. So we expect to see by yearend the grade coming out of the Lagunas closer to 1 gram. So we will see a slight reduction as the year goes on.

Operator

Our next question comes from the line of Anita Soni.

Anita Soni - Credit Suisse

Congratulations on your great quarter. I have a few questions. Just want to ask first off on Veladero. I don't know if Haytham asked this question or I might have missed it. But the higher grades at Veladero, are those expected to persist, and how long will you be in those two pits?

Aaron Regent

We were talking about Cortez before, so we weren't talking about Veladero.

Anita Soni - Credit Suisse

The question was the two pits that are accessing higher-grade ores right now, how long do you expect to be in those two particular pits? Basically how long are you going to be in those higher grade areas?

Aaron Regent

We're actually seeing the grade coming down now, but there's always a lead lag with heap leaches. But the ore coming out of the mine, the grade has dropped. But some of that inventory will obviously come out in Q2. So expect to see two lower quarters at Veladero and then a better fourth quarter as we get back into high grade ore in the fourth quarter.

Anita Soni - Credit Suisse

And then at Buzwagi the costs were trending upwards. And I'm just wondering if you could elaborate on that. It seems like it was $601 versus I think $500 in the previous quarter.

Aaron Regent

I think one of the key issues at Buzwagi was the fact that we moved into the transition ore, and we probably had a about a bunch of transition ore more than we expected. And the transition ore affects the throughput and recoveries that impacts your cash costs. But I'm pleased to say now we're getting through that and expect to see better numbers.

Anita Soni - Credit Suisse

And then just the copper grades, Zaldivar, again, we're a little bit higher than the reserve grade and just wondering if you were expecting that to persist as well?

Aaron Regent

Over the year, we expect to get our average grades to be about 0.53 which is close to reserve grade.

Anita Soni - Credit Suisse

Then lastly, thoughts on M&A strategy, and in particular Lihir or Newcrest, any interest in either one of those? Have you visited the data room at Lihir?

Aaron Regent

Well, it's a pretty loaded question, so I don't think we can really answer that.

Anita Soni - Credit Suisse

Well, I think that answering would probably help your share price a little bit.

Operator

Our next question comes from the line of David Haughton.

David Haughton - BMO Capital Markets

Peter, just picking up on some of the information you are providing at Cortez, just trying to think about the profiling going forward, what kind of stacking are you expecting on the heap leach for the course of this year? Will it be lower than last year?

Peter Kinver

Yes, it will be substantial than last year. Again, I don't have all the numbers currently. But the ton stack last year is coming down a lot, because the focus is on the high-grade ore. And we're going to probably process 4 million tons less ore at Cortez. But we're going to mine 11 million tons more waste at Cortez as you open up the new pit.

David Haughton - BMO Capital Markets

And just following on a little bit on the underground production, 100,000 ounces in the first quarter, is that the kind of rate that you would anticipate for the balance of the year?

Aaron Regent

I would say it's about that rate, yes.

David Haughton - BMO Capital Markets

Okay. So then certainly it's the mill and clearly a great quarter there. What kind of milling rates are we expecting during the quarter of 2010? Is it similar to what we saw in 2009 or have you got some additional capacity there that you could utilize?

Aaron Regent

There is no additional capacity, but I think it's roundabout the 10,000 ton a day. Again, I don't have those numbers in front of me, but that's the level, about 10,000 ton a day.

David Haughton - BMO Capital Markets

And looking at the phasing in of the Cortez Hills ore, will we see growing contribution through time and much better grade going through 2011 and '12? What's your expectation there?

Aaron Regent

I think they're going to be roughly the same.

David Haughton - BMO Capital Markets

Moving on to the non-gold assets, as the feasibility moves through and finally gets to see the light of day, will we as analysts get to see the Reko Diq or Kabanga feasibility during the course of 2010?

Peter Kinver

Both those feasibilities should be finished this year, yes.

Operator

Our next question comes from the line of Barry Cooper.

Barry Cooper - CIBC World Markets

Good day, everyone, and congratulations as well on a good quarter. Just wondering with 2.1 million ounces out the door in Q1, is this likely to be the best quarter production-wise, because obviously annualizing that gets you well above your guidance figure there, even taking into account the divestiture of the 25% for African gold?

Aaron Regent

Well, definitely it was a strong quarter. So it's probably fair to say that it's unlikely for us to repeat this production level for the balance of the year on a quarterly basis.

Barry Cooper - CIBC World Markets

It seemed certainly exceptional, and as I said, congratulations. So then going into 2011, Aaron, how do you see that shaping up? Are we looking at an up, down or a flat?

Aaron Regent

Well, we're still working on our plans for 2011. So I feel a bit uncomfortable answering the question, because it's a bit premature. We haven't really done that work. But we are pretty comfortable with where we are for 2010. And we expect that 2011 should be in a silver range from a production perspective and our cash costs will also be similar, but might be slightly higher because of inflationary issues.

Barry Cooper - CIBC World Markets

Sure, right. And I am assuming that the mix coming from different assets will more or less stay the same. I can imagine Lagunas Norte probably making the same contributions in '11 as it is in '10. And you've indicated that Goldstrike probably might be off a little bit. So I'm just kind of wondering where I might be thinking of an uptick. Obviously, Cortez could be that spot. Is it bit of a wildcard still at this present time because of the early startup?

Aaron Regent

I think you're right. Lagunas will probably be down slightly. You mentioned Goldstrike, that'll be up slightly. And Cortez will probably be up too.

Operator

Our next question comes from the line of John Tumazos.

John Tumazos - Very Independent Research

Turning back to Donlin, what sort of a timeframe might be involved in permitting 500 kilometer or 600 kilometer natural gas pipeline as opposed to the mine itself? And after the gas pipeline, what are the next bigger infrastructure pieces that might require separate regulatory process?

Aaron Regent

Well, I think the whole project, including the pipeline and related infrastructure, will be permitted together. And that permitting timeframe will likely take three years. Probably that's a fair assessment, but probably about three years. So I think in terms of the project, our emphasis this year is on finalizing the analysis with respect to the pipeline, and then we'll decide on the best course of action to permit the mine.

John Tumazos - Very Independent Research

So there'll be separate permits processed in parallel?

Peter Kinver

Well, no. There is going to be different permits for many different aspects of the operation of the mine. I think the comment I was making is that we're going to permit all those things together or in parallel if you want to characterize it that way.

John Tumazos - Very Independent Research

The pipeline, because it would cross the turf of a lot more people, potentially has a more complex process, require more communities to be blessing it?

Peter Kinver

Yes, that's fair. I think that gas is the way to go, because it's 30% of the cost of crude oil a day. It's just the pipeline to a bigger thing.

Aaron Regent

When we look at the capital cost, there are trade-offs as clearly for not barging. There's a lot of cap we avoid there through the barging, storage and other aspects. So there is a trade-off between the capital on the barging side versus capital on the pipeline side.

Operator

Our next question comes from the line of Mark Liinamaa.

Mark Liinamaa - Morgan Stanley

Are there any issues related to the Henry Tax potential that you could discuss over in Australia?

Jamie Sokalsky

It's still pretty premature to make an assessment on that, but still at very early stages, and so I think we'd just wait to see how that unfolds.

Mark Liinamaa - Morgan Stanley

Is there any way you could characterize it as likely or if it wasn't kind of in a 20% area, would you be worse off I assume?

Jamie Sokalsky

I really wouldn't want to try to guess as a percentage of a probability. That's just not something that we can really guess at.

Mark Liinamaa - Morgan Stanley

Fair enough. And you talked in your closing comments about growing the, I think you said the NAV of the company. Can you just maybe discuss where dividends in this environment fit into your thinking about uses of cash? Thanks.

Jamie Sokalsky

We're currently paying a dividend around $0.40 per share, but I would say the first call on our capital is really to fund the current project that we're constructing. So Pascua and Pueblo Viejo, towards the end of next year we'll have a better sense of where we stand with Cerro Casale. And so that's probably the first call for our capital.

But if we continue to have increase in metal pries and our balance sheet becomes over-capitalized, then we will need to look at ways to perhaps give money back to shareholders in some form. But our key objective though is to make sure we got a strong financial position, that we could fund our projects, that we got capacity to make some acquisitions as well. So it'll be a function of balancing all those objectives.

Mark Liinamaa - Morgan Stanley

Would it be fair to say that on the acquisition front you'd be looking more at early stage where you could use some of your core competencies to add value rather than producing operations at the valuations today? Thanks.

Aaron Regent

I think that's fair. We haven't closed the door on anything, but I think that earlier stage projects, because they're less defined, that tends to go to value. So we think that's an area where you can create more value. So perhaps we do have a bit of a bias against the earlier stage projects, but we're not closing the door on anything.

Operator

Our next question comes from the line of Stephen Walker.

Stephen Walker - RBC Capital Markets

First of all I'd like to applaud the Barrick team on the, I guess the rescue efforts and the reconstruction efforts post the Chilean earthquake as shown on the film clip at the annual meeting. My questions I guess are going to follow-on from that.

My understanding in Chile is that the natural cap on building mines and major developments is, and again, Peter, this number may be off, but it was about a million man hours of labor, and that sort of equated to two major mine development projects. Anything greater than that level was very challenging, given the cap on labor, the cap on consultant/contractors and so forth.

Is that kind of the right number? Am I in the right ballpark with sort of two major new development projects in Chile at one time?

Peter Kinver

I've got George sitting next to me here; he's probably closer to you than I am.

George Potter

Well, I don't know the numbers that you're quoting; I couldn't really comment on that. But for sure it's going to be a challenging time. One of the things that we did upfront in anticipation of this is, we have a database in excess of 35,000 people, which we use to source people for the project side. So this is going to be a challenging time.

I think we are ahead of the queue in terms of that database and where it's come from. So building Veladero was a great base for us, because we managed to build on that and that database is where that's sort of built from.

Aaron Regent

The other comment Steve, if I could add to what George said is, we have a kind of nice sequencing of our projects from PV to Pascua and then perhaps to Cerro Casale. So there's some advantages to that in terms of moving teams from one to another to another, and contractors from one to another.

Stephen Walker - RBC Capital Markets

Sequencing is great.

Aaron Regent

Yes, I think George has been very thoughtful in incorporating that into our plans.

Stephen Walker - RBC Capital Markets

And then just I guess the follow-on questions with respect to operating costs. In the near term, has there been any impact with respect to labor availability, consumables, energy? Have you seen to-date, any impact on your cost per unit, per ton costs, at the operations?

Jamie Sokalsky

Well I think that the trend is moving up. So we are seeing cost for things like consumables, perhaps steel for example. Labor in Australia is probably going to be under pressure again because attrition rates have increased, and again Western areas are probably over 20%. So yes, there probably is a bias in terms of upward direction in cost.

Peter Kinver

But to counteract that we've got pretty active programs in place; we got a fuel saving program, an energy saving program. So to counterbalance the upward pressure, we're trying to obviously consume less of these various commodities.

Stephen Walker - RBC Capital Markets

And just with reference to Chile, at this point with respect to capital items and so forth and planning for Cerro Casale, it's still obviously early, and even long lead time items that have not been ordered at Pascua-Lama, have there been any escalation in capital costs that you can talk about?

Do you have a sense of capital escalation here? And again, I'm just starting to see globally some inflationary pressures in Southeast Asia and the Indian subcontinent. I'm just curious how much less starting to flow through to the other parts of the developing world?

Aaron Regent

For sure, we've seen pressure on steel. The fallout on the earthquake has definitely had an impact certainly from locally procured stuff. That hasn't sort of permeated out to the rest of the world. But for sure steel's gone up, and it's getting tougher and harder to find people at the rates that you were doing six months ago. So there is pressure for sure.

Stephen Walker - RBC Capital Markets

And maybe just by way of a bit of a follow up, either George or Peter, you give the pre-production capital for Pueblo Viejo and Pascua-Lama. What is the working capital? The amount obviously, once you have the plant up and built and then the estimated, whether it be three months, four months that it'll take to get it up to commercial production, how much of the working capital requirements do you estimate for both of those projects?

Jamie Sokalsky

It's going to vary, but I think it's fair to assume a few hundred million dollars of working capital at the front end of the projects. It's hard to estimate that exactly, but I think those are fair numbers.

Stephen Walker - RBC Capital Markets

As a rule of thumb of 8% to 10%?

Jamie Sokalsky

It's probably not too far off, yes.

Operator

Our next question comes from the line of Heather Douglas.

Heather Douglas - Thomas Weisel Partners

I have noticed that there are a few comments about exploration in your presentation. Can you remind us of your priorities this year, where you see your best opportunities and maybe what news we could expect later in the year?

Aaron Regent

Our budget is around $170 million or so, of which of about 40%-45% is in North America. So that probably gives you an indication of where we think a greater prospectivity is. We have another maybe 15%-20% out in South America. And then probably about 30% in Australia Pacific, predominantly in Papua New Guinea. So those are the three areas that have captured the bulk of our exploration dollars.

And (inaudible) we had a major discovery, well, it's a no ASAP.

Heather Douglas - Thomas Weisel Partners

Just a final question about Papua New Guinea. I noticed your partner on one of the projects (inaudible) but are you still active at other projects in Papua?

Peter Kinver

We do. We have predominantly three areas we're active including the Porgera mine.

Heather Douglas - Thomas Weisel Partners

Okay. Can you tell me the other two?

Peter Kinver

Well, one of them is Kainantu. We can talk about that.

Aaron Regent

And I think we're doing some work around (inaudible).

Operator

Our next question comes from the line of Greg Barnes.

Greg Barnes - TD NewCrest

Aaron, you've been pretty clear you're not going to spin out Australian Barrick, but are you looking at other ways to tear down the number of mines that you have to focus on, the big six or eight mines that you are in operation now and developing? Simplify the structure and then make it a more nimble company I guess.

Aaron Regent

Well, I like to think that we are a nimble company. I think we should always be looking at our entire portfolio. And if we can find ways where we can improve the quality of the asset base we have, and that means monetizing some assets, to re-deploy the capital on higher core assets and do that on a basis of accretive to net asset value, we should be looking to do that.

So I think that's part of our psychology or philosophy if you will. That being said, we don't have any specific plans right now to sell off some of our smaller mines. From my perspective, I don't really see them as being overly problematic from a managerial perspective, because of the way we're set up in that we've got four distinct regions; the regions, there is a fair degree of autonomy that we've given to those regions. And so the decision-making capability is right and closer to the frontline.

And while these smaller assets can also surprise you on the upside, there's a few of them that maybe had one year left or two year left. But take Tulawaka, Tulawaka is still going. You got Pierina still going. You got Hemlo, which when we acquired the other half over this year we thought was a five-year mine, but now it looks like we're going to extend that for another four years.

So that really is my sense that optionality is still (going to be) with them. So I think you have to be very careful if you want to sell them. But that being said, if somebody wants to pay us a huge price, then obviously at direct price everything is for sale.

Operator

Now we have a follow-up question from the line of Haytham Hodaly.

Haytham Hodaly - Salman Partners Inc.

Just to touch at Goldstrike, I know that we were previously in a waste stripping phase we were expected to have until about mid-2010, if I recall. What would you forecast your throughput to be increasing back up to, somewhere between 20,000 and 30,000 tons a day at that point?

I understood that previously you were in a waste stripping phase up to about mid-2010, which is one of the reasons why the throughput had actually come down, the daily throughput that is. I'm curious, is that still the case mid-2010, and what would you expect the throughput number to increase to thereafter?

Jamie Sokalsky

What we're trying to do now is balance the throughput. We try and maintain the throughput and we were being constrained by, as Aaron mentioned earlier, sulfur or fuel levels in the (ore), we've done some test work and we started adding native sulphur and we have actually managed to increase the throughput through the roaster. So hopefully we will see a slight increase.

Haytham Hodaly - Salman Partners Inc.

Can you give a order of magnitude of where you think you could go to?

Jamie Sokalsky

I don't have those numbers in front of me, but if you need them, I can dig them out for you.

Haytham Hodaly - Salman Partners Inc.

I'm just curious; about 2006, 2007, 2005, you're operating around 27,000 tonnes, 28,000 tonnes a day even in 2008, and that's dropped off now and I'm just curious where we could get to thereafter?

Jamie Sokalsky

But if you need the number, I can dig it out for you.

Haytham Hodaly - Salman Partners Inc.

Yes, please do. Thank you.

Aaron Regent

Okay, operator, I understand that's the last of the questions.

Operator

There are no further questions at this time, sir.

Aaron Regent

Okay, well, thank you. Again, thank you everybody for joining the call. We appreciate your questions and feedback. And I guess we'll terminate the call at this point and we look forward to speaking with you at our second quarter call. With that, have a great day.

Operator

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

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Source: Barrick Gold Corporation Q1 2010 Earnings Call Transcript
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