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Barrick Gold Corporation (NYSE:ABX)

Q3 2010 Earnings Call

October 28, 2010 9:30 AM ET

Executives

Deni Nicoski – Vice President, IR

Aaron Regent – President and CEO

Jamie Sokalsky – Executive Vice President and CFO

Peter Kinver – Executive Vice President and COO

Kelvin Dushnisky – Executive Vice President, Corporate Affairs

Rob Krcmarov – Vice President, Global Exploration

Analysts

John Bridges – JP Morgan

Greg Barnes – TD Securities

Patrick Chidley – HSBC

Jorge Beristain – Deutsche Bank

Kerry Smith – Haywood Securities

Mark Liinamaa – Morgan Stanley

David Haughton – BMO Capital Markets

Barry Cooper – CIBC

Steven Butler – Canaccord Genuity

David Christie – Scotia Capital

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold Third Quarter 2010 Results Conference Call. During today’s presentation, all participants will be in a listen-only mode and afterwards, we will conduct a question-and-answer session. (Operator Instructions)

And as a reminder, this conference is being recorded, Thursday, October 28, 2010. And I would now like to turn the conference over to Mr. Deni Nicoski, Vice President, Investor Relations. Please go ahead, sir.

Deni Nicoski

Thank you, Operator. Before we begin, I will bring to your attention the fact that we will be making forward-looking statements during the course of this presentation. For a complete discussion of the risks, uncertainties, and factors which may lead to our actual financial results and performance being different from the estimates contained in our forward looking statement, please refer to our year end report or our most recent AIF filing.

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

Aaron Regent

Thanks, Deni, and good morning, and thank you for joining the Barrick third quarter conference call. I’m joined here today by Jamie Sokalsky, Peter Kinver and Kelvin Dushnisky, and there are other members of our senior management team as well, who will be available to answer questions later on the call.

I’ll start by covering some of the highlights of the quarter and then provide an update on our projects. And then I’ll turn the call over to Jamie to take you through our results in more detail and our views on the outlook for gold, after which we’d be happy to take any questions that you might have.

To summarize, we are pleased with the results, our results in the third quarter. Our production levels in cash costs were on plan and combined with the increase in the gold price resulted in record financial results.

Third quarter production was 2.06 million ounces, which was produced at a cash cost of $450 per ounce. The realized gold price for Barrick was $1,237 per ounce, resulting in cash margins of $783 per ounce, which is over 50% -- a 50% increase when compared to last year and that translates, when applied against our production into record cash flow and earnings.

Cash flow for operations was $1.28 billion and over $3.3 billion year-to-date, and third quarter net income was $837 million or $0.85 per share. On an adjusted basis, net income was $829 million or $0.84 per share, which translates into an annualized return on equity of about 18%.

Our project pipeline continues to more forward, in particular Cortez is performing ahead of expectations and we’ve also made meaningful progress in identifying new growth and investment opportunities within our existing asset base. As a result, we have set a new production target of 9 million ounces, which we hope to achieve within the next five years.

And lastly, I’m pleased to say that we were once again included in the Dow Jones World and North American Sustainability Index, which reflects our strong corporate and social responsibility practices and efforts.

Turning to a regional breakdown of our operating results, our North American region delivered another good quarter, producing 929,000 ounces at a total cash cost of $450 per ounce, on continued strong performances from Cortez and Goldstrike.

The Cortez property performed strongly again this quarter, as a result of higher than anticipated grades and recoveries from the new Cortez Hills open pit and underground mine. Cortez operation produced 366,000 ounces at a cash cost of $277 per ounce in the third quarter.

Looking ahead, due to mine sequencing, production is expected to be lower in the fourth quarter before increasing again in the first quarter of 2011.

The Goldstrike mine also performed ahead of expectations with production of 377,000 ounces at total cash cost of $494 per ounce, largely due to better than expected grades from the open pit and higher roaster throughput.

Our South American business unit produced 518,000 ounces at total cast cost of $263 per ounce. The Veladero mine was ahead of plan with production of 362,000 ounces at total cash cost of $250 per ounce, our higher grades from the Amable and the Filo Federico pits. Veladero is also on track to produce over 1 million ounces this year.

The Lagunas Norte operations contributed 119,000 ounces at total cash cost of $204 per ounce. Lagunas’s production is lower primarily due to mine sequencing and lowering grades, which is expected to continue into the fourth quarter before improving in early 2011.

The Australia Pacific region produced 483,000 ounces at total cash cost of $613 per ounce. Strong results from Kalgoorlie and Cowal, both ahead of plan on higher grades partially offset lower than planned production from Porgera. Porgera contributed 109,000 ounces at a total cash cost of $676 per ounce.

Attributable production from African Barrick Gold was 122,000 ounces at total cash cost of $696 per ounce, as Buzwagi continued to work through the mining of lower grade transitional ore and the actions taken in response to the fuel theft uncovered in the third quarter.

The suspension of employees at -- in Buzwagi’s mining department led to a longer period of processing lower grade stock piles. As a result, Barrick’s share of full year production has been reduced to about 575,000 ounces at total cash cost of $620 to $640 per ounce.

Our third quarter copper production was 84 million pounds at total cash cost of $1.12 per pound and the company remains on track with its full year copper guidance expected to produce about 360 million pounds at total cash cost of $1.10 to $1.15 per pound.

I’d like to make a few additional comments about Cortez Hills. Cortez continue to perform well as I’ve already stated, with year-to-date production of around 936,000 ounces at total cash cost of $307 per ounce. And we anticipate that full year production will be at the higher end of the original guidance range we set out of between 1.08 and 1.12 million ounces, at total cash cost of $295 to $315 per ounce.

Cortez Hills continues to operate under the terms of the tailored injunction issued by the District Court earlier this year, while the Bureau of Land Management completes a Supplementary Environmental Impact Study on three aspects identified by the 9th Circuit Court of Appeals. The company continues to expect completion of the SEIS and a record of decision to be issued by year end or early in 2011.

Turning to our projects, the Pueblo Viejo project in the Dominican Republic is advancing in line with its pre-production capital budget of about $3 billion, that’s on 100% basis. At the end of the third quarter, overall construction was nearly 40% complete, approximately 75% of the capital had been committed and engineering and procurement was about 95% complete. Approximately 65% of the plant concrete has been import and 45% of the steel erected.

Two of the four autoclaves have been placed on their footings, with the final two units shipped and anticipated to be on site in the fourth quarter. About 90% of the materials required for the oxygen plant have been shipped to site. Pre-stripping has been completed and ore stockpiling has commenced.

Initial production continues to be expected in the fourth quarter of next year. The critical path item is the completion of the power transmission lines to the site and we have experienced some delays with the issuance of various approvals, which may result in production -- first production occurred in the first quarter of 2002.

Barrick’s 60% share of annual production in the first five years is expected to average around 625 to 675,000 ounces at total cash cost of $275 to $300 per ounce.

At Pascua-Lama, the project remains in line with its pre-production capital budget of about $3 billion with production scheduled to begin in the first quarter of 2013. Detailed engineering is almost 90% complete and over 40% of the capital committed.

As you can see in the top photo, excavation of the cross-border or transfer tunnel is underway. This picture was taken from the Chilean side. Earthworks are ramping up with about 6.8 million cubic meters moved to date, with major earthworks for the mill and Merrill Crowe platform expected to be completed in November.

In Chile, the Barriales camp is substantially complete allowing the workforce to be increased to the permitted capacity and initial occupancy of the Los Amarillos camp in Argentina is expected in the fourth quarter of 2010. This is a robust project with average annual gold production expected to be around 750 to 800,000 ounces in the first five years at total cash cost of around $20 to $50 per ounce.

I’d like to provide a few comments on the recently passed Argentinian Federal Glacier Protection Law. Let me start by saying that Barrick has always been supportive of legislation and measures to protect glaciers and that neither the Pascua-Lama project or Veladero are impacting the glaciers surrounding our operations. We have completed comprehensive environmental impact studies that have been extensively reviewed and approved by the authorities on both the Chilean and Argentinian side of the border.

In addition, the province of San Juan, where our operations are located previously enacted glacier protected legislation with which we comply. Glaciers in Argentina are a sensitive topic and certain NGOs and other (inaudible) groups have been vocal and aggressive in pursuit of their objectives. And will be likely to continue to create additional publicity. Against this, we will continue to make our position clear.

At the Cerro Casale project in Chile, as previously disclosed, the bankable feasibility study has been completed. Pre-production capital is expected to be about $4.2 billion that’s on a 100% basis. Our 75% share of annual production is anticipated to be around 750 to 825,000 ounces of gold and 170 -- and 190 million pounds of copper at around $240 to $260 per ounce.

We’re now preparing the environmental impact assessment, which we expect to complete and submit in the first half of 2011. In addition, we are continuing our discussions with the local communities and educated peoples and are reviewing any additional permitting requirements.

We also continue to advance the other projects in our pipeline, which includes Donlin Creek in Alaska, Reko Diq in Pakistan and the Kabanga sulphide nickel project in Tanzania.

At Donlin, further optimization studies are underway, primarily focused on the potential to utilize natural gas. We expect the bankable feasibility study on the gas pipeline option to be completed in the second quarter of next year.

At Reko Diq, the bankable feasibility study has been completed and the EIS is being finalized, we’re now advancing the discussions with the Balochistan authorities to finalize the project and middle agreements.

At Kabanga, we are continuing to advance the bankable study, which we expect to complete later this year. There is a lot of metal tied up in these three projects, collectively Barrick’s share totals about 37 million ounces of gold, 20 billion pounds of copper and about 1.6 billion pounds of nickel.

Strategically, we are focused and have been focused on ways we can add value to grow the net asset value of the company on a per share basis. And this will be achieved by investing in higher return development projects, which I’ve just reviewed, but also through maximizing the value of our existing mines and leveraging our infrastructure and core competencies. In addition, our expiration program has great promise.

We made good progress on this front with many new incremental brownfield opportunities being identified, which will allow us to deploy capital at attractive rates of return and add to our production base. Combined with the production from our project pipeline this will position us to reach our goal of 9 million ounces of production within five years.

One example is the re-think of our Turquoise Ridge mine located in Nevada, where there is the potential to develop a large scale open pit, in order to mine the lower grade halo around the high grade ore.

An open pit operation could conceptually increase production to up to about 800,000 ounces per year compared to current production around 150 to 200,000 ounces, based on a potential ore body of over 20 million ounces compared to our reserves today of around 5.4 million ounces.

Next steps are to complete scoping work this year and continue drilling to support this model, followed by a pre-feasibility study in 2012. But I think Turquoise Ridge highlights some of the hidden potential within our company. And so while we’ve make progress and a very positive about the opportunities available to us, we still have work to do and I look forward to updating you on our progress in future calls.

At this point, I’d like to turn the call over to Jamie to review our financial results.

Jamie Sokalsky

Thanks, Aaron. As Aaron has already mentioned, we’re having an excellent year with production growing and our margins expanding. Gold production of 2.06 million ounces in the third quarter was 8% higher than the same period a year ago and we’ve held the line on cash costs, despite the realized gold price averaging some $266 higher per ounce than in the third quarter of 2009, which drives higher royalties in our cash costs.

In fact, on a year-to-date basis, the higher gold price has added about $12 per ounce in royalties and production taxes to our cash costs compared to last year. As Aaron also mentioned, cash margins increased 52% to a record $783 per ounce and on a net cash cost basis, margins increased 48% to almost $900 per ounce. And that’s at an average realized price of $1,237 in the quarter and we’re trading about $100 per ounce higher than that right now.

This margin expansion, combined with both higher gold and copper sales, drove record net income of $837 million or $0.85 per share. Adjusted net income rose 75% to $829 million or $0.84 per share from the same prior year period.

This of course, also translated into robust operating cash flow of about $1.3 billion in the third quarter, the third quarter in a row we’ve generated over $1 billion in cash flow and that represents a 40% increase from the same quarter of 2009.

And our free cash flow generated in the first nine months of this year is very healthy at almost $1.5 billion, despite our investment in our large high return development projects.

And given our positive view of gold prices, we expect this trend of year-over-year margin expansion to continue this year. Assuming our total cash cost guidance of about $455 per ounce and a realized price average of about $1,200 per ounce this year, we would expect to come in with cash margins of around $750 per ounce for the year. That’s about 3.5 times the margin we were generating just five years ago.

And as you can see from this graph, I think it’s notable to say that we’ve held the line on our cash costs over the past three years, while breaking the overall trend in the industry even with higher gold related costs, while the gold price has increased substantially growing our margins every year.

Assuming our net cash cost guidance of $350 to $360 per ounce and the same realized price assumption our cash margins would be about $850 per ounce for the year. And so, with another strong quarter behind us, we remain on track to achieve higher gold production and lower cash costs this year than last year.

Full year production is anticipated to be in the range of 7.65 to 7.85 million ounces of gold, higher than last year and at lower total cash costs of about $455 per ounce or net cash costs of between $350 and $360 per ounce in line with our original guidance for the year.

With our development projects and opportunities around existing mines, as Aaron mentioned, we are targeting growth in production within the next five years to 9 million ounces. And of course, we continue to maintain a strong financial position with the industry’s only A credit rating.

At the end of the third quarter, we had a cash balance of about $4.3 billion, an undrawn credit facility of $1.5 billion at attractive terms and as we discussed, we’re generating excellent operating and free cash flow.

As announced yesterday, the Board of Directors has authorized the fourth quarter dividend of $0.12 per share, consistent with the third quarter, which represented a 20% increase from the previous dividend on an annualized basis. The increase and the move to a quarterly, more regular payout, reflects the company’s financial strength and a continued favorable outlook for gold.

And we’ve been able to balance both the return of additional value to shareholders, while being able to continue to invest in our high return projects and this is also reflected in our solid free cash flow, as I mentioned.

I’d like to take a few moments to comment on why we continue to remain bullish on the gold price. While gold has recently retreated somewhat from the record highs we saw, it is still very well supported above $1,300 and we believe the macroeconomic factors which have been the main drivers of investment demand and higher gold prices are still largely in place, including monetary reflection, accommodative fiscal policies and significant trade and current account balances.

Gold did rise to record levels in the third quarter on market expectations of another round of quantitative easing or QE2. And recently, the U.S. Fed Chairman, Ben Bernanke indicated that the economic recovery is proceeding at a less than desirable pace and the Fed will do all it can as per growth. This additional monetary stimulation should continue to be a positive influence on the gold price.

And central banks continue to become net buyers of gold in efforts to address the excess of global FX reserves and we expect this trend to continue, the only recent notable seller being the IMF, as part of its previously announced program to sell 403 tons. Now, only 73 tons remain from that to be sold and the market has readily absorbed sales to date, and once that is finished, an overhang on the market will be gone.

And not only are the central bank gold agreement signatories now net purchasers, other central banks of emerging economies have increased their gold reserves in recent quarters, such as Russia, India, China and the Philippines. In fact, Russia has actually been buying monthly and in September the country’s official gold reserves reportedly rose another 22 tons of gold.

Of course, we are still seeing robust investment demand as reflected in the record ETF gold holdings, now up to approximately 68 million ounces, which is up about 10 million ounces from the start of this year and that demand continues to be very sticky.

More recently, we have seen stronger physical demand out of India and China, as consumers have been buying the dips still above the $1,300 price and physical demands should remain healthy ahead of the Indian Diwali festival in early November.

And finally, from an industry perspective, as we’ve been saying for some time, we continue to expect mine supply to contract in the longer term, as permitting timelines lengthen and new resources are more difficult to find, as a result, we feel that gold could continue to be very strong.

And Barrick has exceptional leverage to the high gold price, as we see in this chart. As this chart shows the company’s adjusted earnings and cash flow have substantially outpaced the rise in the gold price over the past five years and with the industry’s largest production and reserves, Barrick will continue to benefit from higher gold prices.

You may have noticed some additional material in our financial statements this quarter, regarding International Financial Reporting Standards or IFRS. As you may be aware, we’re in the process of converting from U.S. GAAP to IFRS, an IFRS basis of accounting.

This will put us on a more level playing field with the global mining industry and in particular, a number of senior gold producers currently reporting under Canadian GAAP, which is more similar to IFRS than U.S. GAAP for the mining industry.

Our first financial report under IFRS will be the first quarter of 2011. The conversion project is well underway and during this quarter we’ve completed the preliminary IFRS opening balance sheet as of January 1, 2010, and a preliminary impact assessment of the IFRS conversion on the first half results of 2010. More details are available in our third quarter MD&A.

But to give you a preview of some of the changes, two of the more significant recurring policy differences identified between IFRS and U.S. GAAP include the accounting for production waste stripping, also known as deferred stripping and expiration and evaluation costs.

Under IFRS, production waste stripping cost with a future economic benefit are capitalized, whereas under U.S. GAAP, they’re expensed and included in cash costs. Under U.S. GAAP, expiration and evaluation expenditures can only be capitalized once proven and probable reserves are established under SEC reserve reporting rules, which are more restrictive. Under IFRS, expiration and evaluation costs, which have a probable future benefit are eligible for capitalization, as they are under Canadian GAAP, as well.

So, to give you an idea of the order of magnitude of these two significant changes going forward, waste stripping and expiration and evaluation expenditures, I’ll quickly review the impact of them on the first half of this year on a look back basis.

Under IFRS, approximately $200 million in production waste stripping and expiration and evaluation costs would have been capitalized in the first half of 2010 rather than expensed. Accordingly, our operating cash flow and CapEx would have been about $200 million higher than the reported U.S. GAAP totals.

Under IFRS, total cash costs per ounce would have been about 8% lower or about $35 per ounce than U.S. GAAP and amortization per ounce higher by about 8% or $10 per ounce due to the capitalization of the production waste stripping, which is amortized over the mine life.

So, while there are a number of other differences between U.S. GAAP and IFRS, one of the key takeaways is that you should expect to see higher sustaining CapEx and lower total cash costs than would have been the case under U.S. GAAP accounting basis, again putting us more on a level playing field with the global mining industry. And we’ll be providing our 2011 guidance on a full IFRS basis in February with our fourth quarter results and we’ll provide more detail at that time and begin reporting under IFRS for the full year 2011.

I’ll now turn it back over to Aaron

Aaron Regent

Thanks, Jamie. In closing, we are pleased with the progress we’ve made this year, gold has performed well and the outlook continues to be positive. Our operations have also performed well and costs have been controlled, which has allowed us to substantially increase our operating margins. When applied against our production this is translated into record financial results.

Our project pipeline continues to advance, Cortez has performed ahead of expectations. A new projects are being identified like the Turquoise Ridge Super Pit. We’ve made good progress at identifying other opportunities within our existing asset base, which allow us to deploy capital at attractive rates of return and grow our production to reach our target of 9 million ounces within the next five years.

So, that concludes our formal presentation and operator at this point we’d be happy to take questions.

Question-and-Answer Session

Operator

Absolutely. Thank you. (Operator Instructions) And our first question comes from the line of John Bridges with JP Morgan. Please go ahead.

John Bridges – JP Morgan

Good morning, Aaron, Jamie, everybody. So, it sounds as if we’ve go to just of our old financial model from four or five years ago when we had a similar system to the IFRS, I guess. And quickly on the Veladero, what sort of production profile should we expect with that one going forward, it seems to be quite volatile?

Peter Kinver

Maybe I can answer that, John. Veladero has had a very good year, which we’ve been saying and we will see a slight drop in production next year from its current levels where the grades will get down from about 0.06 to about 0.04. So, this year has been a very good year but we will see reduction next year.

John Bridges – JP Morgan

Thanks. Thanks a lot, Pete. And then the follow-up. On this glacier issue, is this an issue in the State of San Juan has a different attitude toward the glacier rules than the federal government and it’s a battle between the two entities?

Aaron Regent

I don’t know if there’s necessarily a different attitude, I think the common objective, which we share as well, is the desire to take steps to protect glaciers and para glaciers. So, I think that’s the common ground amongst everybody.

I think the question though is who has the jurisdiction over resources within a province and the -- our interpretation of the constitution is that that is a provincial area of responsibility. And so we view it that the provincial legislation is what they express it but that’s something that will be, I guess, some of that will be clarified. And I should add that the province sees it that way as well.

John Bridges – JP Morgan

Any timeline on how that’s going to get clarified?

Aaron Regent

Very hard to predict. But I think that, as I said in my remarks, as far as we’re concerned, we’re fully compliant with the provincial legislation. And in any event, we have gone through extensive measures from a -- in the preparation of the environmental impact assessments, the reviews that have taken place, the scrutiny of the EIS has been quite extensive both on its land on the Argentinian side. So we don’t anticipate that there should be any issues and as I said, we’re in compliance with our permits and we’re in compliance with the provincial legislation.

John Bridges – JP Morgan

Yes. Thanks a lot. That was very helpful and congratulations on the quarter.

Aaron Regent

Thank you.

Jamie Sokalsky

Thanks John.

Operator

And our next question comes from the line of Greg Barnes with TD Securities. Please go ahead, Mr. Barnes.

Greg Barnes – TD Securities

Yeah. Thank you. Similar question with John’s doubt, this one about Cortez Hills and saying that you expect production to decline little bit in Q4 and then rebound in the first quarter in 2011. How does that grade profile look to you over the over next year or so?

Peter Kinver

Should I answer that, Greg. And yeah, I think, Greg, we’re experiencing grades that are currently substantially higher than reserve grades and we will probably be making adjustment to our reserve grades at the end of this year. How much, I can’t say, but I think the production next year should be very similar to this year especially if we put a positive correction in.

Greg Barnes – TD Securities

Okay. Great. And the second question. Aaron, at Goldstrike, I understand you’ve been working to increase the capacity utilization of the autoclave? Can you discuss what you’re doing there and how you expect that to move going forward?

Aaron Regent

Sure. We have a project which we call our (inaudible) project. And I’d say that the project is going well and so, we think we would anticipate that the utilization of the autoclaves will probably be longer than I think what has been telegraphed in the last little while. With, other than that, I don’t know Peter if you want to?

Peter Kinver

Yeah. I can, well, the test work’s been very successful so we anticipate and in prior years we would sort of saying that the Goldstrike production was a drop under the million ounce kind of annual production, but now with this viable technology we hope to see the production Goldstrike say -- stay more at its current levels.

Greg Barnes – TD Securities

What have you done in terms of the work on the autoclaves?

Peter Kinver

Well we convert them. It’s not a difficult process, it’s just changing the environment in which the autoclaves operate and the estimated CapEx (multiple speaker) about $200 million.

Greg Barnes – TD Securities

Okay. Which you’ll incur when?

Peter Kinver

I’m not too sure, but probably starting next year.

Greg Barnes – TD Securities

Okay. Great. Thank you very much.

Aaron Regent

Yeah. Thanks, Greg.

Operator

And our next question comes from the line of Patrick Chidley with HSBC. Please go ahead.

Patrick Chidley – HSBC

Morning, gentleman. And I wonder if you can maybe elaborate a little bit more on this Turquoise Ridge Super Pit, just in terms of strip ratio, average grade and what needs to happen to push that into reserves, because I notice it’s quite a lot larger than even your total resource for 100% of the project.

Aaron Regent

Right. Well, we are in a preliminary stage, so there’s a number of components that there’s work to be done to be more precise. But in terms of strip ratio, the strip ratio will be high. This will be a very large pit, bigger than Goldstrike in fact. So it will be there will be a lot of material that has to use. I think the one positive, however, is that there is oxide material at the top part of the pit which will help pay for the stripping costs, so that will be a benefit. I think the, if I recall, the cutoff grade we used for the conceptual study was about 0.04 and so that’s what we’re working with right now.

In terms of next steps, it’s really drilling and so we’ll have an extensive drilling program, which is underway right now and we’ll be ramping it up. Our budget, I think we’ll be spending about $30 to $40 million over the next 12 months on that.

And then in parallel we’ll be doing, I would say, metallurgical test work and other aspects to put us in a position where we should have a pre-feasibility study done, potentially well a Phase 1 pre-feasibility study towards the end of next year.

Patrick Chidley – HSBC

Okay. Just on the 20 million ounce figure, is that something that’s kind of in an inferred category now?

Aaron Regent

We have Rob Krcmarov who’s the head of our exploration here. Maybe, I’ll ask Rob if you want to take that one.

Rob Krcmarov

Okay. I think our reserve base is a little over 5 million ounces at the moment. We’ve got a significant M&I. We also have inferred, but we have a very large mineral inventory in excess of 3 or 4 million ounces which we are hoping to convert during the next 12 months also and there’s more beyond that that we’re aware of isolated drill hole intercepts right around the periphery.

Patrick Chidley – HSBC

Okay. Great. Thanks. Okay. Great. Thanks very much.

Aaron Regent

Okay. Thanks.

Operator

And our next question is from the line of Jorge Beristain with Deutsche Bank. Please go ahead

Jorge Beristain – Deutsche Bank

Good morning, gentlemen and great quarterly result. My question is just again, following up a little bit on this opportunity at Turquoise Ridge, assuming that you do a pre-feas during 2011. When do you think you could expect to see some of that potential incremental 600 or 650,000 ounce per year potential to start to hit your P&L?

Aaron Regent

This is a, what we sort of characterize is five to 10 project. So, it’s not going to come in within the next five years. I think the schedule as I laid out pre-feased by the end next year which will be refined, bankable probably 12, 13 and then permitting, permitting could take a considerable amount of time, maybe up to four years or so. So, if everything comes together we could anticipate production in the 2018, ‘19 type timeframe.

Jorge Beristain – Deutsche Bank

Okay. And my other question just was an update on Pueblo Viejo. We’ve heard that the potential power link up may delay the start-up of that project by about one quarter. Could you comment a little bit more as to what is exactly the nature of the delay in getting power to that site? Is it applications, permitting or is it just a physical constraint in the power lines to the site?

Aaron Regent

The permits we’re working on relates to the power transmission line and we had submitted a original routing and had been working with the Ministry of Environment on that routing, who has suggested changes to it. So that’s what we’ve been working through and we’ve agreed to that.

So, we anticipate getting the approvals imminently, so there’s no I think structural issues or anything related to that. But the, I think getting those in hand has taken a bit longer than we anticipated so our ability to start construction of the transmission line has been delayed.

And we are looking at other alternatives to get power to site to allow us to start the commission of the plant, including putting (inaudible) sets on site. Also, potentially pulling power off the grid and putting them in that line to connect to that grid and pulling power off the grid. So, we are working on alternatives, which if there is a delay in getting the our transmission to line to site, there are alternatives to bridge that to allow us to commission the plant to start us to producing.

So, there are a number of different things we’re working on, I think that in full disclosure we just wanted to highlight that the transmission line is a critical path item and we just wanted to be clear on what’s happening there, so there wouldn’t be any surprises later on. But I should sum up by saying that our goal continues to be production in the fourth quarter.

Jorge Beristain – Deutsche Bank

Okay. Thank you.

Operator

And our next question comes from the line of Kerry Smith with Haywood Securities. Please go ahead.

Kerry Smith – Haywood Securities

Thanks, Operator. Just on Pascua-Lama, how would you report your costs here Jamie, are you intending to report them as you’ve kind of given the net of the silver credit or will you do some kind of co-prior to accounting process?

Jamie Sokalsky

Well, I think what we’re really looking at is, continuing to report it I’d just say on the same basis as we’ve done on a by-product basis, certainly with respect to our cash costs and such. We may show in the income statement the metal streams separately on the revenue side but as far as our normal reporting of cash costs and in line with the industry, we’d look at doing that on a by-product basis.

Kerry Smith – Haywood Securities

Okay. And what silver price would you think about doing on a co-product basis, because silver is plainly higher than what you used?

Jamie Sokalsky

Yeah. Well, I think the -- there is a correlation with gold and silver, and so I don’t think it’s really going to hang on what -- what the price of silver is. I think really what we’re going to be looking at is a by-product, because we also have to look at the project in relation to the size of the company as well, in terms of gold revenue and silver revenue. So, it’s not really going to hang on the silver price.

Kerry Smith – Haywood Securities

Okay. And just at Pueblo Viejo, you’ve got 75% of the capital committed. How much of the contingency have you actually used so far? Can you just remind me how much the total contingency was?

Peter Kinver

The total contingency if I can remember was 12% to 14%, Kerry, I think. And we’ve still got sufficient contingency in place and I was recently down there, and there’s no major, anything glooming out there that’s could consume all that contingency. So, we’re still quite confident at this stage that we’ll get to the end at the $3 billion mark.

Kerry Smith – Haywood Securities

Okay. But so I guess, the way it sits today, you’ve used about three quarters of the contingency as well in the process of the construction that kind of roughly how it’s worked out there?

Peter Kinver

If you want the exact amount, I’ll get it for you, I’d be guessing now.

Kerry Smith – Haywood Securities

Okay. I was just wonder…

Peter Kinver

Yeah. We’ve got, yeah, sorry.

Kerry Smith – Haywood Securities

Sorry. Just wondered if you might have saved a little bit on the CapEx? If we should expect the number to be a little bit under budget but maybe you’ve kind of used a pro rata share as you’ve gone through the process?

Jamie Sokalsky

Yeah. I think that’s safe to say, yeah.

Kerry Smith – Haywood Securities

Okay. And then just one last thing, Aaron, on Reko Diq, you mentioned in your comments that you still need to finalize the mineral agreements, I can’t remember exactly what the status is but can you just remind me what has to be done there or if that’s something that we should worry about, if there’s issue with getting this mineral agreement in place with the government?

Aaron Regent

There’s a -- within our joint venture agreement that we currently have, there’s a process that -- that I -- sets out next steps. And first is, submission of the Bankable Feasibility Study, which point both parties have a period of time to decide whether or not they’re going to participate or not participate in the project. So, we’re kind of in that period right now.

And in addition, we’re, as I mentioned in my comments, working with the Balochistan authorities on the project agreement, which will, just like the shareholders agreement which will dictate sort of the governance of the project. With respect to the mineral agreement, the requirement is to complete the EIA which is underway and we should be submitting it shortly, so once we have the BFS combined with the EIA then we’ll look to follow a application for the mining lease.

Kerry Smith – Haywood Securities

Okay. Okay. So really it’s the EIA that drives the mineral -- the mining license as it were?

Aaron Regent

Right.

Kerry Smith – Haywood Securities

Okay. Okay. That’s great. Thanks a lot.

Aaron Regent

Thank you.

Operator

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

Mark Liinamaa – Morgan Stanley

Hello. Relative to your plans to get to 9 million ounces, just, I guess big picture, what are the challenges as you get to a certain sizes maintaining that type of level? What do your internal models suggest as far as how sustainable that is from a purely organic perspective? Thanks.

Aaron Regent

Well, in the 9 million ounce target, we -- it incorporates full production from (inaudible) and Pascua-Lama, and then the addition of incremental production from our -- a number of our current mines that’s what gets us there. It doesn’t incorporate the full production from Casale or Donlin, or Turquoise Ridge or some of the other projects that we’re working on or other things that we might identify from a expiration success.

So those are other projects that, depending on the time when they come in, will help us continue to support our production base. But and I would be disingenuous if I said that it’s not a challenge, it’s not without challenges to not only get to the 9 million but to maintain the 9 million. So, we do have lots of work to do. But, it’s a five-year goal, now we have five years to make sure we take steps to ensure we’ve got a strong production base between the years five and 10 from now.

Mark Liinamaa – Morgan Stanley

Thanks. And maybe just one kind of broad one as well. As you’re talking to your investors, your shareholders and there’s always the debate between growth and capital returns. And certainly, I sense a fairly wide divide on that. What, can you comment on what you’re hearing from folks, what they prefer, as far as the -- how you take advantage of the current environment? Thanks.

Aaron Regent

I think you’ve summed it up, I don’t think there is a one common view. I think there are different, different views. I think, from our perspective, we look at, investing and return in capital as both important objectives and I think that, if you look at the excess cash that we generate now, I think the first comment is to continue to invest in the projects we are currently constructing. And I think, so long as there are high returning investment alternatives, I haven’t met a shareholder yet who says that’s not a good thing to do with your capital.

But, I think we will continue to monitor our financial situation, our capitalization and if we’re in an over capitalized position then we will be looking to rectify the situation by returning capital back to shareholders. So, I think, we’d like to have balanced approach of being able to invest in the business and also be returning capital back to the shareholders, preferably, through growing dividends.

Mark Liinamaa – Morgan Stanley

Thanks, Aaron. Good luck.

Aaron Regent

Okay. Thank you.

Operator

And our next question comes from the line of David Haughton with BMO Capital Markets. Please go ahead.

David Haughton – BMO Capital Markets

Yeah. Good morning and thank you for hosting the call. I have a question with regard to Cortez. A number of different ore streams coming through here, we’ve got open pit ore going through the mill, we’ve got heap leaching underground. What’s the broad contribution that we had seen during the last quarter and going forward of each of those components?

Peter Kinver

All right. And I’ve got a split here in front of me. The underground contributed 94,000 ounces, the open pits 232,000 ounces and the old pipeline roughly 39,000 ounces. And the cash cost splits between them the overall costs as Aaron mentioned was $277, the pipeline ounces were $375 and the new mine were $210.

David Haughton – BMO Capital Markets

With the currently mining above reserve grade, is that largely due to the contribution of very high grade underground material?

Peter Kinver

Well, it was positive reconciliations in the pit and the underground, more notably in the undergrounds. So what we’ll do is do an evaluation at the end of this year and we may have a positive increase or adjustment.

David Haughton – BMO Capital Markets

And for the underground mining, what kind of mining rate are you looking at for the year, are we talking about 0.5 million tons plus sort of thing?

Peter Kinver

100, sorry, in the quarter we did 111,000 tons. So it’s roughly 100,000 tons a quarter.

David Haughton – BMO Capital Markets

Okay. All right. Thank you very much for that. I’d noticed in regards to Barrick Energy, not a significant component to the business now, but a number of acquisitions had been undertaken over the last number of months, what’s your strategy with regards to Barrick Energy, what’s your plans going forward?

Aaron Regent

Well we -- our strategy is to, like what we’re doing with all of our assets, is to increase and grow the value of each of our regions and the Barrick Energy is a business that we also want to increase the value and grow the value.

And so, we have this platform and I’d say it’s an exceptional management team and so, there have been a number of opportunities to make some bolt-on acquisitions to strengthen the overall business that we have and can we grow the critical mass of the business. Right now it’s a business which is relatively small. Small in liquid and so in terms of the options and what we might be able to do with it, we are somewhat limited.

And so, one of the things we are doing is, as I said looking at bolt-on acquisitions assets that are in close proximity to our existing assets. Where we can realize various synergies, get the business to a position where then we have more flexibility to do with it if we so choose. But, in the interim, the investments we’re making are at very good rates of return and quite complementary to the overall company, so it’s a business that we’re -- the business that’s doing well.

David Haughton – BMO Capital Markets

All right. Thank you, Aaron. That’s the end of the questions.

Aaron Regent

Okay. Thank you.

Operator

And our next question is from the line of Barry Cooper with CIBC. Please go ahead, Mr. Cooper.

Barry Cooper – CIBC

Yeah. Good day, everyone. Aaron, just wondering what is involved in this supplementary environmental impact study that’s being done by the government on Cortez and what are they kind of doing on a day-by-days basis vis-à-vis monitoring your activities or are they actually collecting baseline data or what?

Aaron Regent

Okay. That’s a good question, Barry. I’ve got Kelvin Dushnisky here, so maybe I’ll ask Kelvin to answer that.

Kelvin Dushnisky

Sure, Barry. The supplemental EIS was really focusing on three areas on Cortez Hills, one was respirable dust, so modeling that according to a new standard that was introduced and the second was emissions associated with hauling ore from Cortez Hills to Goldstrike, and the third related to dewatering.

So all three of those have been addressed, the project’s now gone through public review and is tracking very well for our record decision the end the year or early into next year and we see no complications with that.

Barry Cooper – CIBC

So is there, so I take it then, nothings being done right now other than it’s kind of sitting on someone’s desk, is that right?

Kelvin Dushnisky

Yeah. Well, it’s going through the process, so it’s being reviewed by interdepartmentally through the agencies that need to review and signoff and that’s been tracking well. So, it’s kind of following the process that needs to follow. U.S. Bureau of Land Management is handing the process very well, we think and so we’re very confident with the schedule.

Barry Cooper – CIBC

So, then the initial investigation, I guess then or the supplemental aspect, if you want to call it, was a monitoring of that which you were already doing? Let’s say, for the latter part of 2009 to the early part of 2010?

Kelvin Dushnisky

Correct. This is a focused EIS. Just on areas where following the first review, you recall there was a challenge and the government limited the subsequent review to those particular three areas. We had data already to be able to address them and so this was just a matter of re-packaging, adding to the evaluation and then re-submitting.

Barry Cooper – CIBC

Okay. So then looking at things, I guess, I assume that there being a prudent operator that it is, that a lot of these things would have been given a checkmark and therefore the chances of a rejection or an overturning or whatever you want to call it is probably pretty minimal that they will just give this the rubber stamp?

Kelvin Dushnisky

Yeah. We wouldn’t want to call it a rubber stamp. We’re very confident that the project will be approved.

Barry Cooper – CIBC

Right. Okay. And then another question with, could one of you flush out just some of the actions that are taking place there at Buzwagi, how much of this underperformance is related to operational issues at, let’s call it the mine site level, i.e. in the deposit and how much are extraneous to the mining, i.e. what’s happening on a social side of things?

Aaron Regent

Well, Barry, I’ll tackle that first and I may ask Peter. And I think it’s a bit of both. The operation has been impacted by a fuel theft syndicate and that had required us to basically let go of about 60 operators within the mine -- mining department, which is about 40% of our staff.

And so that, result of that, we’ve not been able to mine higher grade material and we’ve been processing low grade stockpiles. We think that probably impacted our production by about 30,000 ounces or will impact it by 30,000 ounces this year.

That situation being fixed, we’ve got, we’ve just got a bunch of other Barrick people who are there, operating the mine right now, training people, so those ounces we’ll get back, they haven’t gone anywhere, they’re just in the pit, so we’ll get them. So that’s not a -- that’s just a timing issue.

The other side which is operational is reflects the mining of transitional ore and so there have been, I guess challenges within the processing plant in terms of mining transitioning ore, I don’t know Peter, if you want to comment on that?

Peter Kinver

Nothing really much to add. But this impact on the fuel theft is pretty serious because it impacts the whole way the mine was operating from morale perspective. So, I was out there recently, I think the mine’s been well engineered and I think the whole body is robust, so it’s just a question of making sure that we can operate it on an even keel and we should see better results, I think.

Barry Cooper – CIBC

So this theft had been ongoing for a while? Do you have any idea of how much material was stolen?

Peter Kinver

It was, it’s a substantial amount of, I don’t want to give you any numbers, but it was a substantial amount. It involved a whole host of people, including security people, people who were supposed to be looking after the fuel, there was coercion and collusion at many levels.

Barry Cooper – CIBC

Okay.

Aaron Regent

I guess Barry, what we say is it’s still under investigation, so we’re probably a little bit constrained in terms of what we can say.

Barry Cooper – CIBC

Right. Okay. Thanks a lot. That’s all my

Aaron Regent

Okay. Thanks Barry.

Operator

And our next question is from the line of Steven Butler with Canaccord Genuity. Please go ahead.

Steven Butler – Canaccord Genuity

Guys, good morning. Just a couple, one quick question here. Looking at the opportunities you cite in your MD&A for mind life extensions, beyond of course, Turquoise Ridge opportunities, you particularly mentioned Lagunas Norte has six years of potential life and Cowal four years potential extension of life. Is that simply a matter of gold price guys or is that really new drilling information that’s come to light, or is it a simply a preview to year end with a higher gold price in mind? Thanks.

Peter Kinver

Maybe, I’ll answer that, Steven it’s a mixture I think, in the Lagunas Norte case, we’re looking at treating ores that would not be minimal on the heap leach project lower recovery type materials. At Cowal it’s a couple of satellites. All bodies at a lower gold price were not viable and now viable.

We also have some pretty exciting opportunity at both Hemlo and Bald Mountain, at Hemlo, excuse me, Hemlo is certainly is higher gold price, we’re look at a possible six-year life extension, where we can do a major lay back of the Hemlo pit and it would add roughly 175,000 ounces for six years. So, it’s a combination of but obviously the higher gold price would drive bigger pits and bigger opportunities.

Steven Butler – Canaccord Genuity

Sorry Peter, just to clarify, Lagunas Norte you said ore is not minimal to heap leach? Are they now looking at heap leach there given the gold price and offset, of course by so paltry recoveries or is it simply a different processing technology?

Peter Kinver

Yeah. We’ll be looking at using a CIL..

Steven Butler – Canaccord Genuity

Okay.

Peter Kinver

… standalone process, yeah.

Steven Butler – Canaccord Genuity

Okay. Okay. Thanks very much.

Aaron Regent

Thanks, Steve.

Operator

And our last question comes from the line of David Christie with Scotia Capital. Please go ahead Mr. Christie.

David Christie – Scotia Capital

Good morning, guys. Just quickly on the, there’s a comment in your release there on the Chilean taxes and royalty changes that are happening. You could maybe just give me a little color on how you think that’s going to affect your numbers going forward?

Jamie Sokalsky

Sure, Dave. It’s Jamie. The -- we’re still looking at the impact on our operations there, but it’s going to affect Zaldivar at $3 copper price and going forward on an undiscounted basis, it’s probably about $100 to $150 million over the life of the mine. That’s undiscounted so discounted quite a bit less.

And then Cerro Casale will be at a copper price of about $3 and $1,200 gold, it’s probably somewhere in the range of $150 to $200 million, again over the life of the mine on an undiscounted basis.

So we’re still assessing the impact of this and some of this is a voluntary type of charge, a royalty but overall those, that’s the order of magnitude and it has no effect on Pascua-Lama, I should mention that as well.

David Christie – Scotia Capital

And what royalty and tax are you assuming in that 150 to 200 million bucks?

Jamie Sokalsky

Well that’s, it’s a sliding scale as you know and so when I mention those numbers, as the prices go up, there’s a sliding scale so it goes anywhere from sort of 4% up to 15%, so it’s a various scenario. So, can’t…

David Christie – Scotia Capital

Okay. I understand.

Jamie Sokalsky

… have certain percent on it.

David Christie – Scotia Capital

Okay. Thank you.

Jamie Sokalsky

You’re welcome.

Aaron Regent

Thanks, Dave. I understand that’s the last question. So on behalf of my colleagues we’d like to thank everybody for joining our call today. We appreciate your interest and great questions, and feedback. And we look forward to re-convening in February to discuss our fourth quarter results. So with that, we’ll terminate the call and have a great day.

Operator

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day everyone.

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