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Barrick Gold Corporation (NYSE:ABX)

Q1 2007 Earnings Call

May 2, 2007 04:30 pm ET

Executives

James Mavor - Vice President, Investor Relations

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

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

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

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

Patrick J. Garver - Executive Vice President, General Counsel

Analysts

John Hill - Citigroup

Victor Flores - HSBC

Patrick Chidley - Barnard Jacobs Mellet

Barry Cooper - CIBC World Markets

Mark Smith - Dundee Securities Corporation

John Bridges - J.P. Morgan

Oscar Cabrera - Goldman Sachs

Kerry Smith - Haywood Securities

TRANSCRIPT SPONSOR
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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold First Quarter 2007 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, May 2, 2007.

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

James Mavor - Vice President of Investor Relations

Thank you operator, and good afternoon everyone. Thank you for joining us today. Yesterday afternoon we released our first quarter results, and they can be obtained off our website or by calling the Investor Relations department in Toronto.

I'm joined here today with Greg Wilkins, Peter Kinver, James Sokalsky, Alex Davidson and Patrick Garver, who will be available to answer questions at the end of the call. Greg will review the first quarter results and highlights; Peter will go over an update of our operations and project pipeline; and Alex Davidson will give you an update on exploration activities for the quarter. And then we'll open it up for Q & A.

Before I begin, I'll bring to your attention 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, please see our website, our year end report, and our most recent AIF. Now to you, Greg.

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

Thanks, Jim. Good afternoon, everyone and thank you for joining us. The quarter was a good quarter. We were very pleased with it. We had strong operating results with production over 2 million ounces. Cash cost came in at $313 an ounce, which is a little bit better than we were anticipating so we’re off to a good start for the year. Copper production came in at 100 million pounds, 81 cents came in as expected. As we previously signaled to the market, we have eliminated the balance of the corporate gold sales contracts, so we are now in a position to receive spot prices for from all of our current operations. And we actually were able to do that fairly early in the quarter with somewhat lower gold prices, and so as we delivered over the balance of the quarter we actually enjoyed some of these stronger prices that we saw in the latter part of the quarter. So that helped some.

We did record a loss in the quarter, $0.18 a share, 159 million. Operating cash flow was 163 million and $0.19 after the effect of the 557 million impact arising from the elimination of those corporate gold sales contracts. Glad to see those pesky things are now behind us. If we hadn't included them, of course, the numbers would have been much stronger at almost $400 million in earnings $0.45 a share and operating cash flow would have been well over 700 million or $0.83 a share, demonstrating clearly the leverage the company has to higher earnings and cash flow arising from strong gold prices. So the strong first quarter puts us on track for full year guidance.

Say that we are feeling quite good about the quarter and about the cost. Not prepared to consider higher guidance or lower costs at this stage. But we do feel pretty good about the results, and Peter's going to talk a little bit more about some of the impacts within the quarter. Again, the meeting guidance for both copper and gold is really on track. And it's important I think to bear in mind that the cash costs were higher year over year, again as we had indicated. But you know a good portion of that relates to just the higher gold prices, royalties, and production taxes. So as we put out our guidance, we were actually doing it at lower gold prices.

So as an operating perspective, we have been able to absorb an offset that increase in cost related to these higher royalties and taxes. We actually had our board meeting this afternoon. The board authorized an increase in the semiannual dividend to $0.15, and so that actually is the first time we've increased the dividend since 2000. It reflects the fact that the company's earnings and cash flow can support not only increased pay outs but continue to finance the project that we have in our pipeline and just demonstrates the value and the impact of that cash flow. To much less fan fare, we commissioned the fifth mine in the last couple of years Ruby Hill Mine was opened in the Nevada district.

We have now completed five in the last two, and the record and the team who have developed these mines are now poised to be able to move into some of the other activities we have. And we actually beat the budget. And I wish we were going to beat the budget on a big CapEx program, but while this was quite small, it was nice to see we were able to come inside the cost estimate of $66 million. The project pipeline continues to be progressed at Cortez. We will be filing our EIA later this year; we look for the record of decision next year. In the meantime, much of the equipment is on the site and so we are redeploying to accelerate things in other areas. And we can chat a bit more about that.

At Pascua, of course, we are pushing to conclude and actually get signatures on the agreements between Chile and Argentina for cross-border as we really focus in now on trying to get everything ready for a construction start later this year. We do have a meeting scheduled with Chile and Argentina tax authorities. We have been given strong signals that there is strong agreement, but there is the need to push the administrations to get pens to papers. In San Juan province where we have to get sectorial permits, we’ve actually gone through a very good process of taking an enormous amount of permits and consolidating them to eliminate a lot of the overlaps, so that we can actually bring it down to a much more manageable number.

So I think we're down to about 80 from almost 300, and we've actually got 20% of those permits in hand and the government is working very closely with us with great enthusiasm to get them all done in time for that construction start later this year. PV the approval of the environmental assessment the mines and facilities was secured in the first quarter. Major milestone, gives us some flexibility to really move that project along. Alex is going to talk a little bit about the expiration side and Peter on the development side, but continuing to look quite attractive.

Buzwagi, we have the mineral development agreement, and we were advised that the environmental assessment approval is complete, just awaiting the minister's signature on his desk. Of course signatures are often the toughest part, but we are in the last phases of achieving that approval. At Donlin Creek, we are working to complete the feasibility study on schedule for completion in November to earn our 70% interest.

With respect to corporate development activities, we acquired a 20% interest in Porgera, which we are very pleased with. We have said all along that we like the exploration potential for that operation. It is certainly a challenging operating environment, but this is a long life asset in Papua New Guinea, for which it has tremendous long run value and there are few long-life, large-scale type deposits and so this one is really worth the effort. Perhaps Alex who has just come back from a trip out there will comment a little bit more about that in a moment.

And of course, as part of our commitment to communities and our community outreach program, I'm really pleased to be able to say that we partnered with World Visions in Peru again to work to improve the lives of children and to deal with the alleviation of child hunger through providing nutrition, education, and employment projects. And we have worked quite a long time with World Vision, and this is now a five-year deal with quite significant funds involved, so I'm very pleased to see that happen.

In 2006, we had record financial results. I think the results were quite strong, considering we had actually reduced our hedge position. I know in 2006, we only achieved $541 an ounce realized gold price versus a spot of $604 because, we did such a major job on reducing those hedge contracts, but the margin still expanded to $259 an ounce.

In the first quarter, the realized price was only $386 again because we had finally gotten rid of those hedge contracts. But as you can see, now we have the opportunity for that margin to expand based on current spot gold prices up to the $325 to $340 an ounce range and that is by my math almost 50% operating margins which people lust after in most businesses. Very pleased to see that kind of potential.

The results for the quarter themselves, talked about it. Adjusted EPS was $0.45 a share up 36% over the prior year. Cash flow of $0.83 cents before special items up to the 4% over the prior year. And this compares to a 17% increase in the average market price of gold to $650 from $554. So clear demonstration again of operating leverage, and I think there is a key point for people to focus on that we do have operating leverage when we look at and talk about the metal bypass or buying physicals through the EPS. The fact is that you know in this environment, in this cost structure, where we're at we are going to see much more leverage than just the leverage attainable through the EPS themselves.

Our outlook for gold continues to remain strong. The supply and demand fundamentals, and investors demand, and the changing sentiments of central banks are all encouraging signs to support gold prices going forward. So we look forward to basically positioning the company to take full advantage of that. And you know, can't wait to get to the second quarter earnings conference call.

So with that let me turn it over to Peter. Update you on the operations and on the projects and then ask Alex to comment a little bit more on some of our other exploration projects.

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

Thanks Greg. As Greg mentioned, the company had a very strong start of the year producing just over 2 million ounces at about $313 per ounce, and we are on track to meet our guidance and cost guidance, start production cost guidance for the year. At this point, I would like to thank all the regional vice presidents and their teams around the world for getting us off to a great start in the year.

The North American business unit had a solid quarter producing 786,000 ounces at $352 an ounce which is better than the plan. And the production and cost of Cortez around them were actually better than budget. However, we did mention in the February "Investor Day" that this year's production of Gold Strike would be lower than last year. This is mainly due to sequencing low grade material.

Cortez production is improving as we sequence into areas that are providing more full tons to the (indiscernible). And as Greg mentioned, the Ruby Hill mine was commissioned on time and we actually came in 10% under our budget. It is also very pleasing to note that, the team there currently has a very, very low mining cost in the region of $0.60 to $0.70 cents per ton which is really very pleasing. South America had an excellent quarter and as a result a better production, higher production of Lagunas Norte, Veladero. It is also pleasing to note at Veladero that all grades that we are experiencing a generally higher than the model grades and in fact we’re finding mineralized all grade material in some areas where we expected to find waste.

So this really bodes well for these projects. The Australian business unit produced 490,000 ounces of gold, which is slightly higher than the same periods in the prior year. This is mainly due to the fact that the Cowal mine, which commissioned quickly, had a full quarter contribution. Production from the African business unit was essentially the same as last year despite the sale of the south deep line late in 2006. Copper production was higher mainly due to high quantities of oxide ore at the Zaldivar mine and now that the back flow plant has been commissioned at the Osborne mine, we have got access to high grade areas at that mine.

I would like to update you on our project pipeline. At our "Investor Day" presentation in February, we provided the investor community with a comprehensive update of our pipeline projects which is the deepest in the gold industry, and we would like to continue this dialogue on a quarterly basis. We volunteered projects in their various stages of development and ultimately into production. I'll start with the Cortez Hills project, which is in its early years. We expect it to contribute about 580,000 to 595,000 ounces to our account which does include the production from the pipeline pits and the in cash costs are expected to be about $280 to $290 an ounce, which is obviously low cost Nevada ounces.

Currently the equipment is being delivered for the mine, but until we get we get the necessary permits in place, this equipment has been deployed at the existing pipe line which is an ouncing or a waste removal race. The cross valley dewatering pipeline is complete and the fresh water pipeline is ready for testing, and the decline is advancing well into the underground exploration phase. Project budget is planned to be about $480 to $500 million which is a 100% basis and remains on target as is the projected construction period of about 15 months which will follow once we have the approval of the environmental impact study. With regard to Pascua-Lama, Greg has basically covered that. I would like to mention that we are pushing on with the sectorial permits together with also looking at various power supply options, and we’re also looking at some exciting ways of doing some modular construction techniques where we can do a lot of the construction at low altitude in the modular kit form. And take these modules up for construction on the site which can save time and money.

Just to recall from our "Investor Day" presentation, that under the assumption where power is about $.095 kilowatt hour, we expect very low cash cost of $40 to $50 per ounce in the first five years of operation. At Pueblo Viejo, we have been able to unlock a lot of value in recovery and the copper and the silver metals, and we are also doing test work now and flow sheet development, which will hopefully allow us to recover zinc from the project. And you may recall that on a 100% basis there could be 2.6 billion pounds of zinc contained within the reserves. The current gold reserves are just over 18 million ounces, and at today's commodity prices, the recovery of all these metals significantly enhances the project economics.

Work on file designs continue to be optimized to consider expansion potential, and we continue to find additional mineralization including a new area in the quarter and I think Alex may talk about this a little later. At Buzwagi in Africa, detailed engineering is progressing. The plan is roughly 20% complete. Highlights include the award of contracts and the commencement of a 220 KV power line substation, and we are also successfully constructing houses for the relocation program. Expected construction costs were about $400 million U.S, and construction is expected to take approximately two years once we have the EIA and as Greg mentioned, it is on the minister's desk so hopefully we should get that very soon.

Buzwagi is on track to provide around about a quarter million ounces of production a year at about $280 per ounce in the near term and is obviously situated in one of our four districts. Finally, good progress continues to be made at the copper gold project in Pakistan. The project team has been assembled with representatives from Barrick and (indiscernible). Scoping study has commenced and is expected to be completed by the fourth quarter in 2007. Test work program is also underway to determine the process flow sheet. Alex, over to you.

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

Great, thank you, Peter, and good afternoon, everybody. I'm going to briefly update you on exploration in the quarter. As you can see from the first slide, our 2007 budget is about $170 million, and that is weighted toward near term discovery around our existing operations. But we still maintain a very balanced portfolio and that means early stage grassroots projects so we can generate high quality projects for the future. The majority of the planned money will be spent in North America with the main focus in Nevada. $54 million in Nevada and followed by Australia pacific, at Porgera, Cowal and the WA mine sites, as well as early stage exploration in south Australia.

In South America we’re focusing on Lagunas, Veladero and in the front area district and in Africa around north Mara, Buzwagi, and Lake Victoria Greenfield. We currently have 53 rigs operating on exploration projects during the quarter and results are starting to come in as the drilling gets going. Our key focus as I mentioned for 2007 is Nevada. That will be focused on reserve and resource definition programs around existing operations as well as target delineation work on our existing extensive and dominant land position. We have over 30 rigs active in Nevada itself currently drilling at Cortez Hills, and at Cortez pits, at Bald Mountain, at Turquoise Ridge, at Gold Strike and at Ruby hill and Marigold. Actually, there aren't many places in Nevada where we're not drilling. What you are looking at is a long section of the Cortez Hills area showing the Cortez Hills lower zone outlined in red. We will be doing 170,000 feet of drilling and that program is in progress to further evaluate this Cortez Hills underground mineralization.

Thirteen rigs are drilling on Cortez itself. The drilling last year defined mineral inventory and the objective this year is to expand and upgrade the mineral inventory to resource. So you know the red zone that you are seeing is neither in reserve nor in resource in our 2006 numbers. Both in fill drilling and step up drilling will be done along that 3,000 feet, and the zone is still open to the south. On top of that, another 22,000 feet will be done at Cortez pits to upgrade the resource there. At Pueblo Viejo, our 2007 drill program is underway. We've got I think five riggs running there, and that's continuing to find additional mineralization. Recent results include intercepts in the new area which is sitting on the northeast edge of the Montenegro pit which is the left pit on the slide.

That new zone is open to the north now, the east, and back down to the south. Already six or seven holes in this new zone and they look very good. About 10,000 meters is planned in that program with another 15,000 meters testing the west Moore pit area. So very, very encouraging early work coming out of PV this year, So in summary we plan to spend about $170 million in exploration in 2007. Replacement production is a major priority at all sites. Our exploration is focused on the highly endowed districts where we control our large and dominant land positions. The primary ones being where the Gold Strike trend, the Cortez trend and the (indiscernible) trend in Nevada, (indiscernible), frontera district in Chile and Argentina. the majority of the Lake Victoria Green Stone belt in Tanzania, and around Porgera in Papua New Guinea. As Greg mentioned, I just came back from Porgera, and I was very impressed with the deep exploration potential there.

I was also very impressed with the quality of the exploration people, the nationals, and some of the ex pats we have up there. We are currently drilling for the first time in a number of years outside the special mining lease and receiving encouraging results. In addition where our general team is exploring earlier stage projects and evaluating exploration opportunities and generating new projects in emerging districts around the world. First quarter just getting started on many of the programs we are excited about the program and we are on track for meeting our targets in 2007. Thanks and I'll let Greg wrap it up.

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

Thanks, Alex, and Peter, not to repeat the guidance and so on and so forth. But just really to, I think, point out we have a very strong focus on managing our cost structure. And I think, you know, Peter's team has done a very good job. You'll see in the MDNA that we anticipated being able to keep our cost flat on a per ton basis and in fact the first quarter that we did that. So while we still have some degree of underlying inflation in the cost, although not perhaps to the same ten we've seen historically, but that's still pressure. Peter's team has been able to use continuous improvement techniques and a constant rigorous review of cost to keep that cost per ton in line so I’m very pleased about that.

Focusing on the costs, we think is extremely important to make sure that we optimize the margin expansion as we move forward. So we’re pleased to see the results in the first quarter because they have taken hold and and see that margin expansion, we will continue to look forward to enjoying that through the balance of the year and into the years ahead. So with that, I would like to open it up for questions.

Question-and-Answer Session

Operator

Thank you.

(Operator instructions).

The first question comes from the line of John Hill from Citigroup.

John Hill – Citigroup

Thank you very much, and congratulations, everyone, on the quarter. Hiking the dividend, and importantly, keeping that mining cost per ton flat year over year. That's quite an accomplishment. I’m just wondering if we could follow up for a moment on Alex's comments on Porgera, I’m wondering what that stage five holds for us, and is there a potential to drive that operation back to let's say the 700,000 ounce per year level?

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

John, there's actually an operational review team going up to Porgera, I think this week actually or next week. And they'll be looking at stage 6 feasibility study, I think there is a lot of room for improvements at Porgera, and I know the guys are going to be working very hard to surface some of those things. We'll just have to wait for the results of this operation review before I can comment on that. You know, increased production levels.

John Hill – Citigroup

Okay, understood. We'll assume all the travel back and forth is a good thing. And then switching over, just to the capital allocation process, obviously, a lot of progress hiking the dividend, bringing down the corporate hedges, a lot of alternatives out there. Just curious, any thoughts on the attitude toward the project hedge book that seems like a pretty powerful lever for value creation, if we can bring that down at some point?

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

John, its Jamie, we've done a lot to eliminate the corporate sales book. And now with the project book we've got less than 8% of our reserves hedged. So it's down to a very low level. We're in the process of looking at project financing for both Pascua-Lama. Pueblo Viejo, and other,projects going forward. As you know. the project hedges do actually supply a lot of support to optimize the financing, get more of the financing at lower levels. So as we move through the process of defining the project financing requirements, we'll look at what we need on the project hedge book. But at the moment, we're going to take a little breather from reducing the corporate sales book as we progress on the financing.

John Hill – Citigroup

Very good, Thank you.

Operator

Our next question comes from the line of Victor Flores from HSBC. Please proceed with your question.

Victor Flores – HSBC

Yes, thank you, good afternoon. First just a question for Jamie on the hedge book. By delivering into those positions, and what I would like you to clarify for me is whether by doing it that way, rather than actually buying the positions back, you avoid having to set up any deferred hedging accounts on the balance sheet?

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

Well, what we're doing, really, is the same thing, Victor. By either closing them out or delivering them, it really ends up at the same point. If we had closed them out, which is a little bit more difficult because of the accounting of the contracts, whether we paid cash or delivered into the production at lower prices, the impact is really the same. We've really just foregone the cash on those contracts.

Victor Flores – HSBC

Okay. But going forward there won't be any deferred hedging accounts on the balance sheet?

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

That's right. Yes. Just to clarify that. These are gone. There are no deferred amounts. Everything is cleared up. It's eliminated.

Victor Flores – HSBC

Thank you, and then second, if I could ask a question on Pueblo Viejo. It looks like there is quite a few moving parts there now with the metallurgy you are doing and the exploration upside that seems to be coming out of some of these new areas. Do you run the risk that you move ahead with one development plan, and as you find some of this new mineralization it sort of forces you to change the way that you'd like to develop this project? I would like to understand whether you have enough information if at all on the metallurgy of some of these new areas to know whether you need to make a contingency for that going forward?

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

I'm just going to jump in, Victor, on that. Peter's obviously the expert on the technical side. What I’ve asked the guys to do. We are going to do the complete review, and in fact. we are there almost there on all of the by product credits. We’ve got some more work to do on zinc as Peter's nodding to me. We are not going to try to redefine the project and then have to re-engineer the permitting. We are going to look at it from the point of view of the existing approval, move forward with that on a time frame and then we'll deal with modular kind of additions as we go forward as opposed to trying to step back and redraw the playing field and get a restart. We think that is a better way to deal with the upside that we're starting to find through the process, and we don't believe that we'll lose much in the way of optimizing the efficiency of the plant if we actually do it in a modular fashion, providing we bear in mind in the planning that there might be the potential for some expansion capabilities down the road.

Victor Flores – HSBC

Great, thanks. If I could just ask a final question, it sounds from the press release like you're guiding us not to get too excited about some of the very good results that you delivered, from Veladero and Lagunas Norte throughout the rest of the year. Are we, I guess, supposed to stay with the guidance and assume that production is going to come down a bit from these assets and costs will be going up somewhat throughout the rest of the year?

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

Victor, we are trying to take a page out of Alan Greenspan's book. We are going to be muddled and opaque. No, I'm just kidding.

Victor Flores – HSBC

But you were going to keep inflation down.

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

But no, I think we're really very pleased with the results. I think Peter's team, on the costs in particular have been very good. But, it's the first quarter. And it's a portfolio. And we have pluses and minuses and within the quarter we have pluses and minuses. So I think I would say my bias is probably to be better. But at this stage I think the most important thing would be to not adjust guidance. Because we just quite don't know what is going to happen as we go forward. But I think we are leaning to the bias of the committee as to favorable versus unfavorable. Does that help?

Victor Flores – HSBC

That's good. Thank you very much.

Operator

Our next question comes from the line of Patrick Chidley from Barnard Jacobs Mellet. Please proceed with your question.

Patrick Chidley - Barnard Jacobs Mellet

Hi, gentlemen. Congratulations on a great quarter, and of course reducing that hedge book finally. My question may need to do with the exploration to Alex I guess. At Cortez Hills the lower zone, how much more drilling needs to be done before you can come up with a resource? I think you said you had a mineralized envelope or something.

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

Yes. It's a mineral inventory right now. The drilling was that kind of wide spaced by the end of 2006. Sort of 100 to 150meter plus drilling, but fairly continuous. We are now in filling that and with about 60 holes for that 170,000 feet. And that's, a lot of that's in fill and then there is a continuation of step out and and then scope drilling, step out drilling to the south. The objective is to upgrade that inventory to resource by the end of the year. So you won't see a resource out of that until the end of the year when we finish this program.

Patrick Chidley - Barnard Jacobs Mellet

So there is no chance we could see like it in stages so one part gets drilled and you give us an idea where that's going and the next part maybe at the end of the year?

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

No. That's not the way we'll do it. We'll wait until the drilling gets done and then the guys will run their course. But so far it's looking it's continuing to be positive and the in fill is looking good. There was continuity between the widely spaced holes.

Patrick Chidley - Barnard Jacobs Mellet

Alright, good and I notice some of that's getting quite deep towards the, I guess it's toward the south. What kind of depth is the mineralization in that range?

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

You got me, there. We are putting a deep line in there right now?

Patrick Chidley - Barnard Jacobs Mellet

Right.

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

And I think that’s about 1,000 to 1500 feet deep now at the southern end.

Patrick Chidley - Barnard Jacobs Mellet

Right.

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

That's why you have 1500 pushing 1500 feet deep on the south end. But the decline is going to come into that zone.

Patrick Chidley - Barnard Jacobs Mellet

Alright. Okay. Then another question just in follow-up to, I think Veladero and Lagunas Norte in terms of the grades. You mentioned grades at Veladero have been higher than expected and you actually got waste blocks that are looking more like ore grade and in the press release you said that Lagunas Norte grades are perhaps better than expected. Can you clarify that?

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

Yeah. Patrick, its Peter. The grade at Lagunas Norte has been better. The grade at Veladero, have been close to the models. But at certainly at Lagunas Norte we found slightly better grades and on the periphery of the main hole but obviously the drilling is more widely-spaced. You know as we do the blast hole drilling of the waste ore obviously we do grade controls of those blast holes. So we pick up pods and you know little veins and pods of reasonable grade ore which will help the strip grade show. So it's been pretty positive.

Patrick Chidley - Barnard Jacobs Mellet

So that is at Lagunas Norte and that's been responsible for some of the, I guess better than expected rates of production that that you got?

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

That's correct.

Patrick Chidley - Barnard Jacobs Mellet

Okay thanks very much.

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

Thanks, Patrick.

Operator

Our next question from the line of Mr. Barry Cooper, from CIBC World Markets. Please proceed with your question.

Barry Cooper - CIBC World Markets

Good day, everyone. Again a question for Alex in your AIF you talked about likely capital changes for Donlin Creek specifically quite different than those that were done by S R K. Can you kind of flush out what you're thinking? Realize you are going to have something later in the year but what kind of a scoping change would you be thinking of Donlin that is different than S R K?

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

Barry, it's Greg again. I'm going to jump into the deep end where I really can't swim. But we put in the AIF as up to date information as we could on a very fluid situation. Obviously we are doing a lot of work as we move toward the feasibility study for November. And we needed to have, you know, a disclosure record that was absolutely up to date. Because we you know were intent on selling enough of those shares. So I would really like to just wait until we've had a chance to consolidate our analysis around, you know, what costs are really going to look like. And then give you better flavor because it's just a work in process as we sit here today. There are areas like you know, power and energy costs generally transportation costs, you know higher wages in Alaska you know artisans are very expensive. It's a remote site. So there is a variety of factors that are trending those costs higher. And I think consistent with what we said when we were going through the debate on the tender bid that we felt that the capital costs there were too low relative to what SRK had published. So we are just getting and finding the information as we put it together just kind of supporting that point of view. But really, it's a bit premature to speak about you know sort of more definitive numbers at this stage.

Barry Cooper - CIBC World Markets

Right. Okay. Then maybe a question for Jamie, you talked about doing some project financing for some of the various projects around the world. What have you done with respect to kind of checking in with how that would change your decisions for project financing vis-à-vis what happened with the Canadian federal governments move to basically cancel lot of interest deductibility for off shore loans.

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

Barry that wouldn't really have any impact on the financing of those projects because the financing would actually occur in the countries where those projects exist, and are generally they are tied to the projects. And so the interest expense, the interest deductibility would occur in those countries and it is really not connected to Canada. So that done really have any material impact on Barrick

Barry Cooper - CIBC World Markets

Okay. I guess I was led to believe that there would be an impact there. And just with respect to depreciation charges and originally you were talking about having higher depreciation charges originally you were talking about probably having higher depreciation charges specifically on the placer assets that didn't look like it kind of came through this quarter. Has all that been settled now?

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

Yeah the depreciation charges in fact there has been an increase in the depreciation for the placer assets as we have settled on the fair value of all the mines and through the purchase price allocation. But offsetting that really is a couple of things. The mix of where the production is, and also the increase in reserves at the end of the year has actually, as you depreciate on a units of production in terms of reserves, that has actually had a positive affect. So we have got a higher level of depreciation for placer but offset by other factors so pretty flat overall.

Barry Cooper - CIBC World Markets

But the general guidance I forget what is, $870 million for the company as whole still stands?

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

Yes it does.

Barry Cooper - CIBC World Markets

Okay. Thanks a lot.

Operator

(Operator Instructions)

Our next question comes from the line of Mark Smith from Dundee Securities. Please proceed with your question.

Mark Smith - Dundee Securities Corporation

Hi, guys. I've got a few questions. The first one just circles around the one-time item the gold sales this quarter. What 660 million or 560 million in cash you paid out for that. Just looking back at the tax impact from you paid $147 million in tax during the period for a pretty big affective tax number, how do you get the 63-cent back on that?

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

Mark, its Jamie. The reason why that tax number looks so strange, quite frankly, is the $575 million of I guess opportunity costs, the charge that we took in terms of the hedge position, that's primarily in our Barbados operation which is very minimal tax. So the rest of the operations are being taxed at a normal rate. And then the primary amount of that hedge loss is tax affected only at 1%. So when you combine the two it comes up with a very weird-looking tax rate, and hence even though the, before tax income is very small. When you look at where the jurisdictions are of the regular income and the hedge losses, it results in a very different tax rate. And that's the reason for that number.

Mark Smith - Dundee Securities Corporation

Okay. Alright. Fine. I kind of figured that that might be what it was. Just in terms of the maybe Alex could help me here or Peter. You guys give us a little bit of guidance for what Bald Mountain looked like in the coming quarters?

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

Maybe I can help you with that one, Mark. We did 33,000 ounces in Q-1. And we're going to see slightly better production in the coming quarters. And that's mainly driven by a slight increase in grade and a slight increase in tons in the middle of the year.

Mark Smith - Dundee Securities Corporation

Alrightful thanks a lot, guys.

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

Thanks Mark.

Operator

Our next question comes from the line of Mr John Bridges from J.P. Morgan. Please proceed with your question.

John Bridges - J.P. Morgan

Hi, Greg, everybody. Question for Pete. You mentioned a 9-cent power cost for Pascua-Lama. Does that mean you are still looking at alternative for power sources and how far along are you in that investigation?

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

That's right John, the 9 cents is really for some heavy fuel oil type combination. Obviously we are looking for a big base load provider which would obviously be lower than the 9 cents. We are also looking at wind power which would be higher capital but lower operating. So we've got a team of guys at the moment looking at various options. There is big money in that, John, to bring it down. I think the sensitivity is $125 million bucks over the life for the project is still (indiscernible) you know that’s always the big, big opportunity.

John Bridges - J.P. Morgan

Can you show your green to somebody if it's a wind mill?

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

As we look down the road though and think about climate change issues, having green power is something we are very focused on. It is going to become increasingly intense for all industries and we won't be exempt.

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

Just for instance John we actually do have a 2.1-megawatt windmill going in Veladero at the moment. We spend a whole year checking out sites and we found a site where the wind is steady and reliable and basically we are interested to see how much power we get out of this.

John Bridges - J.P. Morgan

Okay. I suppose in that part of the world you can do pump storage as well to smooth it out?

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

Yeah.

John Bridges - J.P. Morgan

Would this power for Pascua-Lama be stand alone or would this be joint venture with other players in the region?

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

It's early to say, John. But there is a lot of activity in Chile about power generation and projects and ideas and you know, we're not looking to get into the power business but we would be certainly willing to co-invest in some co-generation for power opportunities, you know, to drive those power costs down. Because it is a big power consumer and we are thinking down the road about potential synergies with Pascua and Zaldivar I think we mentioned a little bit of that investor day that again more power consumption. So you know, every time you think about something new that's going to drive quite a large power load obviously having a low cost power source is going to really enhance economics.

John Bridges – J.P. Morgan

Absolutely. Okay thanks a lot, guys.

Operator

Our next question comes from the line of Mr. Oscar Cabrera, from Goldman Sachs. Please proceed with your question.

Oscar Cabrera - Goldman Sachs

Good afternoon, everybody. Congratulations on the strong results. Just a couple of quick questions. Can you please give us an update on Gold Strike and how the push back is working out there? What kind of grades should we expect grades to increase a little bit toward the end of the year? And then secondly, apparently the state government in Las Vegas (ph) changing their mind with respect to mining activities. Wondering if you are continuing talks with them. And is there a chance that Barrick will get back in exploring the project that you have down there?

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

Well, let me take the first one, Oscar, which is Gold Strike. Actually the wide stripping is going well. In fact we just purchased a new very large 73 cubic yard shovel and things are going well there. But as we said, the grade, the grade in Q-1 was about just over 5 grams. And for the rest of the year is going to average roughly 4 grams per ton against the reserve grade of 4.8. That was the main reason as we highlighted in previous presentations is the cause for the drop of the production for Gold Strike. So the weigh stripping is going well but the amount of free ore being released is going to decrease. And the balance will come from stock piles.

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

Oscar, its Alexander takes that clear you about that question. As you probably know the situation in (indiscernible) is fluid to say the least. We've pulled our people out of the Veladero project, and I think we have a few people in our main office. And the dispute is largely an internal area political fight and right now we are not doing very much other than waiting for the situation to resolve itself, which we expect will happen some time, sometime later this year. So we're just waiting and seeing.

Oscar Cabrera - Goldman Sachs

Thanks very much.

Operator

Our next question comes from the line of Kerry Smith from Haywood Securities. Please proceed with your question.

Kerry Smith - Haywood Securities

Thanks, operator. Greg could you or pat just up date me in terms of where all the various court actions sit regarding Donlin?

Patrick J. Garver - Executive Vice President, General Counsel

Sure, Kerry, this is Patrick. There is really only one big court action involving Donlin. And that's the suit that was filed by Nova gold during the course of the tender offer. And their objective was to try and get some early determination as to whether Barrick was going to earn at 70% interest or not. Their efforts to convince the Court that that required some kind of immediate attention and that it was somehow appropriate to sort of rush the decision were quite unsuccessful. And we really the case really has not progressed to speak of at all. We filed a Motion to dismiss the case. They tried to have that heard in a hurry. The Court has taken its time, as it should, to consider the whatever. And I think the reality is that that case will get going only after November. Only after we've delivered the feasibility study and made whatever decisions we make with respect to the project. The other case, not a Donlin case, but a case that involves nova gold we probably should mention briefly is the case that was filed by pioneer, which is now a wholly-owned subsidiary of Barrick against nova gold, relating to the grades claims and the lower creek project in British Columbia. That is a case that's moving forward briskly. It's scheduled for trial in September. And we expect that that trial date will stick, and that pioneer will have its day in court with respect to its claims relative to those claims. Is that responsive, Kerry?

Kerry Smith - Haywood Securities

Yeah, it is. And on this, the nova gold suit as to it relates to Donlin and whether you could actually earn in your 70% there is no scheduled court date today then for that the only scheduled court day would be for the grades claims then?

Patrick J. Garver - Executive Vice President, General Counsel

That's right. The only thing happening on the Donlin Creek case that I'm aware of is we have a pending Motion to Dismiss and we're just waiting for the Court's decision. If the Court doesn't just dismiss their case entirely, then the case would start up in the normal course. But I wouldn't expect much to happen very quickly.

Kerry Smith - Haywood Securities

Okay. So you are not expecting the courts to rule on your pending motion before the fall then I guess is what you're suggest?

Patrick J. Garver - Executive Vice President, General Counsel

Well I would be very surprised if the Court ruled before the fall. I mean, realistically, all the facts that are relevant to the case come together if at all in November.

Kerry Smith - Haywood Securities

Right.

Patrick J. Garver - Executive Vice President, General Counsel

The Court doing anything before then is just, you know, wildly speculative stuff. So you won't see any movement, I don't think, until well into the fall.

Kerry Smith - Haywood Securities

Okay. Thanks, Pat.

Patrick J. Garver - Executive Vice President, General Counsel

Thanks Kerry.

Operator

Mr. Mavor there are no further questions at this time. I would now like to turn the call back to you. Please continue with your presentation or closing remarks.

James Mavor - Vice President of Investor Relations

Thank you, operator. Just thank everybody. Thank you all for joining us this afternoon on the call. And we look forward to catching up with you in the weeks and months ahead and certainly at the end of the second quarter. So I bid you farewell.

Operator

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

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Source: Barrick Gold Q1 2007 Earnings Call Transcript
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