Barrick Gold Q3 2007 Earnings Call Transcript

Barrick Gold Corp. (ABX)

Q3 2007 Earnings Call

November 1, 2007 9:30 am ET

Executives

Deni Nicoski - Vice President of Investor Relation

Greg Wilkins - President and Chief Executive Officer

Peter Kinver - Executive Vice President and Chief Operating Officer

Jamie Sokalsky - Executive Vice President and Chief Financial Officer

Alex Davidson - Executive Vice President of Exploration and Corporate Development

Patrick Garver - General Counsel

Analysts

Chantal Gosselin - Genuity Capital

Victor Flores - HSBC

Oscar Cabrera - Goldman Sachs

John Hill - Citigroup

Kerry Smith - Haywood Securities

John Bridges - JPMorgan

Barry Cooper - CIBC World Markets

Steve Butler - Canaccord Adams

David Hawkins - BMO Capital Market

Steven Kenzie - CIBC Capital

Presentation

Operator

Ladies and Gentlemen, thank you for standing by. Welcome to the Barrick Gold Third Quarter 2007 Result Conference Call. During the presentation all participants will be in the listen only mode. Afterwards we will come back for question and answer session (Operator Instructions).

As a reminder, this conference is being recorded Thursday, November 1st, 2007. I would now like to turn the conference over to Deni Nicoski, Vice President Investor Relations. Please go ahead sir.

Deni Nicoski

Thank you operator. Good morning and thanks for joining us today. I'm joined here by Greg Wilkins, Peter Kinver, Jamie Sokalsky, Alex Davidson and Patrick Garver. Greg and Jamie will review the third quarter highlights and results and Peter will provide an update on operations. Alex Davidson will give you an update on exploration activities for the quarter, and then we'll open it up for questions.

Before we begin, I will 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, factors which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statements, please refer to our year-end report or our most recent AFI filing. With that I’ll hand it over to Greg Wilkins, President and CEO of Barrick.

Greg Wilkins

Thanks Deni. Good morning everyone and thank you for joining us this morning. Well, I must say it's an interesting time to be in gold business as we see gold breaking 28-year highs and has actually breached that $800 mark. So they've made an honest man out of me.

It is, thankfully, an interesting time in the business. We are delighted that we are seeing such robust performance in the gold side, and I think the model for continued strong performance of gold continues to exist. As we talked about in many circumstances, the supply side is constrained, and challenged. The central banks didn't sell their quotas, and so aren't adding as much to the market.

Energy and food are continuing to provide inflationary impacts. The fed is actually reducing rates in front of an inflationary environment, and we can see continued weakness of the U.S. dollar. And all of that continues to bode well for gold, and so we continue to look forward to strong commodity environment for us.

We also see strong copper prices. They have been very resilient in the mid-$3 range, and that continues to support our financial results. That said, you know, it's a challenging environment. We're very pleased that our quarter came in pretty much on expectations.

Obviously pluses and minuses, but it's the benefit of having a portfolio, a diversified portfolio where some operations performed better than others, and we continue to be able to make our guidance numbers overall.

We've actually done Dwight a bit of work in the quarter in terms of positioning our portfolio for the future. You've seen our announcements this week. We completed actually the purchase of the 20% interest in Porgera, which was previously announced, but we announced the high land pacific transaction and the acquisition of Arizona star, or the bid for Arizona star, which positions us, again, well for the future.

We're also very pleased to be able to have delivered our gold from our operating mines into the spot market, and so we saw major expansion in our margins. We achieved $311 an ounce, and, costs were the same and we were in the current gold market that would actually be $400 an ounce, so we'll continue to see, I think, good numbers and good mar against going into the fourth quarter and into next year.

Costs came in pretty much as we anticipated, as we communicated earlier. We were new; we were going into a high stripping phase, waist-stripping phase at Veladero and gold strike in particular. And we are now coming back and accessing some of the higher-grade ores at Veladero, and Peter will talk more about that.

We now expect production to be 8.1 million ounces at $350 an ounce. That's in line with our original guidance, so we've been on track. Obviously, there's lots of risks associated with typical mining risks, and in the fourth quarter coming up there's a couple additional issues which may or may not affect our ability to achieve guidance, and notably, the labor disruption we're experiencing, and Veladero and certain cost pressures associated with the higher energy prices, something when we put estimate together.

We were banking on $8 gold and we were banking $93 oil. So, some of cost do have impacts on our overall cost per ounce.

We continue to make good progress on our pipeline. Of course, Buzwagi we announced we've made the construction decision and earthworks of commence, detailed engineering, a significantly events then in fact we are little bit ahead of schedule and on budget.

And after a couple years we'll producing more then 250,000 ounces at cost it at about $270 to $280 an ounce. And when we look out into the future and we look at costs and the cost prices, it's really the ability to bring these new mines on stream that will have the most significant impact in terms of our cost structure profile.

And so, virtually all of the costs projects we have in our pipeline are lower costs than the current level of costs, so that's a fundamentally, fundamentally the way that we'll manage the costs down. At Cortez, again, good progress about 90% of the engineering work is complete, and we're targeting the completion and hopefully the receipt of the recorded decision in the second half 2008.

And production will follow relatively, quickly thereafter. It will take about 15 months because as you know that's really, the development of the mining operation since all of the processing and other facilities are pretty much in place.

At Pascua-Lama, we continue to work on achieving our sectoral permits. We have increasing activity from the province in San Juan, but there continue to be cross-border approvals that are required. And as we've said consistently and throughout that we're not prepared to make a positive construction decision until we have all of the permits in hand.

Excellent progress again on Pueblo Viejo, we are engaged in active dialogue with the government on a number fronts and really power and water treatment, a number of the government's contributions to the remediation of the environmental side out there, sort of the topics of conversation, but excellent cooperation, and we look forward to achieving a positive decision on that so we can get going on construction relatively soon.

At Donlin Creek, we are on schedule to deliver the feasibility study as we've previously discussed. And we're actually talking to the NovaGold folks about the appropriate course of action to ensure that we can make sure that this asset has the best opportunity to go forward.

And a little bit of icing on the cake, we were very pleased that we were recently included in the Dow Jones Sustainability Index. I think this is a very strong recognition from third parties of our strong commitment and success in sustainable development.

So, with those preliminary remarks, let me turn it over to Jamie to comment on the financials.

Jamie Sokalsky

Thanks, Greg. The production and the cash costs for the quarter were in line with our expectations. Production for the quarter was just over $1.9 million ounces at cash costs of $370 per ounce, while our corporate production came in at €99 million at €0.91 per pound.

As Greg mentioned the higher costs in the third quarter were due large toll mine sequencing and stripping activities at a number of our operations, including Veladero.

Earnings were $340 million, or $0.40 a share. Operating cash flow, $557 million, $0.64 a share. Our EBITDA was $710 million or $0.82 a share, compared to $703 million or $0.81 a share in the prior year.

Our year to date adjusted EBITDA is some $2.3 billion. The EBITDA numbers for the quarter and for the year to date for that matter, I think, really highlights the strength of our underlying earnings and cash generation potential on a go forward basis.

Particularly as the gold price has risen to these 28-year highs near $800 subsequent to the quarter end. This cash flow generation really has enabled us to do the acquisitions that Greg mentioned using internal cash resources.

Even when you combine the acquisitions of Porgera, Highlands Pacific and Arizona Star on a pro forma basis totaling about $1.2 billion, if you subtract the most recent two from our quarter end cash of $2.7 billion, we're still left with a cash balance of just under $2 billion.

We also have an undrawn $1.5 billion line of credit, and great access to debt capital markets with the industry's only A credit rating. This puts us in an excellent position to reinvest in the business and take advantage of any further attractive opportunities to increase our exposure to gold on a per share basis, while also leaving sufficient liquidity to build out our project pipeline.

This next chart illustrates our cash costs and margins since 2002. It really shows the pattern of margin expansion that was only briefly interrupted in the first half of 2007 when we eliminated fully our corporate gold sales contracts.

This trended up sharply again in the third quarter of 2007 as we realized an average of $681 an ounce in line with this spot price. As you can see, our third quarter margin was $311 per ounce, and at current gold prices, we would be realizing a further $100 an ounce or a margin of over $400 an ounce.

That cash margin is the highest in the company's history. Compared to 2005, this implies a twofold margin expansion. This current higher gold price will drive further margin expansion as we head into the fourth quarter.

In light of the strong Australian dollar, I would just like to note that the company is fully hedged on its Australian dollar operating expenditures not only for the balance of 2007 at a rate of $0.75, but also for 2008 at $0.77 and for 2009 at about $0.78, fully hedged in the next two years. And those rates are about 15% lower than the current spot price. And this is just one example of how we look at an integrated program to manage and control our costs.

With that I will turn it over to Peter to discuss our operating performance.

Peter Kinver

Thanks, Jamie. Our overall third quarter came in most as expected. However, we did signal to the market that the quarter was going to be characterized by higher cost mainly due to sequencing and waste stripping. Two regions North and South America continued to perform well. However, Africa and Australia had more challenging year.

Africa manages to weather and productivity related issues and Australia continues to be impact by labor cost pressures, which are affecting the whole industry in Australia. One of Barrick's great strengths servers the flexibility and Brazilians supported by portfolio mines, absorbed mines specific disruptions or anticipated curve balls.

Despite the challenges we have faced, we’ve been face for this year, we still can expect to end the year at 8.1 million ounces and about $350 per ounce, which is in line with original guidance which is quite pleasing under circumstances.

It's worth remembering that when we started the year, gold was in the low 600s and oil at $60 a barrel. Where as current levels is nearly $800 an ounce and $90 barrel oil. This escalation in prices thus had a significant impact on cash costs despite of fuel hedges in place.

In our Australia-Pacific region some of challenges that company has been dealing with, proved the slower ramp up of the Granny Smith mine underground and some nagging power restrictions of the Porgera mine. The Africa region continues to be affected by the changes to mine plans that were required by and the typical failures caused by high rainfall at end of 2006 the beginning of 2007.

But, the situation of North Mara in particular should improve as recently commissioned machinery allows to higher-grade ore access to higher-grade ore in the final quarter. Subsequent to quarter end we also had labor disruption at Bulyanhulu mine, but we all managing the situation participated should be back to normal, hope to end in near term.

The North American region, had a solid production result of 787,000 ounces, hope is the higher cost particularly some of the smaller mines. South America Lagunas, continue to have a great quarter delivering 230,000 ounces at $123 an ounce, another strong result from the mine.

Finally, we expect to see higher productions in South America notably at the Veladero mine where we have gone through a lot of waste but will be access high-grade ore. At Veladero, you look at the Ferd (ph) you upload, some significant see that, we have managed to go through a large waste phase. We are now moving into the release of some higher-grade ore which will help the production in the fourth quarter.

In fact, it's very pleasing to see that some of the early signs, positive grade reconciliation are coming from the ore that we actually did mine in October.

I will now turn it over to Alex, to talk about expiration and the assets that we intend to add to the pipeline in connection with the two transactions that we announced till last week.

Alex Davidson

Thank, Peter. Good morning everyone. Before, I take you through the highlights of our current exploration programs I just like to talk a little bit about what we fully expect with the latest addition to our on arrival pipeline of development project.

As you this week we announced a friendly all cash deal to acquire Arizona star, whose key asset is of course 51% of the Cerro Casale project in Chile. One of the world’s largest undeveloped gold and copper deposits, containing more than 21 million ounces of gold and about 6 billion pounds of copper.

We are, of course familiar with this asset and we're familiar with the area it's in and it's good to be back there. Cerro Casale has the potential to be a large, long-life, low-cost asset in a country with a strong mining heritage in which we already operate. Cerro Casale will play an important role in our Chile strategy, which is to maximize our exposure to gold in Chile.

When this purchase is concluded the project will have two strong partners with a much greater combined ability to move it forward at a time of strong gold and copper prices. The location of Cerro Casale is shown on the map you're seeing now.

And it should give you an idea of the potential for future synergies, power and infrastructure and end processing with our existing operating mines at Zaldivar, at Veladero and Pascua-Lama gold-silver project.

These are forward to enhancing our project pipeline with its world-class asset. Certainly fits in well with our strategy of increasing exposure to gold on a per share basis and of creating a company with long-term sustainable reserves resources, production, and growth.

Back in North America, we currently have 28 rigs in operation in Nevada. Now, I'd like to start with Goldstrike and Turquoise Ridge. At Goldstrike seven core holes have been finished from an underground drift from nickel into Banshee deposit.

And four other holes are in progress. Results from West Banshee continue to be positive and indicate increased resource potential when both concentrate. With one core (ph) whole and the second 0.58 ounces per ton over 120 feet.

Additional drilling will take place next quarter. And the Banshee resource will be evaluate with programs underway at North Post and at Deep North Post still lots of underground opportunities at gold strike.

At Turquoise Ridge well four core holes have been completed from a new 1400-foot drift, which goes into the North High-Grade Bullion Zone. And results indicate the potential for a new high-grade resource there.

A recent hole returned 17 feet being 3.3 ounces per ton within a longer intercept of a 113 feet at 0.75 ounces per ton. That's from an area that's close to existing infrastructure, but is well outside any existing drilling. It's completely open and at these sorts of grades the ounces can add up very quickly.

The 45 Cortez hill or 45,000 meter program of infill and extension drilling continues to confirm the potential of the Lower Zone. Programs almost complete for this year, geological modeling is underway and we're targeting an inferred resource at year-end.

The Lower Zone is currently defined over a more than 3,000-foot strike length and now remains open to the south across the Silver Fault, which you can see on the slide. And a number of holes have now intersected mineralization and results are pending.

Our 14,500-foot close space underground drill program will begin in early 2008 from Assay decline, which come in from the north on the slide. These holes will infill the northern part of the lower zone. Nine drills at Cortez are also testing other target and assay to date have intersected numerous (inaudible).

Turning to the Dominican Republic now, you are seeing a plan view of Pueblo Viejo, showing the Monte Negro and Moore pits and the Monte Oculto, the discovery zone between them. The Monty Oculto program is 95% complete with over 9,000 meters drilled to date.

And overall the results in the Phase II program confirm the continuity of the mineralization to the north and south and are extending potential to the east. In the red dotted circle that shows Monty Oculto, the yellow holes are current infill drilling following up from Phase I.

And we’re still waiting for results on the blue holes. As you can see on this section 6,000 north, the infill drilling has confirmed the continuity mineralization and some of the intervals are higher grade than the current research.

In fact, a recent hole just south of this section returned two significant intercepts of 33 meters grading eight and a half grams and 94 meters grading three grams gold. If you step back for a second and look at this next slide, you can see the Moore and Monty pits and the outline of Moore and (inaudible) and Monty Oculto for world line.

And you'll remember that it was Barrick's exploration new structural model and improve geological understanding of Pueblo Viejo that was the key to the discovery of Monty Oculto, which was announced last quarter.

This new model in conjunction now with review of regional data has identified three new excellent targets in the near mine area, which you can see in the highlighted boxes. In each of these target areas, we've already had either mineralized trenches or new drill intersections.

And these areas will be fully tested in 2008. At Reko Diq in Pakistan, we have completed over 68,000 meters of drilling on the H-15 and 14 deposits known as the western porphyries. Results continue to be positive and confirm the expected grade and continuity of this gold-corp mineralization.

Geological modeling has been completed on the H-15, which holds deposit of the overall resource. And resource modeling is in progress right now on H-14, where drilling has shown higher than average grades with peak values of greater than a gram gold and 1% copper.

We're now drilling at H-13, which sits south of H-14. And you will also help the number of portraits highlight in yellow on the map, which indicates this is the scale of the distinct potential. An updated resource will be available on the western porphyries at year-end.

And we expect to be able to significantly increase the existing resource. A scoping study has also been completed for the western porphyries and the board has approved for seeking with a feasibility study to evaluate initial 72,000 ton per day operation.

In parallel, we're also proceeding with a pre-feasibility study to evaluate expansion options to significantly greater throughputs. Ongoing metallurgical test work continues to indicate promising recoveries and we've just completed the airstrip on the property. So this one is moving ahead really nicely.

And finally, let's turn to Papua New Guinea and the Kainantu property that we acquired from Highlands pacific. Kainantu is located 180 kilometers from lye, TNG’s deepwater port, and is on the main road from Porgera. Access is by paved highway. The mine is certainly struggled to date but recent management changes have improved performance over the last couple months.

And with additional development and an appropriate mine plan Kainantu could actually achieve it’s full potential and contribute additional production for barrack. However we bought this property for the quality exploration targets and the multi-million ounce district potential.

It represents a highly prospective and under explored district play in one of the world's most highly endowed gold and copper regions. We plan to spend $8 million on exploration on property next year on more advanced exploration targets in the main line area as well as drill testing and other prospective target.

Also, historical exploration programs have identified a number of potential prospects for large giant gold rich copper porphyry deposits in similar settings to giant systems elsewhere. They will be carried out to identify other targets for drill testing next year and some of the target are represented on that map by the orange and yellow dots.

And I think you'll be hearing much more about this property on future calls. So now I will turn it back to Greg to wrap up.

Greg Wilkins

Thanks, Alex. Basically, we have been working for the last number of years to position the company to be able to prosper in the strong gold price environment, and we're really poised for further margin expansion and profitability in Q4 and then to Q8. But also, and I think perhaps more importantly, to be able to sustain production growth and reserve are placed well into the future.

Our strategy is really to increase production and reserves on a per share basis and it's very important last couple transactions we've done, we've been able to take the strong cash flow generation and use that cash flow to increase our opportunity for additional gold and to some extent copper through new developments going forward.

The recent transactions, have really supported that pipeline and I think have continued to keep it ahead of the industry and we continued to have problems seeing exploration results as Alex has just described, and we continued to have a strong outlook for the gold price.

We think that the fundamentals are in place for sustained rally as opposed to a short-term rally. So a lot of the activities have really come together to really benefit from this strong gold price environment, and so we continue to move the company forward to take continuing advantage of that. So with that summary, just like to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question coming from the line of Chantal Gosselin from Genuity Capital. Please proceed with your question.

Chantal Gosselin - Genuity Capital

Good morning. My question relates to the financials. What significantly changed in the tax regime from Q2 to Q3? If I look at that time Q2 before the currency translation seems that your tax rate was about 30% and you look at Q3, was only 20%. And what should we use going forward?

Jamie Sokalsky

Chantal, it's Jamie. There are a number of items that are really benefiting the tax rate. We're getting continued synergies from the Placer Dome acquisition in a number of areas. And those synergies are helping to reduce the rate.

There are a number of other items that you will see outlined in the notes to the financials that represented some benefits with regards to the Canadian dollar movement on some deferred tax assets, and that also helped to lower the tax rate going forward, tax rate in the quarter.

So as a result of it, I think what we're seeing is in terms of synergies and some good tax planning, the tax rate going forward should be fairly consistent with what we're projecting for the year in total around that 27% level.

Chantal Gosselin - Genuity Capital

So that should be about what we use in Q4 and going forward?

Jamie Sokalsky

Yes.

Chantal Gosselin - Genuity Capital

Okay. My other question relates to exploration. At Cortez, was given in the quarter that you have identified some new target, and that you already have some mineralized intercepts. Could you give us some color or little bit more color on that and what kind of intercepts you have been achieving so far?

Jamie Sokalsky

At Cortez we have been drilling at what we call Redhill deeps, and Horse Canyon, and so we're getting intercepts in the range of, let say at Horse Canyon was 120 feet at point three and 60 feet at point 48.

These are just beginning holes. In fact there was hole one in '07 and we're still waiting for results and of course we don’t know angle of the continuity these intercepts. So, but there's encouraging intercepts.

Chantal Gosselin - Genuity Capital

And how far is that from the mine? It's a satellite deposit or?

Jamie Sokalsky

It's probably three or four kilometers from Cortez pits.

Chantal Gosselin - Genuity Capital

And can you give us some idea how you found those new satellite deposits?

Jamie Sokalsky

Yeah. It's a combination of geology and drilling.

Chantal Gosselin - Genuity Capital

Are they outcropping or?

Jamie Sokalsky

No, no, these are deeper ones, Chantal.

Chantal Gosselin - Genuity Capital

Okay. Thank you. That's it.

Operator

Thank you. Our next question coming from the line of Victor Flores from HSBC. Please proceed with your question.

Victor Flores - HSBC

Yeah. Thanks. Good morning. I have three hopefully brief questions. The first goes to costs. I guess as companies start to assess the environment they're starting to signal the cost pressures continue to be a feature in the industry and you've indicated higher cost for next year.

Would you give us a sense of how much of that some of the industry specific things that we all know about and how much of it is specific to Barrick?

Jamie Sokalsky

Victor, you're referring to next year's cost?

Victor Flores - HSBC

Yes.

Greg Wilkins

We've had two big pushes this year look at next year's plan. One is obviously the grade. So a lot of effort as being made next year to not have grade reduction. That's the one key metric. And we have also focused very strongly on trying to mitigate this impact of inflation.

We're certainly not immune from those industry effects, but we've been working very hard this year trying to mitigate some of those effects as they flow through to the bottom line?

Jamie Sokalsky

Victor, maybe I can add some, it it's Jamie let me comments, too. We're experiencing the same industry weighed cost pressures in terms of labor with the gold price up our gold related costs royalties are impacting costs.

Obviously, the fuel price being quit a bit higher our currency hedges, while we're hedged, are slightly higher next year as well, but I think those are going to protect us certainly more than other companies that have significant currency exposure.

So, there's a good portion of those costs are really industry wide costs across the board, and some of that we're able to manage and control, but others we can't.

Victor Flores - HSBC

Great. Thank you. So the second question goes to Cerro Casale. I'm sure you've read the feasibility that was published earlier this year in much more detail than I have. And I was just wondering what do you think of that particular document?

What do you like about it? What do you perhaps not like as much and how much more work needs to be done on this asset before you ear ready to say, okay, this is where it fits into our longer term planning?

Greg Wilkins

And Victor, it's Greg. Let me just deal with that quickly. We're quite familiar with the study and it was done a little while ago, so, we anticipate that there's going to be, somewhat higher capital costs and operating costs and it will take sometime and I can't tell you exactly, what the time frame is at this stage, to actually kind of redo the estimate, and we would obviously want to sit down with, Kin Ross, our partner and do a joint update on that project.

We are excited about it in the sense that we think that longer term it's an excellent large copper gold project and it's in Chile, which we like and there's plenty of opportunity for synergies with some of the other things we have going in Chile.

Victor Flores - HSBC

Hey, great. Thank you. And then just one quick final question. Relating to another document, which was the Franco-Nevada prospect us and the royalties they have on gold strike? Do you have a pre-emptive right on those royalties?

Greg Wilkins

We do not have a pre-emptive right on the royalties, no.

Victor Flores - HSBC

Great. Thank you so much.

Greg Wilkins

You're welcome.

Operator

Thank you. Our next question coming from the line of Oscar Cabrera from Goldman Sachs. Please proceed with your question.

Oscar Cabrera - Goldman Sachs

Good morning, everybody. Just following up on the previous question, with regards to Cerro Casale, would you be able to put the project into perspective with respect to the project pipeline? Or simple things like Cortez Hills, Pascua-Lama and Pueblo Viejo appeared to be in those things that will start around 2010, 2011.

Is there a chance that Cerro Casale can fit into that project pipeline at the same time or is it too early to tell? And I'll follow-up with another one if I can, please.

Greg Wilkins

Yes, this is Greg. It is too early to tell. The project had been permitted in Chile a number of years ago. It's our anticipation that while we know that the standards for permitting in Chile have changed since then, so we need to go back and really review the permitting time line and figure out what the best approach should be and once we have the best approach in mind, then We'll have a better sense for what the timetable would be.

Equally, we have to update the capital costs and operating cost estimates and consider how the synergies for pascua and Zaldivar can be factored into that so a lot of work to be done. And I think a lot of opportunity to be achieved.

Oscar Cabrera - Goldman Sachs

Great. Excuse me. I guess the follow-up to that is, you're going to have an increased copper production within your assets. Is there a point where you think of that mix and don't want to bring any more copper into the mix or is it just a matter of these are attractive projects, they contain gold and just go ahead with it?

Patrick Garver

I would think it's really the latter, Oscar. I mean, Big long life low-cost operations that are primarily gold are what are very appealing to us. At Cerro Casale the copper enhances the overall value and gives us the opportunity to get that gold out of the ground on an economic basis.

So, you know, we're on the mission to continue to expand our gold portfolio, and if there's copper and other metals that come with that, that's perfectly fine with us.

Oscar Cabrera - Goldman Sachs

Okay. Thanks, Rick.

Operator

Thank you. Our next question coming from the line of John Hill from Citigroup. Please proceed with your question.

John Hill - Citigroup

Thank you, and good morning. Congratulations on the result, and also for being included in the Dow Jones sustainability index. That's an impressive accomplishment.

I was wondering if we could just ask a question about capital allocation. I guess the benefit of the strong margins, looks like more of that to come, but probably what remains before it, a raft of different projects and commodities, some very valuable minority interest such as Cortez, big hedge book liability, and last but not least shareholders, so at least four main buckets for that. And we just wondering how shareholders should think about allocation of capital in that context?

Greg Wilkins

John, I think, the first those are the four buckets that we look at. The first and foremost is really ability to build out our pipeline without equity dilution. The second thing I would say would be to look for accretive transactions, you know, that we can finance largely with cash.

The cash that we're generating here, so that we can increase our reserves per share and increase our production per share ultimately, and thirdly, we will look at, you know, really distributions back to our shareholders in the form of increased dividends or, you know, in some circumstances, share buybacks as you know we're one of the few companies in the gold space to have actually bought back shares.

And fourth, and I wouldn't actually include it so much in the capital allocation question, we are looking to manage our way through the project hedge book and, conceptually we still value the benefit of using the corporate or project hedge contracts to support project financing.

And, we are looking for ways to augment the price that's in the book, because it's really that price, I think, which is the principal issue. And there is opportunities to allocate capital for potentially to improve that price we would certainly consider it, but that would be the fourth one -- the fourth item on the list.

John Hill - Citigroup

Great perspective. Great perspective. If we could just switch over to Pascua-lama, for moment the language in the press release a bit different than the last few go-rounds.

Obviously, a very important project for what it is for the commodity exposure for its internal relationship to that hedge book should we just interpret as frustration with the slow pace and complexity of the process, or is there something new we should be to cushion on here?

Greg Wilkins

No, it's the pace for the permitting process, and dealing with the cross-border issues we're continuing to make progress. I was in Argentina, just a couple weeks ago and met with the governor and the governor has put a full-court press on getting the sectoral permits out.

One of the challenges within Argentina is that it’s a relatively new environment for mining. And so while, we're successful in getting Veladero up and running in San Juan province, the complexity of Pascua is putting a burden on the regulators.

The regulators are very cautious about the amount of work that goes into achieving those central permits. So we're honestly being held to a higher standard than we've ever seen before anywhere else in the world in terms of comprehensive and detailed engineering to support the central permits.

And I think, that's caution on the side of the regulators and perhaps, the newness with respect to going through some of the issues that this project represents. So no we actually haven’t got, it's not an issue of do they want it. They absolutely do in fact, the governor is pressing for us to make that construction decision.

And we just keep reminding him that we need to have all of the things in place before we can make that decision. So, I continue to be optimistic, but it's difficult to read the time line.

John Hill - Citigroup

Understood. Thanks.

Operator

Thank you. Our next question coming from the line of Kerry Smith, from Haywood Securities. Please proceed with your questions.

Kerry Smith - Haywood Securities

Thanks operator. Greg or Peter. Can you give me a big better handle on the timing of the feasibility studies for Pueblo viejo? I know that you have make yet delivery I think its February of next year, If you could just tell me when you think you might have that document finalized.

Peter Kinver

From a technical perspective, we know we're pretty much there. We're really into, making talking to the government about some modifications to the SLA. We already have a number of sort of power sources and power potential to generate power there, but some options are more expensive than other options.

It's not a question of can we, it's a question of what's the best alternative, and we're making very good progress on that. So, you're right, it is February of next year and undoubtedly to get, I's dotted and T's crossed with respect to the SLA probably take pretty much into that time frame.

But once we get to that point and we bring work with our gold core partners there to come to a decision, then we'll be able to make construction decision fairly promptly.

Kerry Smith - Haywood Securities

Okay. And you're still thinking around three years to build that project once you make the decision? Is that still the rough timetable?

Greg Wilkins

Yeah, rough timetable for that. I mean there's a couple of longer lead time items, like the autoclaves to get the construction going but from a mining perspective obviously, there's a lot of pre-stripping already done was an existing demand.

We'll be getting on to some of the remedial work on the environment quite quickly. So there is a lot of activity, but it’s going to be that longer lead-time, and we're looking for ways to potentially bring production forward in a state scuba we can't count any of that work at this point.

Kerry Smith - Haywood Securities

Okay. And just if I could ask another question on Casale, how long do you think it would it take to actually build out that project from the time you actually made the construction decision? Just a rough number.

Peter Kinver

It's the same order of magnitude as the other major projects. The projects are actually quite similar in many respects and so it's the same kind of equipment that’s necessary, the same similar kinds of processing facilities.

The lead times in the industry defining time lines, and we haven't got into the detail at this stage to really update the assessment for how long it will actually take but I mean, it's going to be in the same order of magnitude as the other major projects that we have to build.

Kerry Smith - Haywood Securities

So three years sort of plus, minus would be a reasonable.

Peter Kinver

Yeah.

Kerry Smith - Haywood Securities

And Greg, you talked about having some discussions with Nova gold. That you release to government Creek agreement can you elaborate a bit on what the context of those discussions were?

Greg Wilkins

I think that both ourselves and the Nova guys recognize that Donlon creek is a complex, large capital project in Alaska where the permitting environment is always subject to challenges, and if we want to make the most out of Donlon creek.

Then we're not going to do that if we continue to sit in a litigious relationship. So, we're really just having discussions with them to figure out what the best path forward is?

Kerry Smith - Haywood Securities

Okay, and just one last question if I can quickly. For Casale if you’ve make complete feasibility or update and make a construction decision or develop all the decision, what sort of metal prices might you consider using as it relates to that decision?

Peter Kinver

Again, Mark, it's early. We still have the Arizona bid to complete, and, we need to sit down with Kinross and understand what their perspective is and I think that we'll be looking at, coming to sort of a mutual agreement on all of the assumptions with respect to the project which will include our metal price assumptions, but it's just too early to say right now.

Kerry Smith - Haywood Securities

Okay. Thanks very much.

Operator

Thank you. Our next question coming from the line of John Bridges from JP Morgan. Please proceed with your question.

John Bridges - JPMorgan

Hi, Greg, everybody. Another question on Cerro Casale. Corporate-wise, I got the impression that the stake was more the operating one and the Arizona one was more an investment one. How do you anticipate the relationship going forward?

Greg Wilkins

Well, again, listen, we're delighted that Kinross is the partner on the project John. As we've look at the underlying documentation here with the respect to the governance arrange, Government arrangements, frankly, they need to be fully flushed out and defined better.

So, at the moment, it's not as well defined as you might expect, because I think of the nature of the partners historically, and I don't think people had been really planning on how they were going to build it. They were positioning themselves, really, I think for a take-out. I don't think there's any magic about that.

So, there's some work to do to sit down with Kinross, and work through know the management issues and work through the structure of the shareholder agreements, and obviously, we know Tey well, and I think Tey and ourselves have an aligned interest in terms of developing the project and frankly, look forward to working with him going

John Bridges - JPMorgan

Have you had any discussions at all so far?

Greg Wilkins

Just a very preliminary discussion with Tey to let him know that we had come to this friendly agreement and we've agreed to sit down as soon as the dust settles and talk about how to move the project forward, because to be honest and if we step back from Barrick's perspective.

We really enjoyed our relationship with Chile and we've had good success in Chile and we want to further that investment opportunity in Chile or the Cerro Casale project fits very nicely within our portfolio there, and we just need to figure out how does to bring Kinross into that relationship and see how they can also benefit from it.

But, we've obviously, spoken to the government and this had encouraging and supportive commentary from the government about this transaction, and about our Pascua-Lama initiatives. So we feel like this is going to be a very important big piece and long-term piece of Barrick's business.

John Bridges - JPMorgan

Great. Could you flush out a little bit the synergies? We've heard about water and Powell before.

Greg Wilkins

Can we save that juicy bit for another call, John? Because again, we've identified sort of conceptually where we see plenty of opportunities, but, we want to do a little bit more analysis and sort of get a bit smarter about it before we want to kind of share some of the more detailed thinking.

John Bridges - JPMorgan

Okay. Finally, you said on a previous call you go to hold of a database and you're looking at gold supply globally coming down 10 % to 15% over the next few years. Have you done any sort of work on that?

Jamie Sokalsky

Yes, we've continued to update that the Jamie, perhaps you want to share the current thinking, sir.

Greg Wilkins

Sure. John, we continue to refine it talk always going to be a work in progress with respect to new projects that are coming on, and as we get more information about the industry, but nothing is change our view that gold production is like toll decline to decline the going forward.

But it's going to be something that we're going to spend a lot of time on understanding, and we'll continue to update our views.

John Bridges - JPMorgan

Okay, thanks a lot. Good luck.

Greg Wilkins

Thank you.

Operator

Thank you. Our next question coming from the line of Barry Cooper from CIBC World Markets. Please proceed with your question.

Barry Cooper - CIBC World Markets

Yes, good day, everyone. Just wondering, on what the your statements and how do you say that the mining that's and taking place this year is about 10% below the reserve grade, and I guess one interpretation would be that, okay, well, it's going to move up, therefore, closer to the reserve grade.

But I'm wondering just how much of that under-grading, if you want to call it that, is taking place because reserves were done at, say, $500 gold, and your mining obviously, with the context of a $650 to $700 gold price this year, such that you would be taking stuff that would be below your cut-off that was used for the reserve grades.

Greg Wilkins

Yeah, Barry, I mean, as we kind of look at from the big picture perspective, there is we've said, we've been saying, actually, there's going to be a convergence, because as we do the reserves this year we'll be at $5.75.

so let me obviously, mine to more current gold prices, but even the reserve calculations will be, some lowering of the cut-off grade by virtue of the higher metal price, probably not that significant actually.

I mean, they average the grade is only about, I think reserve grade, Peter, correct me if I'm wrong, is about 1.8 grams or 2 grams. So, you can only go down so far before you ear just mining straight dirt and that’s not very profitable.

So, there will be some lowering of the grade but within the portfolio and as we look over next couple years the grade will start to go back up because of these anomalous situations at Veladero and at gold strike.

I think, in the latter part of the second half of ‘08, for example, we start to see the pit generating some higher-grade material at gold strike, and we'll go through that phase. So there is some variability, as you know, through the mine plan, and because we have spent all the mining costs now regardless of whether it's waste or ore, we do have some variability with respect to the cost structure.

Barry Cooper - CIBC World Markets

Right, okay. Then I was wondering if you could maybe shed some light on how deep your concern is with respect to proposed changes to royalty structures in the United States, vis-à-vis changes to the 1872 mining law, because after you fair bit of ground that's probably or a fair bit of your operations aren't on patented lands.

Patrick Garver

Sure, maybe I can answer that. This is Patrick. In the United States, like in all the countries in which we do business, we monitor continuously any potential changes to the law. We're familiar with the fact that a house bill has been reported out of committee in the states and I think is going to be the subject of a vote later today.

A bill introduced by congressman Rahall. The way the bill is structured it would have royalty that applies to new mines, then it would have a lower royalty that applies to existing mines. The royalty only applies, though, to mines that are located on public land.

For us, gold strike, for example, essentially all the production is from private land and the mines that really would be affected by this bill, if the bill became law, are Cortez and then a little bit at bald mountain, a little bit at turquoise ridge, and even smaller percentage at round mountain. This bill is really the first step the passage in the house. It will get sent over to the Senate.

I wouldn't expect any kind of action this year. And really its prospects next year during election year are very uncertain. So it's a little hard to say at this point in time that there is going to be new legislation. There's been a bill like this in every Congress for the last 15 years, and as you know, none of them have ultimately succeeded. So we're keeping an eye on it, but we, at this point in time, are not all that anxious.

Barry Cooper - CIBC World Markets

Right. Okay. Thanks a lot. Just, I guess, being a little extra cautious. Living in Canada here, where we've seen income trusts be treated differently, as well as Canadian oil sands land there being treated differently, and we do know that tax redeems can change almost anywhere, I guess. Thanks.

Patrick Garver

Thanks, Barry.

Operator

Thank you. Our next question coming from the line of Steve Butler from Canaccord Adams. Please proceed with your question.

Steve Butler - Canaccord Adams

Thank you operator. Good morning guys. Just a quick question. Jim, the paragraph where you're referring guys to Pascua-Lama, and the environment approval for new 34 megawatts power plant and the wind farm of 20 megawatts, is that all power that would be for both Pascua-Lama/Veladero?

Jamie Sokalsky

Steve, it's just start-up power, really. The total requirement for the mine will be probably four to five times more than that. So this is really just enough power to start the mine up and really a look-see to see how effective it is. If it is very effective we'll look at adding on additional modules.

Patrick Garver

Yeah, Steve, actually, what’s we're looking at is the whole impact of our carbon footprint and looking for ways to deal with climate change and energy, and that's kind of an initial sort of introduction into, how we might improve that, because I think as we look at the business five and ten years out, energy and energy consumption and carbon footprint are going to be very significant issues as the industry and our business is very power intensive, so we're trying to really get on the leading edge of that curve, up, in terms of mitigation projects.

Steve Butler - Canaccord Adams

Right, okay. As I remember, it's quite windy there from time to time. And just, Alex, for you, at Kanang, am I pronouncing that correctly, the deal with Highlands pacific, that chart you put in front of us on the PowerPoint, if you can elaborate on the Yandera prospect, I assume that's not on your claim block. Is that correct. And then if not, who owns that?

Alex Davidson

No, that's not on our claim block. I can't remember offhand who owns it. Begins with an M. And it's a copper-only thing that's northwest, as you can see.

Steve Butler - Canaccord Adams

Is it in production, Alex?

Alex Davidson

I think its in development.

Steve Butler - Canaccord Adams

Okay, thank you.

Operator

Thank you. Our next question coming from the line of David Hawkins (ph) from BMO Capital Market. Please proceed with your question.

David Hawkins - BMO Capital Market

Yes. Good morning. Just following on the Papua New Guinea thing, how's the Porgera remedial work going in the pit? Have you worked all the way through that, and are you accessing the grade of ore?

Greg Wilkins

Yes, Dave. I was at Pit. I was recently out there, and I was really pleased with what I saw the guys have done a great job in remediating that wall, which, as you said, was basically looking pretty ropey. The weather has affected it, and the mudstones were turning literally into muds, but they've done a great job in removing most of it and are now accessing the higher-grade ores in the bottom of the pit.

David Hawkins - BMO Capital Market

Have you had any additional thoughts on potential of state development?

Greg Wilkins

David, you're breaking up.

David Hawkins - BMO Capital Market

I am sorry. Stage 6 development at Porgera. Have you had any additional thoughts on that?

Greg Wilkins

We've looked at a stage 6 and stage 6.1 and 6.2 with the current high gold prices. We're looking at a sort of super stage 6, but at a lot of issues we have to sort out which would include permitting, or rather the people who are living in that area would have to be relocate, etcetera. So still a lot of work in progress at the moment.

David Hawkins - BMO Capital Market

Right. And slipping over to Kainantu, do you plan to keep that in production in the state that you inherited from Highland Pacific?

Greg Wilkins

David, We’ve just sent a team out this week from the Australian business unit to really answer those questions. They are going to look at all of the options, keep it going, maybe reduce the throughput, or whatever, so they're going to take a good look at those various options this week.

David Hawkins - BMO Capital Market

Okay. Thank you very much.

Greg Wilkins

I think that we're sort of running a bit long on time. Perhaps if we could take one more question, operator, and then if we've missed any questions, just invite folks to gives a call or give Denny a call.

Operator

Thank you. Our last question coming from the line of Christian Motang (ph) from CIBC Capital. Please proceed with your question.

Steven Kenzie - CIBC Capital

Hello, gentlemen. Actually, Steven Kenzie (ph). I Just wanted to know, can give us update on the Dee property, year or two ago you had some good results there. I was just wondering how things are going at this point.

Greg Wilkins

Dee, or, has now been handed over to the mine group. They're completing a feasibility study on that at the moment, Peter you want to…

Jamie Sokalsky

It's basically high grade, but the grades hack high enough to support an underground operation, so it's early stage, but looks promising. But it's not big.

Greg Wilkins

Steven, is that it for your questions?

Steven Kenzie - CIBC Capital

Yes, okay, thank you.

Greg Wilkins

Okay. Steven, thank you. And thanks, everyone, for joining us this morning, and as I said, if there's any further questions, Denny can certainly get back to you, and we'll be more than happy to answer them as best we can.

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. Have a great day.

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