Firing on all cylinders

When you’re only number three, you’ve got to try harder. That seems to be a factor driving Toronto-based Barrick Gold Corp. to build up its annual gold production from the current 4.96 million oz. Barrick already has 12 operating mines and five development projects in seven countries on four continents, employing more than 9,000 people, and the lowest total cash costs (US$212/oz in 2004) of any major gold producer. As well it has 89.1 million oz of gold and 911 million oz of silver in its proven and probable reserves at year-end 2004.

The company is well on its way to expanding its annual gold production to 6.8-7.0 million oz in 2007 by opening four new mines–Tulawaka (Tanzania), Lagunas Norte (Peru) and Veladero (Argentina) this year, and Cowal (Australia) in early 2006–at a capital cost of US$1.2 billion. The US$75-million East Archimedes mine in Eureka, Nev., is targeted to begin production in mid-2007, and the US$1.5-billion Pascua-Lama mine in Argentina/Chile in 2009.

To find out what the new developments mean to the company, we interviewed Peter J. Kinver, the British mining engineer who is executive vice-president, operations and COO of Barrick.

CMJ: What is Barrick’s overall strategy around new development? What does it mean to Barrick, and what will it do for the company?

PJK: A new generation of new mines will reinforce our foundation of quality producing assets. Our growth plan is the result of successful exploration, developing assets and acquisitions made during a period of lower gold prices. Our strategy should result in an increased production profile–up 40% from 5 million ounces in 2004 to 6.8-7 million ounces in annual production by 2007. This is expected to lower our cost structure to slightly above US$200 per ounce, resulting in Barrick maintaining the lowest cost structure among the majors.

Our development projects are unrivaled in terms of scope, scale and immediacy.

CMJ: What was the motivation for doing all this development concurrently?

PJK: We were simply ready to move–Barrick is firing on all cylinders at once–and believed that we had the financial resources, development expertise, relationships with suppliers and most importantly the team to undertake something quite unique in our industry. Fortuitously, our new mines are coming onstream during a period of high gold prices and our outlook is positive.

CMJ: How is the company paying for all these at the same time?

PJK: Barrick has the strongest balance sheet in the industry and had US$1.3 billion in cash at the end of the first quarter in 2005. Veladero is being funded in part by a project financing of some US$250 million, of which $222 million was drawn down at the end of its first quarter. We also issued US$750 million in corporate debt securities last year. More recently, we issued US$50 million in the Peruvian capital markets to partially fund Lagunas Norte.

CMJ: Where will Barrick be in five and in 10 years’ time?

PJK: Barrick is putting plans in place today for the period beyond 2007. Pascua-Lama, East Archimedes, our continued commitment to exploration around the world, and our plans in Russia and Central Asia are intended to ensure that we continue growing.

We have a vision to become the world’s best gold company, and hopefully more and more people – regardless of whether they are shareholders, community leaders, employees, government officials, etc. – will see that we are.