UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

 

For the month of August 2015

Commission File Number: 1-9059

 

 

Barrick Gold Corporation

(Registrant’s name)

 

 

Brookfield Place, TD Canada Trust Tower, Suite 3700

161 Bay Street, P.O. Box 212

Toronto, Ontario M5J 2S1 Canada

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ¨            Form 40-F    x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      BARRICK GOLD CORPORATION
Date: August 6, 2015     By:   /s/ Richie Haddock
      Name:    Richie Haddock
      Title:   Senior Vice President and
        General Counsel

 


EXHIBIT

 

Exhibit

 

Description of Exhibit

99.1   Barrick Gold Corporation Second Quarter Report for 2015, including the Comparative Unaudited Financial Statements prepared in accordance with International Financial Reporting Standards (“IFRS”) and the notes thereto for the three months ended June 30, 2015 and Management’s Discussion and Analysis (“MD&A”) for the same period.


Exhibit 99.1

 

LOGO

SECOND QUARTER REPORT 2015

All amounts expressed in US dollars

Barrick Reports Second Quarter 2015 Results

 

   

Company reported a net loss of $9 million ($0.01 per share) in the second quarter; adjusted net earnings were $60 million ($0.05 per share)1.

 

   

Free cash flow was $26 million1 and operating cash flow was $525 million.

 

   

Production in the second quarter was 1.45 million ounces of gold at all-in sustaining costs (AISC) of $895 per ounce1.

 

   

Full-year gold production is now expected to be 6.1-6.4 million ounces, reflecting the impact of asset sales.

 

   

All-in sustaining cost guidance for 2015 has been reduced to $840-$880 per ounce.

 

   

Total debt reduced by approximately $250 million in first half.

 

   

$2.45 billion in asset sales and joint ventures announced to date.

 

   

Targeting $2 billion in reduced expenditures across the company by the end of 2016.

 

   

Capital and other expenditures reduced by $240 million in the second quarter.

 

   

Lowered quarterly dividend to two cents per share.

 

   

Scenario planning completed for gold prices down to $900 per ounce.

 

   

On track to achieve approximately $50 million in G&A cost savings in 2015, exceeding original $30 million target for the year. Targeting $90 million in annualized savings in 2016, up from original target of $70 million.

 

   

Completed Preliminary Economic Assessments on projects with the potential to significantly extend mine life at Lagunas Norte and Pueblo Viejo.

TORONTO, August 5, 2015 — Barrick Gold Corporation (NYSE:ABX) (TSX:ABX) (Barrick or the “company”) reported a net loss of $9 million ($0.01 per share) for the second quarter, with adjusted net earnings of $60 million ($0.05 per share). Free cash flow was $26 million, compared to negative free cash flow of $128 million in the prior year period. Operating cash flow in the second quarter was $525 million. Second quarter adjusted EBITDA was $725 million1. On an unadjusted basis, EBITDA was $690 million1.

Gold production guidance for 2015 has been adjusted to 6.1-6.4 million ounces to reflect the impact of divestments, with production 55 percent weighted to the second half of the year. Costs are expected to be 10 percent lower in the second half of 2015. Full-year all-in sustaining cost guidance is $840-$880 per ounce, down from $860-$895 per ounce.

 

 

1 All-in sustaining costs per ounce, adjusted net earnings and adjusted net earnings per share, free cash flow, adjusted EBITDA and EBITDA are non-GAAP financial performance measures with no standardized definition under IFRS. For further information and detailed reconciliations, please see pages 50-56 of Barrick’s Second Quarter 2015 Report.

 

BARRICK SECOND QUARTER 2015   1   PRESS RELEASE


The implementation of a lean, decentralized operating model designed to maximize free cash flow and take costs out of the business has helped to mitigate the impact of recent gold price declines. We have cut $300 million in capital spending so far this year and are on track to achieve $90 million in reduced general and administrative (G&A) expenditures by 2016. We have also made significant progress on our debt reduction target. Our current focus is on improving productivity and reducing operating costs to ensure our business is robust enough to generate a 10-15 percent return on invested capital through the metal price cycle.

STRENGTHENING THE BALANCE SHEET

Earlier this year, we set a debt reduction target of $3 billion for 2015. Thus far, we have announced agreements representing $2.45 billion from asset sales, joint ventures and streaming. In addition, we have also retired approximately $250 million in debt using cash on hand in the first half of this year. Collectively, these actions represent $2.7 billion, or 90 percent of our target. Transactions announced to date include:

 

   

Sale of 100 percent of the Cowal mine for $550 million in cash, further focusing the geographic footprint of our portfolio by divesting the last Barrick-operated mine in Australia.

 

   

Sale of a 50 percent interest in Barrick (Niugini) Ltd. for $298 million in cash2, establishing a long-term strategic partnership with China’s Zijin Mining.

 

   

Sale of a 50 percent interest in the Zaldívar copper mine for $1.005 billion in cash2, realizing significant value from a non-core operation while maintaining a sizeable stake in this cash-generating asset. This transaction has also resulted in a new partnership with Antofagasta Plc, one of the world’s leading copper companies, with significant opportunities to collaborate on potential projects in the future.

 

   

Streaming agreement on a portion of Barrick’s share of gold and silver production from Pueblo Viejo for $610 million in cash2, structured to maintain significant exposure to higher metal prices.

With a $4 billion undrawn credit facility and $2.1 billion in cash on hand at the end of the second quarter, we will continue to pursue our debt reduction target in a disciplined manner and will take only those actions that make sense for the business, on terms we consider favorable to our shareholders.

Additional asset divestments

Over the last several months, Barrick has received a number of proposals and expressions of interest relating to the proposed acquisition of various non-core assets in Nevada and Montana. Over the next several weeks, we intend to commence a formal process to sell Bald Mountain, Round Mountain (50 percent interest), Spring Valley (70 percent interest), Ruby Hill, Hilltop and Golden Sunlight. These

 

 

 

2 Barrick has entered into agreements to sell 50 percent of its interests in Barrick (Niugini) Ltd. and Zaldívar, and to sell a gold-silver stream linked to its 60 percent interest in the Pueblo Viejo mine. These transactions are expected close in the third quarter, late 2015, and early in the fourth quarter, respectively.

 

BARRICK SECOND QUARTER 2015   2   PRESS RELEASE


assets represent an attractive portfolio of producing and development-stage assets in a politically stable and highly prospective region.

OPERATIONAL FOCUS

Our strategy is focused on maximizing free cash flow per share from a portfolio of high-quality gold assets in our core regions, underpinned by disciplined capital allocation and operational excellence. In the past six months, we have taken significant actions to improve our business plans, resulting in positive free cash flow in the second quarter. We remain focused on improving productivity and driving down costs to ensure we can continue to generate free cash flow in the current gold price environment.

Anticipating the potential for weaker gold prices in the second half of 2015, we challenged our leaders to cut spending by $1 billion. We have now increased this target. By the end of 2016, we are targeting $2 billion in reduced expenditures across the company. These reductions will come from operating expenses, capital spending and corporate overhead. We have identified $1.4 billion in potential opportunities to date. This will strengthen the resilience of our portfolio in a lower gold price environment, while positioning us to deliver stronger margins when gold prices recover.

These efforts are benefiting from the outcomes of our Value Realization reviews, which have now been completed for all operations. This process has identified concrete projects to maximize free cash flow, extend mine lives and lower costs. The reviews also support non-core asset sales by ensuring we understand the full value of every mine before proceeding with any divestiture. For details on key Value Realization opportunities identified at Lagunas Norte and Pueblo Viejo, please see Appendix 1 on page 9. For certain related risk factors, please see the cautionary statement on forward-looking information at the end of this press release.

We have also carried out a series of scenario planning exercises that detail actions we can take to optimize mine plans and increase flexibility in a lower gold price environment. These actions include:

 

    Adjust life-of-mine plans to maximize short-term free cash flow

 

    Place higher-cost operations on temporary care and maintenance

 

    Defer stripping activities

 

    Close or divest mines that do not meet capital allocation objectives
    Increase cut-off grades

 

    Reduce mining/processing rates

 

    Further reduce G&A and exploration

 

    Further reduce sustaining capital

 

    Process higher-grade stockpiles
 

 

Capital Costs

As we continue to review all expenditures for 2015 and 2016, we are cancelling or deferring spending that does not meet our capital allocation objectives, which include, first and foremost, the ability to meet a hurdle rate of 15 percent. In the second quarter, we identified $240 million in reductions that have now been removed from our plans. Total capital expenditures for 2015 are now expected to be $1.6-$1.9 billion, 20 percent lower than in 2014.

 

BARRICK SECOND QUARTER 2015   3   PRESS RELEASE


Exploration expenditures are now expected to be $180-$220 million, a reduction of 17 percent from our original 2015 guidance. Sixty-five percent of our exploration budget is allocated to mine site exploration, with 35 percent directed at greenfield projects, primarily on our newest discovery Alturas and the El Indio belt.

Reductions identified in the second quarter include:

 

   

Sustaining capital reduced by $100 million to $1.4-$1.6 billion;

 

   

Expansion capital reduced by $50 million to $100-$150 million, driven by efficiencies and reductions at Turquoise Ridge, Cortez and Ruby Hill;

 

   

Project capital reduced by $50 million to $100-$150 million, primarily reflecting reductions at Pascua-Lama and Spring Valley; and

 

   

Exploration budget reduced by $40 million to $180-$220 million, focusing expenditures on our most promising opportunities where we see the highest potential returns.

G&A Expenses

We are focused on reducing costs and improving productivity across the entire business. Excluding severance and one-time costs, the company is on track to capture approximately $50 million in savings from reduced G&A expenditures and overhead costs in 2015, exceeding our original target of $30 million for the year. We expect to reach $90 million in annualized G&A savings by 2016.

FINANCIAL DISCUSSION

Second quarter 2015 adjusted net earnings were $60 million ($0.05 per share) compared to $159 million ($0.14 per share) in the prior year period. The net loss for the quarter was $9 million ($0.01 per share) compared to a net loss of $269 million ($0.23 per share) in the prior year quarter. Lower adjusted net earnings reflect lower gold sales and lower realized gold and copper prices compared to the prior year period. Significant adjusting items for the quarter (net of tax and non-controlling interest effects) include:

 

   

$22 million in impairment charges primarily related to power assets at Pueblo Viejo;

 

   

$30 million in unrealized foreign currency translation losses;

 

   

$17 million in costs related to the closure of our Perth office; and

 

   

A $15 million positive adjustment reflecting the impact of the increase in the discount rate used to calculate the provision for environmental remediation at closed mines.

Second quarter adjusted EBITDA was $725 million compared to $990 million in the prior year period. On an unadjusted basis, EBITDA was $690 million for the second quarter compared to $478 million in the prior year period. Operating cash flow was $525 million compared to $488 million in the prior year period. The company generated positive free cash flow of $26 million in the second quarter compared to an outflow of $128 million in the prior year period, reflecting higher operating cash flow

 

BARRICK SECOND QUARTER 2015   4   PRESS RELEASE


and lower capital expenditures as a result of the company’s continued emphasis on rigorous capital discipline.

The Board of Directors has decided to reduce the company’s quarterly dividend by 60 percent, from five cents per share to two cents per share. The Board believes this reduction is a prudent measure to increase financial flexibility in light of current market conditions. The dividend will be paid on September 15, 2015 to shareholders of record at the close of business on August 31, 20153.

The Board has approved a Dividend Reinvestment Plan (the “DRIP”), which we intend to make available to eligible shareholders for the first time with payment of the above-mentioned dividend on September 15, 2015 to shareholders of record on August 31, 2015. The DRIP will allow registered or beneficial holders of Barrick’s common shares who reside in Canada or the United States to reinvest cash dividends paid on their common shares in additional common shares at a discount to the average market price (as defined in the DRIP), currently set at three percent and subject to change at the discretion of the Board. Additional details about the DRIP and enrollment instructions will be provided at a later date.

OPERATING HIGHLIGHTS AND GUIDANCE

Reflecting the divestiture of Cowal and 50 percent of Barrick (Niugini) Ltd., 2015 gold production is now anticipated to be 6.1-6.4 million ounces at reduced AISC of $840-$880 per ounce. Production is 55 percent weighted to the second half of the year, primarily due to higher planned production at Goldstrike, Cortez and Pueblo Viejo. Third quarter AISC are expected to be lower than our AISC in the first half of the year, and fourth quarter AISC are expected to be significantly lower than the third quarter, driven largely by higher production at Goldstrike, Pueblo Viejo and Cortez in the second half of the year.

Total copper guidance for 2015 remains unchanged at 480-520 million pounds at C1 cash costs of $1.75-$2.00 per pound4.

 

 

 
Gold   

 

Second Quarter

2015

    

Current

2015 Guidance

    

Original          

2015 Guidance          

 

 

 

Production (000s of ounces)5

     1,445         6,100-6,400         6,200-6,600             

AISC ($ per ounce)

     895         840-880         860-895             

Cash costs ($ per ounce)4

     624         600-640         600-640             

Copper

        

 

 

Production (millions of pounds)

     115         480-520         310-340             

C1 cash costs ($ per pound)

 

    

 

1.94

 

  

 

    

 

1.75-2.00

 

  

 

    

 

1.75-2.00          

 

  

 

 

 

Total Capital Expenditures ($ millions)6

     414         1,600-1,900         1,900-2,200             

 

 

 

3 The declaration and payment of dividends is at the discretion of the Board of Directors and will depend on the company’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

4 Cash costs per ounce and C1 cash costs per pound are non-GAAP financial performance measures. See pages 50-56 of Barrick’s Second Quarter 2015 Report.

5 Barrick’s share.

6 Barrick’s share on a 100 percent accrued basis.

 

BARRICK SECOND QUARTER 2015   5   PRESS RELEASE


Cortez

The Cortez mine produced 193,000 ounces at AISC of $811 per ounce in the second quarter. Production benefited from positive grade reconciliations in the Cortez Hills open pit and improved underground productivity, as well as from some initial treatment of refractory ore through Goldstrike’s thiosulfate (TCM) process. AISC were positively impacted by higher production, lower operating costs and lower sustaining capital. Production in 2015 is forecast to be 825,000-900,000 ounces at AISC of $760-$835 per ounce. Production in the second half is fourth-quarter weighted as the open pit transitions into higher-grade ore and as the ramp-up of the TCM circuit at Goldstrike allows for additional processing of refractory ore from Cortez.

Goldstrike

The Goldstrike mine contributed 206,000 ounces in the second quarter, in line with plan. AISC of $732 per ounce were better than expected on higher tonnes and grades from the underground operation, as well as lower sustaining capital. Grades and recoveries from the TCM circuit continue to be consistent with feasibility results. Several adjustments were implemented to improve the throughput of the circuit during the commissioning phase and the process is expected to ramp up on schedule this year. Production and AISC guidance for 2015 is 1.00-1.15 million ounces and $700-$800 per ounce. The third quarter is expected to be the stronger of the two remaining quarters on higher anticipated open pit grades.

Pueblo Viejo

Barrick’s 60 percent share of production from Pueblo Viejo for the second quarter was 131,000 ounces at AISC of $682 per ounce. Production in the quarter was lower than planned due to lower gold recoveries, largely related to a higher proportion of carbonaceous ore. AISC were also impacted by lower silver recoveries associated with a temporary shutdown of the lime boil process during scheduled autoclave maintenance. Recent modifications to the lime boil are showing significantly improved silver recoveries and the first copper concentrate was shipped in the second quarter. Attributable production in 2015 is forecast to be 625,000-675,000 ounces at AISC of $540-$590 per ounce. Production is expected to be higher and costs lower in the fourth quarter compared to the third quarter on higher-expected grades, improved recoveries and better autoclave availability, as maintenance shutdowns were weighted to the first half of 2015.

Lagunas Norte

The Lagunas Norte mine contributed 155,000 ounces at AISC of $509 per ounce in the second quarter. Production was in line with expectations while AISC were better than plan on lower sustaining capital. Production in 2015 is anticipated to be 600,000-650,000 ounces at AISC of $600-$650 per ounce.

Veladero

The Veladero mine produced 151,000 ounces of gold in the second quarter, in line with plan. AISC of $961 per ounce benefited from higher than expected sales and lower sustaining capital. Production

 

BARRICK SECOND QUARTER 2015   6   PRESS RELEASE


guidance for 2015 is 575,000-625,000 ounces at AISC of $950-$1,035 per ounce, with second half costs expected to be highest in the third quarter related to capitalized stripping and sustaining capital, as well as lower byproduct credits.

Turquoise Ridge

The Turquoise Ridge mine contributed 52,000 ounces (75 percent basis), in line with expectations. AISC of $780 per ounce reflect higher sustaining capital associated with the focus on growing production and improving ventilation. Costs are expected to be highest in the third quarter related to these efforts as well as to feasibility and detailed engineering work for the second shaft project. The mine is forecast to produce 175,000-200,000 ounces (75 percent basis) in 2015 at AISC of $775-$825 per ounce.

Porgera

The Porgera mine produced 118,000 ounces (95 percent basis), slightly below plan on lower open pit grades. AISC of $1,128 per ounce were lower than expected as a result of lower capitalized stripping costs due to fewer waste tonnes mined and lower sustaining capital. Reflecting the partial divestiture, attributable production in 2015 is now expected to be 400,000-450,000 ounces at AISC of $1,025-$1,125 per ounce.

Other Mines

Barrick’s other mines — consisting of Bald Mountain, Round Mountain, Golden Sunlight, Ruby Hill, Hemlo, Cowal, KCGM and Pierina — contributed 320,000 ounces at AISC of $895 per ounce in the second quarter. An improved closure plan at Pierina is expected to contribute approximately 270,000 ounces over the next three-and-a-half years for minimal capital.

Acacia Mining

Barrick’s share of second quarter production was 119,000 ounces at AISC of $1,149 per ounce. Attributable 2015 production from Acacia is anticipated to be 480,000-510,000 ounces at AISC of $1,050-$1,100 per ounce. Production will be weighted to the second half of 2015, driven by operational improvements and a planned ramp-up at Bulyanhulu.

Global Copper

Copper production in the second quarter was 115 million pounds at C1 cash costs of $1.94 per pound. For 2015, copper production is anticipated to be 480-520 million pounds at C1 cash costs of $1.75-$2.00 per pound.

Lumwana contributed 63 million pounds at C1 cash costs of $2.01 per pound in the second quarter, in line with expectations. The Zambian government has ratified amendments to the country’s mining tax regime that replaced the recently-adopted 20 percent gross royalty on open pit mines with a nine percent royalty, and reintroduced a 30 percent corporate income tax and a 15 percent variable profits tax. Production is anticipated to be 250-270 million pounds at C1 cash costs of $1.90-$2.15 per pound in 2015.

 

BARRICK SECOND QUARTER 2015   7   PRESS RELEASE


Production of 52 million pounds at Zaldívar at C1 cash costs of $1.85 per pound in the second quarter was in line with plan. Production for 2015 is anticipated to be 230-250 million pounds at C1 cash costs of $1.65-$1.95 per pound.

At Jabal Sayid, first shipments of low-cost copper-in-concentrate are anticipated in early 2016. Once the mine reaches full production, the average annual output is expected to be 100 million pounds per year with the potential to increase to 130 million pounds.

 

BARRICK SECOND QUARTER 2015   8   PRESS RELEASE


APPENDIX 1 Key Value Realization Initiatives at Barrick’s Lagunas Norte and Pueblo Viejo Mines

Lagunas Norte

Refractory Material Mine Life Extension Project: Since it began operations in 2005, Lagunas Norte has outperformed production expectations and become one of our most profitable mines. In 2014, the mine produced 582,000 ounces of gold at all-in sustaining costs of $543 per ounce. In its early years, production peaked at more than one million ounces per year. To date, Lagunas Norte has operated as an oxide heap leach mine. The mine will transition from oxide ore into mixed oxide/refractory material as it approaches the end of its current mine life in 2018.

We have now completed a Preliminary Economic Assessment (“PEA”) on a plan to extend the life of Lagunas Norte by approximately 12 years by mining the refractory material below the oxide ore body in the current pit. The refractory material cannot be economically processed using heap leaching due to low recoveries. The plan contemplates the installation of a new grinding-flotation-autoclave processing circuit to treat the refractory material.

Work has begun on a Pre-Feasibility Study (“PFS”) to further assess the technical and financial viability of, and risks associated with, the project, which has the potential to add nearly two million ounces of measured and indicated gold resources that are not currently included in the mine’s existing mineral reserves and resources. Based on the preliminary analysis completed to date, Barrick expects that approximately $500 million would be required to build the facilities necessary to treat the refractory material. The PEA for this initiative will be incorporated in an updated technical report prepared by Barrick’s independent technical advisor, Roscoe Postle Associates Inc. (“RPA”), which Barrick intends to file within 45 days. We expect to complete the PFS on this opportunity by the end of 2015.

The table below summarizes the mineral resources associated with the Refractory Material Mine Life Extension Project that, except as otherwise noted, are not included in the mine’s mineral resource statement as at December 31, 2014.

Gold Mineral Resources Associated with the Refractory Material Mine Life Extension Project1, 2, 3, 4, 5

 

            Tonnes      Gold
     

 

                    ounces
     Category    (000s)    g/t      (000s)  

 

  

Measured

   1,203    2.60    100
  

Indicated

   21,188    2.54    1,732
  

 

Within pit

         Measured and               

design6

   Indicated    22,391    2.55    1,832
  

Inferred

   314    1.92    19

 

Heap leach

stockpile7

   Indicated    5,300    2.29    391

 

Notes:

 

  1.

Mineral resources have been estimated as at December 31, 2014 based on a gold price of $1,400 per ounce. All estimates have been made in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum in National Instrument 43-101.

 

BARRICK SECOND QUARTER 2015   9   PRESS RELEASE


  2.

Mineral resources that are not mineral reserves do not have demonstrated economic viability.

  3.

Gold cut-off grades ranged from 0.48 g/t to 1.00 g/t depending on the material type.

  4.

Gold recovery as a result of this initiative is expected to reach an average of 90 percent.

  5.

Numbers may not add due to rounding.

  6.

Includes 2.013 million tonnes of measured and indicated resources grading 1.15 g/t gold (74 thousand contained ounces of gold) that were previously reported in the mine’s resource statement as at December 31, 2014.

  7.

This material is expected to be reclaimed from the existing leach facility and reprocessed through the new facility for this initiative.

The PEA for the Refractory Material Mine Life Extension Project is preliminary in nature and is based in part on inferred resources which are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized.

Pueblo Viejo

Expansion of Tailings Storage Capacity: Pueblo Viejo is one of the world’s largest, lowest-cost gold mines. In 2014, Barrick’s 60 percent share of production from the Pueblo Viejo mine was approximately 665,000 ounces of gold at all-in sustaining costs of $588 per ounce. As reported in the mine’s resource statement as at December 31, 2014, in addition to existing reserves, Pueblo Viejo has approximately six million ounces of gold and 37 million ounces of silver in the measured and indicated resource category (Barrick’s 60 percent share). A significant portion of these resources are not currently included in reserves due to tailings storage constraints. We have completed a PEA evaluating a plan to remove these constraints to tailings capacity, which if implemented could allow Barrick to significantly extend the life of the mine. Barrick expects to complete further engineering work and commission a PFS in the second half of 2016 to refine the technical and financial analysis for the increase in tailings storage capacity and confirm whether the measured and indicated resources described above can be brought into reserves.

Conversion of Power Plant and Lime Kilns to Natural Gas Fuel: Energy is one of the biggest cost drivers at any mining operation. We have completed a PFS on an initiative to reduce energy costs at Pueblo Viejo by converting the fuel supply for the Quisqueya I power plant that supplies electricity to the mine to natural gas from more expensive heavy fuel oil, and retrofitting the lime kilns to burn natural gas instead of diesel. The power plant was originally designed to operate on multiple fuel types, including natural gas. The PFS evaluated the delivery and use of liquid or compressed natural gas to the mine and power plant.

Barrick is currently engaged in negotiations regarding the supply of natural gas to the Quisqueya I power plant and the Pueblo Viejo mine. If a supply agreement is successfully negotiated, this initiative to transition to natural gas could be implemented as early as 2017. Barrick anticipates that the conversion of the power plant and lime kilns at the mine site will require only minimal capital investment by Pueblo Viejo and that all capital costs associated with the construction of the natural gas infrastructure including the necessary natural gas pipeline to the power plant would be borne by the natural gas supplier.

 

BARRICK SECOND QUARTER 2015   10   PRESS RELEASE


Qualified Persons

A Technical Report supporting the PEA for the “Refractory Material Mine Life Extension Project” at Lagunas Norte will be prepared in accordance with Form 43-101F1 and filed on SEDAR within 45 days of this news release. For further information with respect to the key assumptions, parameters and risks associated with the results of the PEA for the “Refractory Material Mine Life Extension Project” at Lagunas Norte, the mineral resource estimates included therein and other technical information with respect to that initiative, please refer to the Technical Report to be made available at www.sedar.com.

The following qualified persons, as that term is defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects, have prepared or supervised the preparation of their relevant portions of the technical information described above and, in the case of the PEA for the “Refractory Material Mine Life Extension Project” at Lagunas Norte, the related Technical Report to be filed:

 

   

Deborah McCombe, P.Geo., Principal Geologist (RPA)

 

   

Graham Clow, P.Eng., Principal Mining Engineer (RPA)

 

   

Kathleen Altman, P.E., Ph.D., Principal Metallurgist (RPA)

 

   

Richard Lambert, P.E., P.Eng., Principal Mining Engineer (RPA)

 

   

Rick Sims, Registered Member SME, Senior Director, Resources and Reserves (Barrick)

 

   

Steven Haggarty, P.Eng., Senior Director, Metallurgy (Barrick)

 

   

Patrick Garretson, Registered Member SME, Director, Life of Mine Planning (Barrick)

 

BARRICK SECOND QUARTER 2015   11   PRESS RELEASE


APPENDIX 2 Detailed 2015 Operating and Capital Expenditure Guidance

 

 

 

  GOLD PRODUCTION AND COSTS

     Production   AISC7    Cash Costs8  
     (millions of ounces)   ($ per ounce)    ($ per ounce)  

 

Cortez

   0.825-0.900   760-835    560-610  

Goldstrike

   1.000-1.150   700-800    540-590  

Pueblo Viejo (60%)

   0.625-0.675   540-590    390-425  

Lagunas Norte

   0.600-0.650   600-650    350-400  

Veladero

   0.575-0.625   950-1,035    580-630  

 

Sub-total

   3.800-4.000   700-750    500-540  

 

Porgera (95%)9

   0.400-0.450   1,025-1,125    775-825  

Acacia (63.9%)

   0.480-0.510   1,050-1,100    695-725  

KCGM (50%)

   0.315-0.330   915-940    775-800  

Cowal

   0.120-0.150   740-775    630-655  

Hemlo

   0.200-0.225   940-980    675-715  

Turquoise Ridge (75%)

   0.175-0.200   775-825    570-600  

Round Mountain (50%)

   0.170-0.190   1,180-1,205    875-900  

Bald Mountain

   0.170-0.195   1,060-1,100    560-600  

Golden Sunlight

   0.090-0.105   1,000-1,025    740-765  

 

Total Gold

   6.100-6.40010   840-880    600-640  

 

       

 

 

  COPPER PRODUCTION AND COSTS

     Production   C1 cash costs    C3 fully allocated costs11  
     (millions of pounds)   ($ per pound)    ($ per pound)  

 

Zaldívar

   230-250   1.65-1.95    2.00-2.30  

 

Lumwana

   250-270   1.90-2.15    2.65-2.95  

 

Total Copper

   480-520   1.75-2.00    2.35-2.65  

 

       

 

 

  CAPITAL EXPENDITURES

     ($ millions)         

 

Mine site sustaining

   1,400-1,60012     

Mine site expansion

   100-150     

Projects

   100-150     

 

Total

   1,600-1,90012     

 

 

 

7 All-in sustaining costs are calculated in accordance with the standard published by the World Gold Council (“WGC”). See page 52 of Barrick’s Second Quarter 2015 Report for further details.

8 Cash costs reflect our equity share of unit production costs, including the impact of by-product credits, which is calculated in accordance with the standard published by the WGC. See page 52 of Barrick’s Second Quarter 2015 Report for further details.

9 Production range adjusted for expected closing of the sale of 50 percent of Barrick (Niugini) Ltd. to Zijin Mining which is expected to close in Q3 2015.

10 Operating unit guidance ranges reflect expectations at each individual operating unit, but do not add up to corporate-wide guidance range total.

11 C3 fully allocated costs per pound is a non-GAAP financial performance measure. See pages 50-56 of Barrick’s Second Quarter 2015 Report.

12 We now expect minesite sustaining capital expenditures to be in the range of $1,400-$1,600 million and total capital expenditures to be in the range of $1,600-$1,900 million compared to our previous guidance ranges of $1,500-$1,700 million and $1,800-$2,100 million, respectively.

 

BARRICK SECOND QUARTER 2015   12   PRESS RELEASE


APPENDIX 3 — Outlook Assumptions and Economic Sensitivity Analysis

 

 

     2015 Guidance    Hypothetical    Impact on    EBITDA13    FCF13    
     Assumption    Change    AISC13    (millions)    (millions)    

 

Gold revenue, net of royalties

   $1,100/oz14    +/- $100/oz    n/a    $330    $218    

Copper revenue, net of royalties

   $2.50/lb    +/- $0.50/lb    n/a    $133    $88    

 

Gold all-in sustaining costs

              

Gold royalties & production taxes

   $1,100/oz    $100/oz    ($3)/oz    $10    $7    

WTI crude oil price15, 16

   $60/bbl    $10/bbl    ($2)/oz    $7    $5    

Australian dollar exchange rate15

   0.80 : 1    +10%    $1/oz    ($3)    ($2)    

Australian dollar exchange rate15

   0.80 : 1    -10%    ($1)/oz    $3    $2    

 

Canadian dollar exchange rate15

   1.25 : 1    +10%    ($2)/oz    $6    $4    

 

Canadian dollar exchange rate15

   1.25 : 1    -10%    $3/oz    ($10)    ($7)    

 

Copper C1 cash costs

         Impact on C1      

WTI crude oil price15,16

   $60/bbl    $10/bbl    ($0.01)/lb    $2    $1    

Chilean peso exchange rate15

   610 : 1    +10%    ($0.01)/lb    $4    $3    

Chilean peso exchange rate15

   610 : 1    -10%    $0.05/lb    ($12)    ($8)    

 

 

 

 

13 All-in sustaining costs per ounce, EBITDA and free cash flow are non-GAAP financial performance measures. See pages 50-56 of Barrick’s Second Quarter 2015 Report.

14 Our outlook assumes an average gold price of $1,100 per ounce and a copper price of $2.50 per pound for the remainder of 2015.

15 Due to our hedging activities, which are reflected in these sensitivities, we are partially protected against changes in these factors.

16 Impact on EBITDA only reflects contracts that mature in 2015.

 

BARRICK SECOND QUARTER 2015   13   PRESS RELEASE


Key Statistics

 

Barrick Gold Corporation                         
(in United States dollars)            Three months ended June 30,     Six months ended June 30,   
  

 

 

 
     2015     2014     2015     2014   

 

 

Operating Results

        

Gold production (thousands of ounces)1

     1,445        1,485        2,835        3,073    

Gold sold (thousands of ounces)1

     1,466        1,516        2,851        3,134    

Per ounce data

        

Average spot gold price

    $     1,192      $         1,288      $         1,206      $         1,291    

Average realized gold price2

     1,190        1,289        1,204        1,287    

Cash costs2

     624        594        640        588    

All-in sustaining costs2

     895        865        918        849    

All-in costs2

     954        945        995        940    

Cash costs (on a co-product basis)2

     648        615        666        610    

All-in sustaining costs (on a co-product basis) 2

     919        886        944        871    

All-in costs (on a co-product basis)2

     978        966        1,021        962    

Copper production (millions of pounds)

     115        67        233        171    

Copper sold (millions of pounds)

     112        73        233        184    

Per pound data

        

Average spot copper price

    $ 2.74      $ 3.08      $ 2.69      $ 3.14    

Average realized copper price2

     2.66        3.17        2.60        3.08    

C1 cash costs2

     1.94        2.04        1.89        2.08    

Depreciation3

     0.24        0.37        0.27        0.37    

Other4

     0.32        0.11        0.26        0.14    

C3 fully allocated costs2

     2.50        2.52        2.42        2.59    

 

 

Financial Results (millions)

        

Revenues

    $ 2,231      $ 2,458      $ 4,476      $ 5,105    

Net income (loss)5

     (9     (269     48        (181)   

Adjusted net earnings2

     60        159        122        397    

Operating cash flow

     525        488        841        1,073    

Free cash flow2

     26        (128     (172     (159)   

Per Share Data (dollars)

        

Net earnings (loss) (basic)

     (0.01     (0.23     0.04        (0.16)   

Adjusted net earnings (basic)2

     0.05        0.14        0.10        0.34    

Net earnings (loss) (diluted)

     (0.01     (0.23     0.04        (0.16)   

Weighted average basic and diluted common shares (millions)

 

    

 

1,165

 

  

 

   

 

1,165

 

  

 

   

 

1,165

 

  

 

   

 

1,165 

 

  

 

 

 
                 As at     As at   
                           June 30,     December 31,   
      

 

 

 
                 2015     2014   

 

 

Financial Position (millions)

        

Cash and equivalents

        $ 2,122      $ 2,699    

Non-cash working capital

         3,444        3,621    

 

 
  1 

Production includes Acacia on a 73.9% basis until February 28, 2014 and a 63.9% basis thereafter and Pueblo Viejo on a 60% basis, both of which reflect our equity share of production. Also includes production from Plutonic up to January 31, 2014, Kanowna up to March 1, 2014 and Marigold up to April 4, 2014, the effective dates of sale of these assets. Sales include our equity share of gold sales from Acacia and Pueblo Viejo.

  2 

Realized price, cash costs, all-in sustaining costs, all-in costs, cash costs (on a co-product basis), all-in sustaining costs (on a co-product basis), all-in costs (on a co-product basis), C1 cash costs, C3 fully allocated costs, adjusted net earnings and free cash flow are non-GAAP financial performance measures with no standard definition under IFRS. Refer to the Non-GAAP Financial Performance Measures section of the Company’s MD&A.

  3 

Represents equity depreciation expense divided by equity pounds of copper sold.

  4 

For a breakdown, see reconciliation of cost of sales to C1 cash costs and C3 fully allocated costs per pound in the Non-GAAP Financial Performance Measures section of the Company’s MD&A.

  5 

Net income (loss) represents net income (loss) attributable to the equity holders of the Company.

 

BARRICK SECOND QUARTER 2015   14   SUMMARY INFORMATION


Production and Cost Summary

 

       Gold Production (attributable ounces) (000’s)       All-in sustaining costs 5 ($/oz)  
    

 

 

    

 

 

 
      

Three months ended 

June 30, 

    

Six months ended 

June 30, 

    

Three months ended 

June 30, 

    

Six months ended 

June 30, 

 
    

 

 

    

 

 

    

 

 

    

 

 

 
       2015        2014        2015      2014        2015     2014        2015        2014    

 

    

 

 

    

 

 

    

 

 

 

Gold

                          

Goldstrike

       206           214           413         476           $ 732      $ 890           $ 811         $ 812     

Cortez

       193           217           326         444           811        759           877           711     

Pueblo Viejo3

       131           161           266         320           682        601           673           599     

Lagunas Norte

       155           115           333         249           509        593           483           552     

Veladero

       151           189           300         347           961        740           978           768     

Turquoise Ridge

       52           48           101         102           780        687           747           595     

Porgera

       118           120           236         230                               1,128        1,026           1,099           1,019     

Kalgoorlie

       81           84           140         162           886        958           1,045           987     

Acacia2

       119           114           235         232           1,149        1,105           1,133           1,118     

Other Mines - Gold1

       231           221           475         507           883        994           899           982     

Other4

       8           2           10         4           1,297                                2,794                       1,627                       2,267     

 

 

Total

                       1,445           1,485           2,835         3,073           $ 895      $ 865           $ 918         $ 849     

 

 
                               Copper Production (attributable  pounds) (millions)       C1 Cash Costs5 ($/lb)  
    

 

 

    

 

 

 
      

Three months ended 

June 30, 

    

Six months ended 

June 30, 

    

Three months ended 

June 30, 

    

Six months ended 

June 30, 

 
    

 

 

    

 

 

    

 

 

    

 

 

 
       2015        2014        2015      2014        2015     2014        2015        2014    

 

    

 

 

    

 

 

    

 

 

 

Lumwana

       63           13           129         63           $ 2.01      $ 2.49          $ 1.95         $ 2.55     

Zaldívar

       52           54           104         108           1.85        1.85           1.81           1.76     

 

 

Total

       115           67           233         171           $ 1.94      $ 2.04          $ 1.89         $ 2.08     

 

 
                                     Total Gold Production Costs ($ /oz)  
                  

 

 

 
                                    

Three months ended 

June 30, 

    

Six months ended 

June 30, 

 
                  

 

 

    

 

 

 
                                     2015     2014        2015        2014    

 

    

 

 

 

Direct mining costs before impact of hedges at market foreign exchange rates

  

        $ 601      $ 600          $ 618         $ 595     

Losses (gains) realized on currency hedge and commodity hedge/economic hedge contracts

  

        15        (23)          14           (21)    

By-product credits

  

        (24     (21)          (26)         (22)    

Royalties

  

        32        38          34         36    

 

 

Cash costs5

  

        624        594           640           588     

Depreciation

  

        231        202           234           199     

 

 

Total production costs

  

        $ 855      $ 796          $ 874         $ 787     

 

 

Cash costs5

  

        $ 624      $ 594           $ 640         $ 588     

General & administrative costs

  

        38        43           39           49     

Rehabilitation - accretion and amortization (operating sites)

  

        25        21           25           21     

Mine on-site exploration and evaluation costs

  

        10        4           7           3     

Mine development expenditures

  

        112        117           116           117     

Sustaining capital expenditures

  

        86        86           91           71     

 

 

All-in sustaining costs 5

  

        $ 895      $ 865           $ 918         $ 849     

 

 

All-in costs5

  

        $ 954      $ 945          $ 995         $ 940     

 

 
                                     Total Copper Production Costs ($/lb)  
                  

 

 

 
                                    

Three months ended 

June 30, 

    

Six months ended 

June 30, 

 
                  

 

 

    

 

 

 
                                     2015     2014        2015        2014    

 

    

 

 

 

C1 cash costs5

  

        $ 1.94      $ 2.04          $ 1.89         $ 2.08     

Depreciation6

  

        0.24        0.37           0.27           0.37     

Other7

  

        0.32        0.11           0.26           0.14     

 

 

C3 fully allocated costs4

  

        $ 2.50      $ 2.52          $ 2.42         $ 2.59     

 

 

 

  1 

Includes production from Plutonic up to January 31, 2014, Kanowna up to March 1, 2014 and Marigold up to April 4, 2014, the effective dates of sale of these assets.

  2 

Figures relating to Acacia are presented on a 73.9% basis until February 28, 2014 and a 63.9% basis thereafter, which reflects our equity share of production.

  3 

Reflects production from Pueblo Viejo on a 60% basis, which reflects our equity share of production.

  4 

Production and all-in sustaining costs include Pierina.

  5 

Cash costs, all-in sustaining costs, all-in costs, C1 cash costs and C3 fully allocated costs are non-GAAP financial performance measures with no standard meaning under IFRS. Refer to the Non-GAAP Financial Performance Measures section of the Company’s MD&A.

  6 

Represents equity depreciation expense divided by equity pounds of copper sold.

  7 

For a breakdown, see reconciliation of cost of sales to C1 cash costs and C3 fully allocated costs per pound in the Non-GAAP Financial Performance Measures section of the Company’s MD&A.

 

BARRICK SECOND QUARTER 2015   15   SUMMARY INFORMATION


MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

 

 

This portion of the Quarterly Report provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations to enable a reader to assess material changes in financial condition and results of operations as at and for the three and six month periods ended June 30, 2015, in comparison to the corresponding prior–year periods. The MD&A is intended to help the reader understand Barrick Gold Corporation (“Barrick”, “we”, “our” or the “Company”), our operations, financial performance and present and future business environment. This MD&A, which has been prepared as of August 5, 2015, is intended to supplement and complement the condensed unaudited interim consolidated financial statements and notes thereto, prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”), for the three and six month periods ended June 30, 2015 (collectively, the “Financial Statements”), which are included in this Quarterly Report on pages 57 to 81. You are encouraged to review the Financial Statements in conjunction with your review of this MD&A. This MD&A should be read in conjunction with both the annual audited

consolidated financial statements for the two years ended December 31, 2014, the related annual MD&A included in the 2014 Annual Report, and the most recent Form 40–F/Annual Information Form on file with the US Securities and Exchange Commission (“SEC”) and Canadian provincial securities regulatory authorities. Certain notes to the Financial Statements are specifically referred to in this MD&A and such notes are incorporated by reference herein. All dollar amounts in this MD&A are in millions of US dollars, unless otherwise specified.

For the purposes of preparing our MD&A, we consider the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of our shares; or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. We evaluate materiality with reference to all relevant circumstances, including potential market sensitivity.

 

 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

Certain information contained or incorporated by reference in this MD&A, including any information as to our strategy, projects, plans or future financial or operating performance constitutes “forward-looking statements”. All statements, other than statements of historical fact, are forward-looking statements. The words “believe”, “expect”, “anticipate”, “contemplate”, “target”, “plan”, “intend”, “project”, “continue”, “budget”, “estimate”, “potential”, “may”, “will”, “can”, “could” and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company in light of management’s experience and perception of current conditions and expected developments, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: fluctuations in the spot and forward price of gold, copper or certain other commodities (such as silver, diesel fuel and electricity); changes in national and

local government legislation, taxation, controls or regulations and/or changes in the administration of laws, policies and practices, expropriation or nationalization of property and political or economic developments in Canada, the United States, Zambia and other jurisdictions in which the Company does or may carry on business in the future; failure to comply with environmental and health and safety laws and regulations; timing of receipt of, or failure to comply with, necessary permits and approvals; diminishing quantities or grades of reserves; increased costs and risks related to the potential impact of climate change; increased costs, delays, suspensions and technical challenges associated with the construction of capital projects; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; adverse changes in our credit rating; the impact of inflation; operating or technical difficulties in connection with mining or development activities, including disruptions in the maintenance or provision of required infrastructure and information technology systems; damage to the Company’s reputation due to the actual or perceived occurrence

 

 

BARRICK SECOND QUARTER 2015   16   MANAGEMENT’S DISCUSSION AND ANALYSIS


of any number of events, including negative publicity with respect to the Company’s handling of environmental matters or dealings with community groups, whether true or not; the speculative nature of mineral exploration and development; the possibility that future exploration results will not be consistent with the Company’s expectations; changes in mineral production performance, exploitation and exploration successes; risks that exploration data may be incomplete and considerable additional work may be required to complete further evaluation, including but not limited to drilling, engineering and socio-economic studies and investment; risk of loss due to acts of war, terrorism, sabotage and civil disturbances; fluctuations in the currency markets; changes in U.S. dollar interest rates; risks arising from holding derivative instruments; litigation; contests over title to properties, particularly title to undeveloped properties, or over access to water, power and other required infrastructure; business opportunities that may be presented to, or pursued by, the Company; our ability to successfully integrate acquisitions or complete divestitures; employee relations; availability and increased costs associated with mining inputs and labor; and the organization of our previously held African gold operations and properties under a separate listed company. In addition, there are risks

and hazards associated with the business of mineral exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion, copper cathode or gold or copper concentrate losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this MD&A are qualified by these cautionary statements. Specific reference is made to the most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

 

 

BARRICK SECOND QUARTER 2015   17   MANAGEMENT’S DISCUSSION AND ANALYSIS


INDEX

 

     page  

Results Overview

  

Review of 2015 Second Quarter Results and Full Year Outlook

     19   

Key Business Developments

     24   

Market Overview

     26   

Review of Financial Results

  

Revenue

     28   

Production Costs

     28   

Capital Expenditures

     29   

Additional Significant Statement of Income Items

     29   

Income Tax Expense

     30   

Operating Segments Performance

     31   

Financial Condition Review

  

Balance Sheet Review

     44   

Shareholders’ Equity

     44   

Comprehensive Income

     44   

Financial Position and Liquidity

     45   

Financial Instruments

     47   

Commitments and Contingencies

     47   

Internal Control over Financial Reporting and Disclosure Controls and Procedures

     48   

Review of Quarterly Results

     49   

IFRS Critical Accounting Policies and Accounting Estimates

     49   

Non-GAAP Financial Performance Measures

     50   

 

BARRICK SECOND QUARTER 2015   18   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

RESULTS OVERVIEW

Review of 2015 Second Quarter Results and Full Year Outlook

 

  ($ millions, except where indicated)   For the three months ended June 30     For the six months ended June 30    

 

 
   

 

2015

   

 

2014

   

 

2015

   

 

2014  

 

 

 

Financial Data

       

Revenue

            $ 2,231        $ 2,458                $ 4,476        $ 5,105     

Net earnings (loss)1

    (9)        (269)        48        (181)     

Per share (“EPS”)2

    (0.01)        (0.23)        0.04        (0.16)     

Adjusted net earnings3

    60        159        122        397     

Per share (“adjusted EPS”)2,3

    0.05        0.14        0.10        0.34     

Adjusted EBITDA

    725        990        1,523        1,997     

Total project capital expenditures4

    22        (4)        37        47     

Total capital expenditures - expansion4

    31        84        120        173     

Total capital expenditures - sustaining4

    361        422        713        791     

Operating cash flow

    525        488        841        1,073     

Free cash flow3

    $ 26        $ (128)        $ (172)        $ (159)     

 

 
       

 

 

Operating Data

       

Gold

       

Gold produced (000s ounces)5

    1,445        1,485        2,835        3,073     

Gold sold (000s ounces)5

    1,466        1,516        2,851        3,134     

Realized price ($ per ounce)3

    $ 1,190        $ 1,289        $ 1,204        $ 1,287     

Cash costs ($ per ounce)3

    624        594        640        588     

Cash costs on a co-product basis ($ per ounce)3

    648        615        666        610     

All-in sustaining costs ($ per ounce)3

    895        865        918        849     

All-in sustaining costs on a co-product basis ($ per ounce)3

    919        886        944        871     

All-in costs ($ per ounce)3

    954        945        995        940     

All-in costs on a co-product basis ($ per ounce)3

    $ 978        $ 966        $ 1,021        $ 962     

Copper

       

Copper produced (millions of pounds)

    115        67        233        171     

Copper sold (millions of pounds)

    112        73        233        184     

Realized price ($ per pound)3

    $ 2.66        $ 3.17        $ 2.60        $ 3.08     

C1 cash costs ($ per pound)3

    $ 1.94        $ 2.04        $ 1.89        $ 2.08     

C3 cash costs ($ per pound)3

    $ 2.50        $ 2.52        $ 2.42        $ 2.59     

 

 

 

  1 

Net earnings/loss represents net earnings/loss attributable to the equity holders of the Company.

  2 

Calculated using weighted average number of shares outstanding under the basic method.

  3 

These are non-GAAP financial performance measures with no standardized definition under IFRS. For further information and detailed reconciliations, please see pages 50 - 56 of this MD&A.

  4 

These amounts are presented on a 100% accrued basis. Project and expansion capital expenditures are included in our calculation of all-in costs, but not included in our calculation of all-in sustaining costs.

  5 

Gold production and sales include our pro rata share of Acacia and Pueblo Viejo at our equity share.

 

BARRICK SECOND QUARTER 2015   19   MANAGEMENT’S DISCUSSION AND ANALYSIS


FINANCIAL AND OPERATING HIGHLIGHTS

Net Income, Adjusted Net Income, Adjusted EBITDA,

Operating Cash Flow and Free Cash Flow

 

   

Net earnings and adjusted net earnings were 97% higher and 62% lower, respectively, in second quarter 2015 than in the same prior year period. For the six month period ended June 30, 2015, net earnings and adjusted net earnings were 127% higher and 69% lower, respectively, compared to the first half of 2014.

 

   

The increases in net earnings are primarily due to the impact of a $514 million impairment charge recorded in second quarter 2014 relating to the reclassification of the Jabal Sayid copper project as held for sale, partially offset by a decrease in gold sales volume and a lower realized gold and copper price.

 

   

The decreases in adjusted net earnings are primarily due to a decrease in gold sales volumes combined with a decrease in gold and copper realized prices, partially offset by a 53% and 27% increase in copper sales volume in second quarter and the first half of 2015, respectively, compared to the same prior year periods.

 

       LOGO

   

Significant adjusting items (net of tax and non-controlling interest effects) in second quarter 2015 include:

  ¡    $22 million in impairment charges primarily related to power assets at our Pueblo Viejo mine;
  ¡    $30 million in unrealized foreign currency translation losses; and
  ¡    $17 million in costs relating to the closure of our Perth office; partially offset by
  ¡    $15 million positive adjustment reflecting the impact of the increase in the discount rate used to calculate the provision for environmental remediation at our closed mines.

 

   

Significant adjusting items (net of tax and non-controlling interests effects) in the first half of 2015 include:

  ¡    $25 million in impairment charges primarily related to power assets at our Pueblo Viejo mine;
  ¡    $36 million in unrealized foreign currency translation losses; and
  ¡    $17 million in costs relating to the closure of our Perth office; partially offset by
  ¡    $26 million in gains on sale of assets.

 

   

Adjusted EBITDA was 27% and 24% lower for the three and six month periods ended June 30, 2015, respectively, compared to the same prior year periods. The decreases were primarily due to a decrease in gold sales volumes combined with a decrease in realized gold and copper prices, partially offset by an increase in copper sales volume.

   

Operating cash flow for the three and six month period ended June 30, 2015 of $525 million and $841 million, respectively, was 8% higher and 22% lower, respectively than the same prior year periods.

 

   

The increase in operating cash flow for second quarter 2015 primarily reflects working capital improvements, particularly a lower draw down of accounts payable and accruals relating to our Pascua-Lama project, combined with a decrease in income tax payments.

 

   

The decrease in operating cash flow for the first half of 2015 is primarily due an increase in inventory due to increased leachpad inventory

 

 

BARRICK SECOND QUARTER 2015   20   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

levels at Zaldívar as a result of the severe rain event that occurred at the end of first quarter 2015. The decrease was partially offset by working capital improvements, particularly a lower draw down of accounts payable and accruals relating to our Pascua-Lama project.

 

        LOGO

 

   

Free cash flow for the three and six month periods ended June 30, 2015 was an inflow of $26 million and an outflow of $172 million, respectively, compared to an outflow of $128 million and $159 million, respectively, in the same prior year periods.

 

   

The inflow in second quarter 2015 reflects the higher operating cash flows combined with the impact of lower capital expenditures. For the six month period ended June 30, 2015, the larger outflow reflects the lower operating cash flows, partially offset by the impact of lower capital expenditures.

 

   

Our portfolio continues to generate positive free cash flow positive at a gold price of $1,100 per ounce.

Gold production, cash costs and all-in sustaining costs

 

   

Gold production for the three and six month periods ended June 30, 2015 was 3% and 8% lower, respectively, compared to the same prior year periods largely due to a decrease in production at Cortez, Goldstrike, Pueblo Viejo and Veladero, partially offset by an increase in production at Lagunas Norte. Also contributing to the decreased production for the first half of 2015 was the impact of the asset sales that occurred in the first half of 2014. The lower production was in line with our operating plan for 2015 and consistent with our guidance that 55% of our production will come in the second half of the year. Higher second half production is primarily due to higher production at Goldstrike as the thiosulfate circuit ramps up to commercial production levels; higher production at Cortez as the open pit transitions into higher grade material and the thiosulfate circuit at Goldstrike allows for the processing of existing Cortez stockpiles; and higher production at Pueblo Viejo due to the availability of higher grade ore and increased throughput due to higher autoclave availability. We now expect gold production for 2015 to be in the range of 6.1 to 6.4 million ounces, compared to our previous guidance range of 6.2 to 6.6 million ounces, reflecting the divestiture of our Cowal mine, which closed on July 23, and 50% of our Porgera mine, which is expected to close in the third quarter.

 

   

For the three and six month periods ended June 30, 2015, cash costs increased 5% and 9%, respectively, compared to the same prior year periods, primarily due to the impact of lower sales volume on unit costs. All-in sustaining costs for the three and six month periods ended June 30, 2015 increased 3% and 8%, respectively, compared to the same prior year periods, as the higher cash costs were partially offset by lower sustaining capital expenditures, primarily due to a reduction in capitalized stripping costs. As expected, second quarter 2015 was our highest cost quarter for both cash costs and all-in sustaining costs, largely due to the impact of higher costs at Goldstrike due to the impact of lower sales volume as a significant portion of thiosulfate circuit production from the second quarter will not be sold until the third quarter, partially offset by lower sustaining capital expenditures.

 

 

BARRICK SECOND QUARTER 2015   21   MANAGEMENT’S DISCUSSION AND ANALYSIS


   

We continue to expect 2015 cash costs to be within our guidance ranges of $600 to $640 per ounce and now expect all-in sustaining costs to be $840 to $880 per ounce, compared to our previous range of $860 to $895 per ounce. Costs are expected to be about 10% lower in second half 2015 due to the impact of higher production levels on unit costs as well as lower sustaining capital expenditures following rigorous application of our capital allocation framework.

 

   

All-in costs for the three and six month periods ended June 30, 2015 were 1% and 6% higher, respectively, than the same prior year periods. The increases were primarily due to the same factors affecting all-in sustaining costs combined with an increase in project capital expenditures relating to our South Arturo project, partially offset by a decrease in expansion capital expenditures.

Copper production and C1 costs

 

   

For the three and six month periods ended June 30, 2015, copper production increased 72% and 36%, respectively, compared to the same prior year periods, due to higher production at Lumwana as a result of the partial conveyor collapse that shutdown the mill and concentrate production for much of second quarter 2014. Production at Zaldívar was slightly down compared to the same prior year periods largely due to the impact on production of the severe rain event that occurred at the end of first quarter 2015.

 

   

C1 cash costs were 5% and 9% lower, respectively, than the same prior year periods due to the impact of higher sales volume on unit production costs.

Capital Expenditures

 

   

Capital expenditures for the three and six month period ended June 30, 2015 were 18% and 14% lower, respectively, compared to the same prior year periods. The decreases are primarily due to a 14% and 10% reduction, respectively, in minesite sustaining capital expenditures due to lower capitalized stripping costs across most sites, partially offset by an increase in project capital expenditures relating to our South Arturo project. As at June 30, 2015, we have incurred $870 million in capital expenditures.

 

   

As a result of rigorous application of our capital allocation framework, we now expect minesite

   

sustaining capital expenditures to be in the range of $1.4 to $1.6 billion; minesite expansion capital expenditures to be in the range of $100 to $150 million, driven by efficiencies at Turquoise Ridge, Cortez and Ruby Hill; project expenditures to be in the range of $100 to $150 million, reflecting reduced spending at Pascua-Lama, Donlin Gold and Spring Valley; and total capital expenditures to be in the range of $1.6 to $1.9 billion. These compare to our previous guidance ranges of $1.5 to $1.7 billion, $150 to $200 million, $150 to $200 million and $1.8 to $2.1 billion, respectively. All significant new and ongoing projects will be reviewed by our investment committee against our target 15% hurdle rate.

Strengthening the Balance Sheet

 

   

Earlier this year, we set a debt reduction target of $3 billion for 2015. Thus far, we have announced agreements representing $2.45 billion from asset sales, joint ventures and streaming. In addition, we have also retired approximately $250 million in debt using cash on hand in the first half of this year. Collectively, these actions represent $2.7 billion, or 90 percent of our target. Transactions announced to date include:

  ¡    Sale of our Cowal mine for cash proceeds of $550 million, which closed on July 23, 2015;
  ¡    Sale of 50% of our interest in the Porgera mine for cash proceeds of $298 million, which is expected to close in third quarter 2015;
  ¡    Sale of 50% of our Zaldívar mine for $1.005 billion, which is expected to close in late 2015; and
  ¡    Streaming agreement on a portion of Barrick’s share of gold and silver production from Pueblo Viejo for cash proceeds of $610 million, expected to close in fourth quarter 2015.

 

   

To begin with, we intend to use a portion of the net proceeds from the sale of the Cowal mine to redeem the outstanding $229 million aggregate principal amount of 2.90% notes due 2016 issued by Barrick. The notes will be redeemed on September 9, 2015 in accordance with their terms.

 

   

Over the last several months, Barrick has received a number of proposals and expressions of interest relating to the proposed acquisition of various non-core assets in Nevada and Montana. Over the next several weeks, we intend to commence a formal process to sell Bald

 

 

BARRICK SECOND QUARTER 2015   22   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

Mountain, Round Mountain (50 percent interest), Spring Valley (70 percent interest), Ruby Hill, Hilltop and Golden Sunlight. These assets represent an attractive portfolio of producing and development-stage assets in a politically stable and highly prospective region.

 

   

Lowered our quarterly dividend to two cents per share and introduced a dividend reinvestment plan

Operational Focus

 

   

Anticipating the potential for a weaker gold price environment in the second half of 2015, we have carried out a series of planning exercises that detail actions we can take to optimize mine plans and increase flexibility in a lower gold price environment.

 

   

These actions include: adjusting life-of-mine plans to maximize short-term cash flow; placing higher cost operations on care and maintenance; deferring stripping activities; close or divest mines that do not meet capital allocation objectives; increase cut-off grades; reduce mining/processing rates; further reduce G&A and exploration; further reduce sustaining capital; and process higher grade stockpiles.

 

 

BARRICK SECOND QUARTER 2015   23   MANAGEMENT’S DISCUSSION AND ANALYSIS


Full Year 2015 Outlook

 

  ($ millions, except per ounce/pound data)    2015E    

 

 

Gold production and costs

  

    Production (millions of ounces) 1

     6.1 - 6.4     

Gold unit production costs

  

  All-in sustaining costs ($ per ounce) 2

     840 - 880     

    Cash costs ($ per ounce)3

     600 - 640     

    Depreciation ($ per ounce)

     240 - 260     

 

 

Copper production and costs

  

    Production (millions of pounds)4

     480 - 520     

Copper unit production costs

  

    C1 cash costs ($ per pound)

     1.75 - 2.00     

     Depreciation ($ per pound) 5

     0.25 - 0.35     

     C3 fully allocated costs ($ per pound)4

     2.35 -2.65     

 

 

Exploration and project expenses6

     330 - 420     

      Exploration and evaluation6

     180 - 230     

      Project expenses

     150 - 190     

General and administrative expenses

     ~225     

    Corporate administration

     ~145     

    Stock-based compensation

     ~50     

    Acacia

     ~30     

Other expense

     40 - 60     

Finance costs

     800 - 825     

Capital expenditures:

  

      Minesite sustaining7

     1,400 - 1,600     

      Minesite expansion7

     100 - 150     

      Projects 7

     100 - 150     

Total capital expenditures7

     1,600 - 1,900     

 

 

Effective income tax rate

     ~53%     

 

 

Key Assumptions

  

Gold Price ($/ounce)

     $ 1,100     

Copper Price ($/pound)

     $ 2.50     

Oil Price ($/barrel)

     $60     

AUD Exchange Rate

     $ 0.80     

ARS Exchange Rate

     9.88     

CAD Exchange Rate

     $ 1.25     

CLP Exchange Rate

     610     

 

 

 

1 

We now expect gold production to be in the range of 6.1 - 6.4 million ounces, compared to our previous guidance of 6.2 - 6.6 million ounces, reflecting the divestiture of our Cowal mine and 50% of our Porgera mine.

2 

We now expect all-in sustaining costs to be $840 to $880 per ounce, compared to our previous range of $860 to $895 per ounce. All-in sustaining costs are calculated in accordance with the standard published by the World Gold Council (‘WGC’). See page 52 of this MD&A for further details.

3 

Cash costs reflect our equity share of unit production costs, including the impact of by-product credits, which is calculated in accordance with the standard published by the WGC. See pages 52 of this MD&A for further details.

4 

As a result of the decision to continue operations at Lumwana, we continue to expect copper production to be in the range of 480 to 520 million lbs and C3 fully allocated costs to be in the range of $2.35 to $2.65 per pound compared to our previous guidance ranges of 310 to 340 million lbs and $2.30 to $2.60 per pound, respectively.

5 

We now expect depreciation per pound to be in the range of $0.25 - $0.35 per pound compared to our previous guidance range of $0.35 - $0.45 per pound to reflect the lower asset base at Lumwana following the recognition of year-end impairment charges on full year depreciation.

6 

We now expect exploration and evaluation expenditures to be in the range of $180 to $230 million and total exploration and project expenses to be in the range of $330 to $420 million compared to our previous guidance

 

ranges of $220 to $270 million and $370 to $460 million, respectively.

7 

We now expect minesite sustaining capital expenditures to be in the range of $1,400 to $1,600 million, minesite expansion capital expenditures to be in the range of $100 to $150 million, projects expenditures to be in the range of $100 to $150 million and total capital expenditures to be in the range of $1,600 to $1,900 million compared to our previous guidance ranges of $1,500 to $1,700 million, $150 to $200 million, $150 to $200 million and $1,800 to $2,100 million, respectively.

 

Key Business Developments

Divestitures

On July 30, 2015, we announced the sale of 50% of our Zaldívar copper mine in Chile to Antofagasta Plc for total cash consideration of $1.005 billion. As a result, we expect to record a goodwill impairment of approximately $400 million in third quarter 2015. The transaction is expected to be completed in late 2015 and is subject to customary closing conditions.

On July 23, 2015, we completed the sale of our Cowal mine in Australia for cash consideration of $550 million. As at June 30, 2015, all of the assets and liabilities of Cowal were classified as held for sale. We intend to use a portion of the net proceeds from the sale of the Cowal mine to redeem the outstanding $229 million aggregate principal amount of 2.90% notes due 2016 issued by Barrick. The notes will be redeemed on September 9, 2015 in accordance with their terms.

On May 26, 2015, we announced the sale of 50% of our interest in the Porgera mine in Papua New Guinea to Zijin Mining Group Company (‘Zijin’) for cash consideration of $298 million. As at June 30, 2015, all of the assets and liabilities of Porgera were classified as held for sale as the transaction will result in a loss of control. The transaction is expected to close in third quarter 2015.

Streaming Agreement

On August 5, 2015 we announced that we had entered into a gold and silver streaming agreement with Royal Gold, Inc. (“Royal Gold”) for production linked to Barrick’s 60 percent interest in the Pueblo Viejo mine. In return, Royal Gold has agreed to make an upfront cash payment of $610 million plus continuing cash payments for gold and silver delivered under the agreement.

Under the terms of the agreement, Barrick will sell gold and silver to Royal Gold equivalent to:

 

 

7.5 percent of Barrick’s interest in the gold produced at Pueblo Viejo until 990,000 ounces of gold have been delivered, and 3.75 percent thereafter.

 

 

75 percent of Barrick’s interest in the silver produced at Pueblo Viejo until 50 million ounces

 

 

BARRICK SECOND QUARTER 2015   24   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

have been delivered, and 37.5 percent thereafter. Silver will be delivered based on a fixed recovery rate of 70 percent. Silver above this recovery rate is not subject to the stream.

Ongoing cash payments to Barrick are tied to prevailing spot prices rather than fixed in advance, maintaining material exposure to higher gold and silver prices in the future. Barrick will receive ongoing cash payments from Royal Gold equivalent to 30 percent of the prevailing spot prices for the first 550,000 ounces of gold and 23.1 million ounces of silver delivered. Thereafter payments will double to 60 percent of prevailing spot prices for each subsequent ounce of gold and silver delivered.

Royalty Changes in Zambia

On April 20, 2015, the Zambian government announced amendments to the country’s mining tax regime that would replace the recently adopted 20 percent gross royalty on open pit mines with a nine percent royalty, along with the reintroduction of a 30 percent corporate income tax and a 15 percent variable profits tax. The legislation was passed in late July. In third quarter 2015 we will evaluate the potential for a reversal of previous impairments recorded in fourth quarter 2014.

Zambia Power Reductions

In second quarter 2015, the Zambian power authority (“ZESCO”) announced reduction to power generation necessitated by the low water levels in its reservoirs as a result of the poor rainfall experienced during the recent rainy season. We are working with industry and ZESCO to develop an optimal load shedding program to minimize the impact to production.

Jabal Sayid Financing Facility

On April 2, 2015, Ma’aden Barrick Copper Company (our 50% Barrick owned equity method investment) signed a financing agreement with the Saudi British Bank to finance the Jabal Sayid copper project for SAR 750 million ($200 million USD). The proceeds will be used to fund the expenditures remaining to bring the mine into commercial production.

Pascua-Lama Chilean Environmental Court Ruling

On March 23, 2015, Chile’s Environmental Court ruled that the Pascua-Lama project has not damaged glaciers in the project area. The plaintiffs did not file an appeal and the matter is now closed.

Pascua-Lama SMA Regulatory Sanctions

On April 22, 2015, Chile’s environmental regulator (known as the SMA) reopened the administrative proceeding against Compañía Minera Nevada (‘CMN’), Barrick’s Chilean subsidiary that holds the Chilean portion of the

Pascua-Lama project (the ‘Project’) in accordance with the March 3, 2014 decision of the Environmental Court of Santiago, Chile. A decision from the SMA is pending in this matter.

Also on April 22, 2015, CMN was notified that the SMA has initiated a new administrative proceeding for alleged deviations from certain requirements of the Project’s environmental approval, including with respect to the Project’s environmental impact and a series of monitoring requirements. In May 2015, CMN submitted a compliance program to address certain of the allegations and presented its defense to the remainder of the alleged deviations. The SMA rejected CMN’s proposed compliance program on June 24, 2015. CMN filed an administrative appeal of this decision on July 3, 2015. A decision from the SMA on the administrative appeal and on CMN’s defense to the remainder of the alleged deviations is pending. Further submissions may be required if CMN’s administrative appeal is denied. Refer to Note 22 to the consolidated financial statements for more information.

Hemlo Land Acquisition

In March 2015, Barrick acquired certain surface and mineral lands adjacent to the Hemlo property in Ontario from subsidiaries of Newmont Mining Corporation for $37.5 million. The acquisition will enable Hemlo to realize additional value through near-term, lower-cost ounces, optimize its current operation, and increase exploration potential, which will allow for potential mine life extensions.

Alturas Gold Discovery

We have made a new gold discovery located in the Andean region of Chile. The new discovery is the result of a methodical re-evaluation of the El Indio belt led by our exploration team. Drilling has concluded for the current season and we expect to report an initial resource at the end of the year.

Exploration Partnership with QPX

Our focus is gold and we have no plans to expand our existing copper position. However, we seek to maximize the value of our highly prospective land holdings where there is currently little to no exploration taking place, so we have formed a strategic partnership with Quantum Pacific Exploration (“QPX”) to explore for copper deposits on our land in northern Chile. Any gold deposits located on Barrick land will remain 100 percent Barrick-owned. If a copper deposit project is identified on either Barrick or QPX land, it will be 50 percent owned by each company.

 

 

BARRICK SECOND QUARTER 2015   25   MANAGEMENT’S DISCUSSION AND ANALYSIS


Market Overview

Gold and Copper

The market prices of gold and, to a lesser extent, copper are the primary drivers of our profitability and our ability to generate free cash flow for our shareholders.

The price of gold is subject to volatile price movements over short periods of time and is impacted by numerous industry and macroeconomic factors. During second quarter, the price of gold ranged from $1,163 to $1,232 per ounce. The price of gold closed at $1,171 per ounce on June 30, 2015, while the average quarterly market price of $1,192 per ounce represented a $96 per ounce or 7% decrease from the $1,288 per ounce average market price in the same prior year period.

Copper prices in second quarter traded in a range of $2.56 per pound to $2.94 per pound. The average price for second quarter was $2.74 per pound and the closing price was $2.60 per pound on June 30, 2015. Copper prices should continue to be influenced by demand from emerging markets, specifically China, the availability of scrap and production levels of mines and smelters in the future.

We have provisionally priced copper sales for which final price determination versus the relevant copper index is outstanding at the balance sheet date. As at June 30, 2015, we have recorded 61 million pounds of copper sales subject to final settlement at an average provisional price of $2.61 per pound. The impact to net income before taxation of a 10% movement in the market price of copper would be approximately $16 million, holding all other variables constant.

Silver

Silver prices do not significantly impact our current operating earnings, cash flows or gold cash costs. Silver prices, however, will have a significant impact on the overall economics for our Pascua-Lama project.

In second quarter, silver prices traded in a range of $15.50 per ounce to $17.78 per ounce, averaged $16.39 per ounce and closed the quarter at $15.70 per ounce. The silver price is driven by factors similar to those influencing investment demands for gold.

Currency Exchange Rates

The results of our mining operations outside of the United States are affected by US dollar exchange rates with non-US denominated currencies comprising approximately 25% of our operating and capital cost exposures. We have exposure to the Australian and Canadian dollars through a combination of mine operating and corporate administration costs, as well as exposure to the Chilean

peso through expected future capital and operating costs at our Pascua-Lama project and mine operating costs at Zaldívar. We also have exposure to the Argentinean peso through operating costs at our Veladero mine, peso denominated VAT receivable balances and expected future capital and operating costs at our Pascua-Lama project. In addition, we have exposure to the Papua New Guinea kina, Peruvian sol, Zambian kwacha, Tanzanian shilling and Dominican peso through mine operating and capital costs.

As a means of minimizing the volatility on our operating costs from fluctuations in the US dollar, we have put in place protection through our currency hedging program on our three largest currency exposures, namely the Australian dollar, the Canadian dollar and the Chilean peso. In second quarter 2015, the Australian dollar traded in a range of $0.75 to $0.82 against the US dollar, while the US dollar against the Canadian dollar and Chilean peso traded in ranges of $1.19 to $1.27 and CLP 593 to CLP 640, respectively.

In second quarter 2015, we recorded losses in earnings of approximately $34 million from our Australian, Canadian and Chilean peso hedges, primarily impacting our operating and corporate administration costs (Q2 2014: $33 million gain).

 

AUD Currency Contracts   

 

 
    Contracts
(AUD
millions
    Effective
Average
Hedge
Rate
(AUDUSD)
    % of
Total
Expected
AUD
Exposure1
Hedged
    % of
Expected
Operating
Cost
Exposure
Hedged
    Crystallized  
Gain/(Loss)  
in OCI 2 (USD  
millions)  
 

 

 

2015

    165        0.93        69%        80%        2     

2016

    85        0.91        20%        23%        (14)     

 

 

CAD Currency Contracts

 

  

 

 
    Contracts
(CAD
millions)3
    Effective
Average
Hedge
Rate
(USDCAD)
    % of
Total
Expected
CAD
Exposure1
Hedged
    % of
Expected
Operating
Cost
Exposure
Hedged
    Crystallized  
Gain/(Loss)  
in OCI 2  
(USD  
millions)  
 

 

 

2015

    120        1.03        52%        59%        -     

 

 
 

 

BARRICK SECOND QUARTER 2015   26   MANAGEMENT’S DISCUSSION AND ANALYSIS


CLP Currency Contracts

 

  

 

 
    Contracts
(CLP
millions) 4
    Effective
Average
Hedge
Rate
(USDCLP)
    % of
Total
Expected
CLP
Exposure1
Hedged
    % of
Expected
Operating
Cost
Exposure
Hedged
   

Crystallized  
Gain/(Loss)  
in OCI 2 (USD  
millions)  

 

 

 

 

2015

    51,000        521        40%        68%        -     

 

 

 

1 

Includes all forecasted operating, administrative, sustainable and eligible project capital expenditures.

2 

To be reclassified from Other Comprehensive Income (“OCI”) to earnings when indicated.

3 

Includes C$120 million CAD collar contracts with an average range of $1.03 - $1.15.

4 

Includes CLP 51,000 million collar contracts with an average range of 521 - 601.

Fuel

For second quarter, the price of West Texas Intermediate (“WTI”) crude oil traded in a range of $47 to $63 per barrel, averaged $58 per barrel, compared to an average of $103 per barrel in the same prior year period, and ended the quarter at $59 per barrel.

In second quarter 2015, we recorded a hedge loss of $1 million on our fuel hedge positions (Q2 2014: $4 million gain).

Financial Fuel Hedge Summary

 

 

 
     Barrels
(thousands)
     Average
Price
     % of
Expected
Exposure
    

 

Impact of $10  
change on Pre-  
tax Earnings  
(USD millions)1  

 

 

 

2015

     1,378         90         60%         9     

2016

     2,933         85         64%         17     

2017

     1,984         81         48%         21     

2018

     1,080         79         26%         30     

 

 
1 

Includes the impact of hedges currently in place.

US Dollar Interest Rates

During second quarter 2015, the Federal Open Market Committee of the US Federal Reserve (“FOMC”) released a statement reiterating its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0% to 0.25% range for the benchmark rate, the FOMC noted that it will use a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments, to assess progress towards its objectives of maximum employment and 2 percent inflation.

At present, our interest rate exposure mainly relates to interest receipts on our cash balances ($2.1 billion at June 30,

2015); the mark-to-market value of derivative instruments; the fair value of and ongoing payments under US dollar interest-rate swaps; the carrying value of certain long lived assets and liabilities; and to the interest payments on our variable-rate debt ($1.0 billion at June 30, 2015). Currently, the amount of interest expense recorded in our consolidated statement of income is not materially impacted by changes in interest rates, because the majority of debt was issued at fixed interest rates. The relative amounts of variable-rate financial assets and liabilities may change in the future, depending on the amount of operating cash flow we generate, as well as the level of capital expenditures and our ability to borrow on favorable terms using fixed rate debt instruments.

 

 

BARRICK SECOND QUARTER 2015   27   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

REVIEW OF FINANCIAL RESULTS

 

Revenue

 

  ($ millions, except per

  ounce/pound data in
  dollars)

  For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
   

 

2015

   

 

2014

   

 

2015

   

 

2014  

 

 

 

Gold

       

000s oz sold1

    1,466        1,516        2,851        3,134     

Revenue

    $ 1,921        $ 2,150        $ 3,840        $ 4,429     

Market price2

    1,192        1,288        1,206        1,291     

Realized price2,3

    $ 1,190        $ 1,289        $ 1,204        $ 1,287     

Copper

       

millions lbs sold1

    112        73        233        184     

Revenue

    $ 257        $ 237        $ 524        $ 542     

Market price2

    2.74        3.08        2.69        3.14     

Realized price2,3

    2.66        3.17        2.60        3.08     

Other sales

    $ 53        $ 71        $ 112        $ 134     

 

 

 

  1 

Includes our equity share of gold ounces from Acacia and Pueblo Viejo.

  2 

Per ounce/pound weighted average.

  3 

Realized price is a non-GAAP financial performance measure with no standard meaning under IFRS. For further information and a detailed reconciliation, please see page 56 of this MD&A.

For the three and six month periods ended June 30, 2015, gold revenues were down 11% and 13%, respectively, compared to the same prior year periods. The decreases were primarily due to lower gold sales volume and lower realized gold prices compared to the same prior year periods. Copper revenues for the three and six month periods ended June 30, 2015 were up 8% and down 3%, respectively, compared to the same prior year periods. The increase in second quarter 2015 was primarily due to the impact of higher copper sales volume, partially offset by the lower realized copper price compared to the same prior year periods. For the six month period ended June 30, 2015 the decrease in copper revenue was primarily due to the lower copper realized price, partially offset by an increase in sales volume.

Realized gold prices for the three and six month periods ended June 30, 2015 were down $99 and $83 per ounce, respectively, compared to the same prior year periods. The decrease in realized gold prices reflects the lower market gold prices in the second quarter and first half of 2015 compared to the same prior year periods. For the three and six month periods ended June 30, 2015, realized copper prices were down $0.51 and $0.48 per pound, respectively, compared to the same prior year periods, due to the 11% and 14% decline in market copper prices, respectively, over the same prior year periods.

Gold production for the three and six month periods ended June 30, 2015 of 1.45 million and 2.84 million ounces, respectively, were 3% and 8% lower, respectively, than the same prior year periods. The decrease was primarily due to lower production at Cortez, Goldstrike, Pueblo Viejo and Veladero, combined with the impact of asset sales that occurred in the first half of 2014, partially offset by an increase in production at Lagunas Norte.

For the three and six month periods ended June 30, 2015, copper production increased by 72% and 36%, respectively, compared to the same prior year periods due to higher production at Lumwana, partially offset by slightly lower production at Zaldívar. The increased production at Lumwana was primarily due to the partial conveyor collapse that shutdown the mill and concentrate production for much of second quarter 2014. Production at Zaldívar was negatively impacted by the severe rain event that occurred in first quarter 2015.

Production Costs

 

  ($ millions, except per
  ounce/pound data
  in dollars)
  For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
   

 

2015

   

 

2014

   

 

2015

   

 

2014  

 

 

 

Cost of sales

       

Direct mining costs

    $ 1,164        $ 1,139        $ 2,350        $ 2,367     

Depreciation

    419        400        840        802     

Royalty expense

    89        73        179        148     

Community relations

    17        19        28        33     

Cost of sales - gold1

    1,410        1,407        2,834        2,851     

Cash costs2,3

    624        594        640        588     

All-in sustaining costs - gold2,3

    895        865        918        849     

Cost of sales - copper1

    237        196        488        451     

C1 cash costs2,3

    1.94        2.04        1.89        2.08     

C3 fully allocated costs2,3

    $ 2.50        $ 2.52        $ 2.42        $ 2.59     

 

 

 

  1 

2014 figures restated to include community relations costs.

  2 

Per ounce/pound weighted average.

  3 

Cash costs, all-in sustaining costs, C1 cash costs and C3 fully allocated costs are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please see pages 52 - 55 of this MD&A.

For the three and six month periods ended June 30, 2015, cost of sales applicable to gold was in line with the same prior year periods. For second quarter and first half 2015, lower direct mining costs resulting from decreased sales volumes were offset by an increase in depreciation expense as well as the impact of inventory write-downs taken in the first half of the year.

 

 

BARRICK SECOND QUARTER 2015   28   MANAGEMENT’S DISCUSSION AND ANALYSIS


Gold cash costs for the three and six month periods ended June 30, 2015 were up $30 and $52 per ounce, respectively, compared to the same prior year periods. The increases were primarily due to the impact of lower production levels on unit production costs combined with an increase in shared services costs allocated to the operating sites. All-in sustaining costs for the three and six months ended June 30, 2015 were up $30 and $69 per ounce, respectively, compared to the same prior year periods. The increases were primarily due to the higher cash costs per ounce partially offset by lower minesite sustaining capital expenditures.

For the three and six month periods ended June 30, 2015, cost of sales applicable to copper increased $41 million and $37 million, respectively, compared to the same prior year periods. The increases were primarily due to significantly higher royalty expense at Lumwana resulting from the increase in the royalty rate from 6% to 20% in first quarter 2015. This was partially offset by lower depreciation expense as a result of the impairment charge recorded in fourth quarter 2014.

C1 cash costs per pound for the three and six month periods ended June 30, 2015 were 5% and 9% lower, respectively, than the same prior year periods reflecting the impact of higher sales volume on unit production costs. C3 fully allocated costs were in line and 7% lower, respectively, than the same prior year periods, primarily reflecting the effect of the above factors on C1 cash costs combined with lower depreciation.

Capital Expenditures1

 

  ($ millions)   For the three months
ended June 30
      For the six months  
ended June 30  
 

 

 
   

 

2015

    2014     2015     2014    

 

 

Project capital expenditures2

    $ 22        ($4)        $ 37        $47     

Minesite sustaining

    152        175        305        308     

Mine development

    209        247        409        482     

Minesite expansion2

    23        77        102        160     

Capitalized interest

    8        7        17        14     

 

 

Total consolidated capital expenditures

    $ 414        $ 502        $ 870        $ 1,011     

 

 

 

  1 

These amounts are presented on a 100% accrued basis.

  2 

Project and expansion capital expenditures are included in our calculation of all-in costs, but not included in our calculation of all-in sustaining costs.

For the three and six month periods ended June 30, 2015, capital expenditures decreased 18% and 14%, respectively, compared to the same prior year periods. The decreases are primarily due to a decrease in minesite sustaining and development capital expenditures combined with lower minesite

expansion capital expenditures, partially offset by an increase in project capital expenditures. The decreases in minesite sustaining capital expenditures are primarily due to the deferral of non-critical capital spending across sites, partially offset by an increase in costs at Veladero relating to the phase 4B and 5A leach pad expansions. The 15% reduction in minesite development capital expenditures for the three and six month periods ended June 30, 2015 is due to lower capitalized stripping costs, primarily at Cortez and Pueblo Viejo, partially offset by an increase in those costs at Veladero and at Porgera. Minesite expansion capital expenditures decreased 70% and 36%, respectively, over the same prior year periods due to a decrease in expenditures at Goldstrike, as the construction of the thiosulfate technology project neared completion. The increase in project capital expenditures compared to the same prior year periods is primarily due to costs incurred at our South Arturo project. In second quarter 2015, capitalized interest was in line with the same prior year period, whereas for the first half of 2015 capitalized interest was 21% higher due to increased interest capitalized for the thiosulfate technology project.

Additional Significant Statement of Income Items

 

  ($ millions)  

For the three    
months ended    

June 30    

  For the six  
months ended  
June 30  

 

   

 

2015

  2014       2015   2014  

 

General & administrative expenses

  $ 70   $ 82       $ 137   $ 185  

Corporate administration1

  $ 49   $ 41       $ 100   $ 95  

Operating segment administration2

  $ -   $ 31       $ -   $ 64  

Stock-based compensation

  $ 5   -       $ 10   $ 6  

Acacia

  $ 16   $ 10       $ 27   $ 20  

Other expense/(income)

  $ 32   $ 17       $ 14   $ 36  

Exploration, evaluation & project costs

  $ 97   $ 105       $ 183   $ 205  

Finance costs

  $ 194   $ 200       $ 390   $ 401  

Finance income

  $ 2   $ 3       $ 4   $ 6  

Impairments

  $ 35   $ 512       $ 40   $ 524  

 

 

  1 

For the three and six month period ended June 30, 2015, corporate administration costs include approximately $8 million and $13 million, respectively, of non-recurring severance costs.

  2 

In 2015, operating segment administration costs have been allocated to our operating sites and are now included in cost of sales.

 

 

BARRICK SECOND QUARTER 2015   29   MANAGEMENT’S DISCUSSION AND ANALYSIS


General and Administrative Expenses

For the three and six month periods ended June 30, 2015, general and administrative expenses were $12 million and $48 million lower, respectively, than the same prior year periods. The decreases were primarily due to an increase in the allocation of shared services costs from general and administrative expenses to cost of sales, partially offset by an increase in corporate administrative costs and an increase in costs relating to Acacia. For second quarter 2015, the increase in corporate administrative costs reflects $8 million in severance costs incurred as a result of restructuring, whereas the increase for the first six months of 2015 reflects $13 million in severance costs, partially offset by $11 million in corporate administrative costs that were allocated to the sites. We are on track to achieve our targeted reduction of $50 million in general and administrative and overhead costs in 2015, exceeding our original target of $30 million for the year. We now expect to reach $90 million in annualized savings in 2016, up from our original target of $70 million.

Other Expense (Income)

Other expense for the three and six month periods ended June 30, 2015 increased by $15 million and decreased by $22 million, respectively, compared to the same prior year periods. The increase in second quarter 2015 reflects $24 million in office closure costs primarily related to our Perth office. The decrease for the six month period ended June 30, 2015 was primarily due to a $14 million reduction in consulting fees, partially offset by the $24 million in office closure costs. For a further breakdown of other expense (income), refer to note 10 to the consolidated financial statements.

Exploration, Evaluation and Project Costs

Exploration, evaluation and project costs for the three and six months ended June 30, 2015 decreased $8 and $22 million, respectively, compared to the same prior year periods. The decrease in second quarter 2015 is primarily due to a $7 million decrease in project costs at Jabal Sayid combined with a $4 million decrease in community relations costs relating to projects. For the six month period ended June 30, 2015, the decrease was primarily due to a $17 million reduction in project costs at Jabal Sayid combined with a $13 million decrease in project costs at Pascua-Lama as we continue to drive down the cost of ongoing care and maintenance activities. This was partially offset by a 15% increase in costs relating to global exploration programs, specifically relating to Goldrush and Alturas, as well as an increase in corporate development costs. In line with our

strategic objectives to identify, explore, and develop only those districts that show potential for superior returns on invested capital, we have revised our exploration and evaluation guidance to $180 million to $230 million from our previous guidance of $220 million to $270 million. For a further breakdown of exploration, evaluation and project costs, refer to note 8 to the consolidated financial statements.

Finance Costs

For the three and six month periods ended June 30, 2015, finance costs were $6 million and $11 million lower, respectively, compared to the same prior year periods. The decreases in finance costs were primarily due to a $4 million and $9 million decrease, respectively, in accretion expense. Interest costs incurred were in line with the same prior year period. For a further breakdown of finance costs/income, refer to note 11 to the consolidated financial statements.

Impairment Charges

For the three and six month periods ended June 30, 2015, impairment charges of $35 million and $40 million were incurred, respectively, compared to $512 million and $524 million, respectively, in the same prior year periods. Impairment charges in second quarter and the first half of 2015 primarily relate to a write-down of power assets at our Pueblo Viejo mine. Impairment charges in the same prior year periods primarily relate to the reclassification of the Jabal Sayid project as held-for-sale in second quarter 2014. For a further breakdown of impairment charges, refer to note 10B and 17 to the consolidated financial statements.

Income Tax Expense

Income tax expense was $103 million in second quarter 2015. The tax rate for income in second quarter 2015 was 110%. After adjusting for the impact of de-recognition of a deferred tax asset, the impact of net currency translation losses on deferred tax balances, the impact of impairments, asset sales and non-hedge derivatives, and the impact of non-deductible foreign exchange losses, the underlying effective tax rate for ordinary income in the second quarter 2015 was 53%.

We record deferred tax charges or credits if changes in facts or circumstances affect the estimated tax basis of assets and therefore the amount of deferred tax assets or liabilities to reflect changing expectations in our ability to realize deferred tax assets. The interpretation of tax regulations and legislation and their application to our business is complex and subject to change. We have significant amounts of deferred tax assets, including tax

 

 

BARRICK SECOND QUARTER 2015   30   MANAGEMENT’S DISCUSSION AND ANALYSIS


loss carry forwards, and also deferred tax liabilities. Potential changes of any of these amounts, as well as our ability to realize deferred tax assets, could significantly affect net income or cash flow in future periods.

Operating Segments Performance

Review of Operating Segments Performance

Barrick’s business is organized into fourteen individual mine sites, one publicly traded company and one project. Barrick’s Chief Operating Decision Maker (“CODM”), the Co-Presidents, review the operating results, assess performance and make capital allocation decisions at the mine site, Company and/or project level. Therefore, each individual mine site and Acacia are operating segments for financial reporting purposes. For segment reporting purposes, we present our reportable operating segments as follows: eight individual gold mines, two individual copper mines, Acacia and our Pascua-Lama project. The remaining operating segments have been grouped into an “other” category consisting of our remaining gold mines.

Segment performance is evaluated based on a number of measures including operating income before tax, production levels and unit production costs. Certain costs are managed on a consolidated basis and are therefore not reflected in segment income. Starting January 1, 2015, we updated the allocation of our general and administration costs to individual mine sites to reflect the removal of all regional oversight and hold the mine sites directly accountable for the cost of the functional services they require to run their business.

 

 

BARRICK SECOND QUARTER 2015   31   MANAGEMENT’S DISCUSSION AND ANALYSIS


Summary of Operations

 

                             For the three months ended June 30  

 

    2015            20141        

 

    Gold
Produced
(ozs)
  Gold Sold
(ozs)
  Cash
Costs
($/oz)
  All-In
sustaining
Costs ($/oz)
       Gold
Produced
(ozs)
  Gold Sold
(ozs)
 

Cash

Costs

($/oz)

  All-In
  sustaining  
  Costs ($/oz)  

 

Cortez

  193   201   $599   $811      217   228   $474   $759

Goldstrike

  206   164   522   732      214   201   532   890

Pueblo Viejo (60%)

  131   151   553   682      161   157   421   601

Lagunas Norte

  155   160   325   509      115   118   395   593

Veladero

  151   153   510   961      189   222   582   740

 

Total Core Mines

  836   829   $ 506   $ 741      896   926   $493   $735

 

Turquoise Ridge (75%)

  52   53   $575   $780      48   45   $482   $687

Porgera (95%)

  118   125   910   1,128      120   119   952   1,026

Kalgoorlie (50%)

  81   85   778   886      84   80   805   958

Acacia (63.9%)2

  119   118   777   1,149      114   110   749   1,105

Cowal

  71   81   550   593      64   63   661   840

Hemlo

  42   43   868   1,147      48   51   867   1,091

Round Mountain (50%)

  47   47   564   807      41   43   851   1,077

Bald Mountain

  52   53   541   1,055      39   40   783   991

Golden Sunlight

  16   19   992   1,265      15   19   894   1,166

Ruby Hill

  3   3   665   600      14   13   771   841

 

Total Continuing Operations

  1,437   1,456   $604   $841      1,483   1,509   $609   $835

 

Pierina

  8   10   786   1,297      2   5   2,049   2,794

Marigold

  -   -   -   -      -   2   1,057   1,057

 

Total Divested/Closed Sites

  8   10   $786   $1,297      2   7   $1,766   $2,298

 

Total Gold3

  1,445   1,466   $605   $844      1,485   1,516   $615   $841

 

Total Consolidated Barrick

  1,445   1,466   $624   $895      1,485   1,516   $594   $865

 

    Copper
Produced
(lbs)
  Copper
    Sold (lbs)    
  C1 Cash
Costs
($/lb)
  C3 Cash Costs
($/lb)
       Copper
    Produced    
(lbs)
  Copper
Sold (lbs)
 

    C1 Cash    
Costs

($/lb)

    C3 Cash Costs  
  ($/lb)  

 

Zaldívar

  52   46   $ 1.85   $ 2.18      54   50   $ 1.85   $ 2.23

Lumwana

  63   66   2.01   2.73      13   23   2.49   3.17

 

Total Copper

  115   112   $ 1.94   $ 2.50      67   73   $ 2.04   $ 2.52

 

 

  1 

2014 cash costs per ounce for individual mine sites have been restated to exclude the impact of hedges.

  2 

Acacia presented on a 73.9% basis until February 28, 2014 and a 63.9% basis thereafter.

   3

Total gold cash costs and all-in sustaining costs per ounce exclude the impact of hedges and/or costs allocated to non-operating sites.

 

BARRICK SECOND QUARTER 2015   32   MANAGEMENT’S DISCUSSION AND ANALYSIS


  Cortez, Nevada USA

 

  Summary of Operating Data   For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014   % Change   2015       2014   % Change  

 

Total tonnes mined (000s)

  38,610       38,381   1%   78,258       75,776   3%  

Ore tonnes processed (000s)

  4,026       5,176   (22%)   9,183       12,309   (25%)  

Average grade (grams/tonne)

  1.73       1.53   13%   1.33       1.46   (9%)  

Gold produced (000s/oz)

  193       217   (11%)   326       444   (27%)  

Gold sold (000s/oz)

  201       228   (12%)   356       425   (16%)  

Cost of sales ($ millions)

  $ 195       $ 171   14%   $ 391       $ 300   30%  

Cash costs (per oz)1

  $ 599       $ 474   26%   $ 693       $ 436   59%  

All-in sustaining costs (per oz)1

  $ 811       $ 759   7%   $ 877       $ 711   23%  

All-in costs (per oz)1

  $ 898       $ 776   16%   $ 961       $ 734   31%  

 

 

  Summary of Financial Data

  For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014   % Change   2015       2014   % Change  

 

Segment EBIT ($ millions)

  $ 43       $ 121   (64%)   $ 34       $ 240   (86%)  

Segment EBITDA ($ millions)1

  $ 117       $ 184   (36%)   $ 178       $ 355   (50%)  

Capital expenditures ($ millions)2

  $ 57       $ 66   (14%)   $ 90       $ 120   (25%)  

Minesite sustaining

  $ 39       $ 62   (37%)   $ 60       $ 110   (45%)  

Minesite expansion

  $ 18       $ 4   350%   $ 30       $ 10   200%  

 

 

   1

 These are non-GAAP financial performance measures; for further information and a detailed reconciliation, please see pages 52 - 56 of this MD&A.

   2    Amounts presented exclude capitalized interest.

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 64% and 86% lower, respectively, than the same prior year periods primarily due to a significant reduction in sales volumes combined with a lower realized gold price.

Gold production for the three and six month period ended June 30, 2015 was 11% and 27% lower, respectively, compared to the same prior year periods. The decrease in second quarter 2015 was primarily due to the mining of mostly refractory ore from the underground, which is being stockpiled for shipment to Goldstrike, compared to the mining of primarily oxide ore from the Breccia zone in second quarter 2014. For the six month period ended June 30, 2015, the decrease was primarily due to the concentration of mining in the Cortez Hills phase 4, which has been primarily low grade leach ore, combined with the processing of lower grade Pipeline ore, whereas higher grade ore from the open pit was available for processing in the same prior year period.

Cost of sales for the three and six month period ended June 30, 2015 was 14% and 30% higher, respectively, compared to the same prior year periods. The increase for the three month period ended June 30, 2015 was primarily due to a reduction in capitalized stripping costs coming from Cortez Hills phase 4, partially offset by the impact of lower fuel costs and lower fuel consumption due to shorter hauls, productivity gains and a reduction in sales volumes. For the six month period ended June 30, 2015 the increase was primarily due to the

recognition of $75 million in inventory write-downs in the first half of 2015 as a result of the mining of low grade ore combined with the impact of high depreciation base for the Cortez Hills open pit, as well as the impact of lower capitalized stripping costs from Cortez Hills phase 4. Cash costs were $125 per ounce and $257 per ounce higher, respectively, for the three and six month periods ended June 30, 2015, compared to the same prior year periods. The increases were primarily due to higher cost of sales combined with the impact of lower sales volume on unit production costs. All-in sustaining costs increased by $52 per ounce and $166 per ounce over the same prior year periods due to higher cash costs, partially offset by a decrease in minesite sustaining capital expenditures.

Capital expenditures for the three and six month period ended June 30, 2015 decreased by 14% and 25%, respectively, compared to the same prior year periods. The decreases were primarily due to a reduction in minesite sustaining capital expenditures due to lower capitalized stripping costs, partially offset by an increase in minesite expansion capital expenditures relating to the Lower Zone and CHUG Deep South expansion.

We are committed to improving our cost structure, and in 2015 the focus will be on improving efficiency and reducing costs through several initiatives, including increased efficiency of open pit equipment, reduced administration staff and decreased diesel consumption. This has allowed us to mine more efficiently, but with the

 

 

BARRICK SECOND QUARTER 2015   33   MANAGEMENT’S DISCUSSION AND ANALYSIS


current lower grades, per ounce costs remain elevated. Once we move back into the higher grade areas of the mine, we expect to recognize significant savings on a per ounce basis. Efforts to reduce operating costs in 2015 are on track, and as a result planned capital expenditures for the year have been reduced.

Our guidance remains unchanged from our previous guidance range of 825 to 900 thousand ounces at cash costs of $560 to $610 per ounce and all-in sustaining costs of $760 to $835 per ounce. Production is expected to be higher in the second half of the year as the open pit transitions into higher grade material and the ramp-up of the thiosulfate circuit at Goldstrike allows for processing of existing Cortez stockpiles.

 

 

  Goldstrike, Nevada USA

 

  Summary of Operating Data   For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014   % Change   2015       2014   % Change  

 

Total tonnes mined (000s)

  11,336       20,848   (46%)   31,965       41,299   (23%)  

Ore tonnes processed (000s)

  1,417       1,123   26%   2,931       2,385   23%  

Average grade (grams/tonne)

  5.53       6.97   (21%)   5.36       7.24   (26%)  

Gold produced (000s/oz)

  206       214   (4%)   413       476   (13%)  

Gold sold (000s/oz)

  164       201   (18%)   363       483   (25%)  

Cost of sales ($ millions)

  $ 113       $ 137   (18%)   $ 262       $ 342   (23%)  

Cash costs (per oz)

  $ 522       $ 532   (2%)   $ 556       $ 558   -  

All-in sustaining costs (per oz)

  $ 732       $ 890   (18%)   $ 811       $ 812   -  

All-in costs (per oz)

  $ 760       $ 1,205   (37%)   $ 903       $ 1,074   (16%)  

 

 

Summary of Financial Data

  For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014   % Change   2015       2014   % Change  

 

Segment EBIT ($ millions)

  $ 72       $ 125   (42%)   $ 158       $ 278   (43%)  

Segment EBITDA ($ millions)

  $ 100       $ 155   (35%)   $ 218       $ 350   (39%)  

Capital expenditures ($ millions)

  $ 29       $ 132   (78%)   $ 113       $ 243   (53%)  

Minesite sustaining

  $ 24       $ 68   (65%)   $ 80       $ 116   (31%)  

Minesite expansion

  $ 5       $ 64   (92%)   $ 33       $ 127   (74%)  

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 42% and 43% lower, respectively, than the same prior year periods. The decreases were primarily due to a lower realized gold price combined with a decrease in sales volume, partially offset by a decrease in open pit and underground mining costs.

Gold production for the three and six month period ended June 30, 2015 was 4% and 13% lower, respectively, compared to the same prior year periods. The decreases are primarily due to a reduction in ore tonnes mined as a result of the stripping activities on the North Betze layback, with minimal ore mined to date. The increase in tonnes processed and the decrease in recoveries are related to the commissioning of the thiosulfate circuit, which is running low grade stockpiles during the ramp up phase.

Cost of sales for the three and six month period ended June 30, 2015 was 18% and 23% lower, respectively, compared to the same prior year periods. The decreases were primarily due to a decrease in open pit and underground mining costs resulting from a reduction in

fuel costs and fuel consumption as a result of shorter hauls; lower contractor services costs due to the completion of an underground development project; and an increase in capitalized development costs due to the capitalization of the stripping costs related to the North Betze layback. For the three and six month periods ended June 30, 2015 cash costs were $10 per ounce lower and in line, respectively, compared to the same prior year periods as the impact of the lower sales volume on unit production costs was offset by the decrease in cost of sales. All-in sustaining costs were $158 per ounce lower and in line over the same prior year periods. The decrease in all-in sustaining costs in second quarter 2015 was primarily due to the lower cash costs combined with a decrease in minesite sustaining and minesite expansion capital expenditures.

Capital expenditures for the three and six month period ended June 30, 2015 decreased by 78% and 53%, respectively, compared to the same prior year periods. The decreases were primarily due to a decrease in minesite expansion capital expenditure as a result of a

 

 

BARRICK SECOND QUARTER 2015   34   MANAGEMENT’S DISCUSSION AND ANALYSIS


reduction in costs associated with the thiosulfate circuit as it nears completion.

We are committed to improving our cost structure, and in 2015 we are working towards improving operating performance and reducing costs through several initiatives, including enhanced integration between maintenance and supply chain, which is resulting in

inventory optimizations, and also incremental improvements in underground contractor costs.

Our guidance remains unchanged from our previous guidance range of 1,000 to 1,150 thousand ounces at cash costs of $540 to $590 per ounce and all-in sustaining costs of $700 to $800 per ounce. Production will be largely weighted to the second half of the year as a result of the ramp up of the thiosulfate circuit.

 

 

  Pueblo Viejo, Dominican Republic

 

  Summary of Operating Data   For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014     % Change   2015       2014   % Change  

 

Total tonnes mined (000s)

  5,781       5,251     10%   10,325       10,364   -  

Ore tonnes processed (000s)

  1,042       975     7%   2,158       1,956   10%  

Average grade (grams/tonne)

  4.54       5.47     (17%)   4.41       5.50   (20%)  

Gold produced (000s/oz)

  131       161     (19%)   266       320   (17%)  

Gold sold (000s/oz)

  151       157     (4%)   285       330   (14%)  

Cost of sales ($ millions)

  $ 224       $ 218     3%   $ 455       $ 441   3%  

Cash costs (per oz)

  $ 553       $ 421     31%   $ 526       $ 442   19%  

All-in sustaining costs (per oz)

  $ 682       $ 601     13%   $ 673       $ 599   12%  

All-in costs (per oz)

  $ 682       $ 601     13%   $ 673       $ 599   12%  

 

 

  Summary of Financial Data

  For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014     % Change   2015       2014   % Change  

 

Segment EBIT ($ millions)

  $ 91       $ 164     (45%)   $ 228       $ 347   (34%)  

Segment EBITDA ($ millions)

  $ 161       $ 230     (30%)   $ 367       $ 467   (21%)  

Capital expenditures ($ millions)

  $ 17       $ 24     (29%)   $ 37       $ 43   (14%)  

Minesite sustaining

  $ 17       $ 24     (29%)   $ 37       $ 43   (14%)  

Minesite expansion

  -       -     -   -       -   -  

Project capex

  -       -     -   -       -   -  

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 45% and 34% lower, respectively, than the same prior year periods primarily due to a lower realized gold price combined with a decrease in sales volume.

Gold production for the three and six month period ended June 30, 2015 was 19% and 17% lower, respectively, compared to the same prior year periods. The decreases were primarily due to lower ore grades and decreased recovery rates as the ore mined in the first six months of 2015 was from the upper benches of Montenegro and Moore phase 2, which have lower ore grades and recoveries. The lower grades and recoveries in second quarter 2015 were partially offset by an increase in ore tonnes processed compared to the same prior year period.

Cost of sales for the three and six month period ended June 30, 2015 was 3% higher compared to the same prior year periods. The increases are primarily due to an

increase in the allocation of shared services costs to the site, partially offset by lower fuel costs, lower energy costs, and lower royalty costs. For the three and six month periods ended June 30, 2015, cash costs were $132 per ounce and $84 per ounce higher, respectively, compared to the same prior year periods. The increases were primarily due to the impact of lower sales volume on unit production costs. All-in sustaining costs increased by $81 per ounce and $74 per ounce, respectively, compared to the same prior year periods due to the higher cash costs, partially offset by a reduction in minesite sustaining capital expenditures.

Capital expenditures for the three and six month period ended June 30, 2015 decreased by 29% and 14%, respectively, compared to the same prior year periods. The decreases were primarily due to the deferral and cancellation of non-critical minesite sustaining capital expenditures in 2015.

 

 

BARRICK SECOND QUARTER 2015   35   MANAGEMENT’S DISCUSSION AND ANALYSIS


We are committed to improving our cost structure, and in 2015 the focus will be on improving efficiency and reducing costs through several initiatives, including optimizing ore blending and increasing autoclave availability, optimizing our maintenance strategies, as well as assessing alternatives to reduce energy costs.

Our guidance remains unchanged from our previous guidance range of 625 to 675 thousand ounces at cash

costs of $390 to $425 per ounce and all-in sustaining costs of $540 to $590 per ounce. Production is expected to be higher in the second half of the year as improved grades and higher recoveries are anticipated and higher throughput is anticipated due to higher autoclave availability (two planned maintenance shutdowns in the first half and only one in the second half of the year.)

 

 

  Lagunas Norte, Peru

 

  Summary of Operating Data   For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014     % Change   2015       2014   % Change  

 

Total tonnes mined (000s)

  12,315       13,115     (6%)   24,977       22,384   12%  

Ore tonnes processed (000s)

  5,356       5,261     2%   11,005       10,785   2%  

Average grade (grams/tonne)

  1.04       1.00     4%   1.11       0.95   18%  

Gold produced (000s/oz)

  155       115     35%   333       249   34%  

Gold sold (000s/oz)

  160       118     36%   327       270   21%  

Cost of sales ($ millions)

  $ 103       $ 61     69%   $ 202       $ 132   53%  

Cash costs (per oz)

  $ 325       $ 395     (18%)   $ 321       $ 365   (12%)  

All-in sustaining costs (per oz)

  $ 509       $ 593     (14%)   $ 483       $ 552   (13%)  

All-in costs (per oz)

  $ 509       $ 593     (14%)   $ 483       $ 552   (13%)  

 

 

  Summary of Financial Data

  For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014     % Change   2015       2014   % Change  

 

Segment EBIT ($ millions)

  $ 90       $ 93     (3%)   $ 194       $ 220   (12%)  

Segment EBITDA ($ millions)

  $ 136       $ 104     31%   $ 281       $ 246   14%  

Capital expenditures ($ millions)

  $ 18       $ 19     (5%)   $ 31       $ 42   (26%)  

Minesite sustaining

  $ 18       $ 19     (5%)   $ 31       $ 42   (26%)  

Minesite expansion

  -       -     -   -       -   -  

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 3% and 12% lower, respectively, than the same prior year periods. The decrease was primarily due to a lower realized gold price combined with higher depreciation expense, partially offset by an increase in sales volume.

Gold production for the three and six month period ended June 30, 2015 was 35% and 34% higher, respectively, compared to the same prior year periods. The increases were primarily due to the acceleration in the recovery of ounces as a result of the new leach pad and increased capacity provided by the carbon-in-circuit and Merrill-Crowe plants combined with the processing of higher grade ore.

Cost of sales for the three and six month period ended June 30, 2015 was 69% and 53% higher, respectively, compared to the same prior year periods. The increases were primarily due to higher depreciation expense arising from the depreciation of the carbon-in-circuit plant and new phase 5 leach pad and related facilities, which were

both commissioned at the end of 2014, as well as the newly commissioned water treatment plant. This was partially offset by a decrease in fuel, cyanide and lime costs. For the three and six month periods ended June 30, 2015, cash costs were $70 per ounce and $44 per ounce lower, respectively, compared to the same prior year periods. The decreases were primarily due to the impact of increased sales volumes on unit production costs together with the above reductions in costs of consumables. All-in sustaining costs decreased by $84 per ounce and $69 per ounce over the same prior year periods due to the lower cash costs combined with a decrease in minesite sustaining capital expenditures.

Capital expenditures for the three and six month period ended June 30, 2015 decreased by 5% and 26%, respectively, compared to the same prior year periods. The decreases were primarily due to completion in 2014 of the carbon-in-circuit plant, water treatment plants and the new phase 5 leach pad and related facilities. Capital expenditures in the first half of 2015 mainly include the

 

 

BARRICK SECOND QUARTER 2015   36   MANAGEMENT’S DISCUSSION AND ANALYSIS


construction of phase 6 of the leach pad, which is currently in the early stages of construction.

As part of our commitment towards continuous improvement of our cost structure, our focus in 2015 is improving efficiency and reducing costs through several initiatives, including reducing leach pad inventory, improving our maintenance strategy for the mine fleet engines, improving contract sourcing and pricing for consumables such as lime, reducing cyanide consumption and general and administrative costs.

In 2015, we continue to expect production to be in the range of 600 to 650 thousand ounces and now expect cash costs to be in the range of $350 to $400 per ounce and all-in sustaining costs to be in the range of $600 to $650 per ounce.

 

 

  Veladero, Argentina

 

  Summary of Operating Data   For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014     % Change   2015       2014   % Change  

 

Total tonnes mined (000s)

  23,130       16,824     37%   42,249       33,483   26%  

Ore tonnes processed (000s)

  7,628       7,597     -   14,808       14,382   3%  

Average grade (grams/tonne)

  0.80       1.00     (20%)   0.79       0.97   (19%)  

Gold produced (000s/oz)

  151       189     (20%)   300       347   (14%)  

Gold sold (000s/oz)

  153       222     (31%)   321       361   (11%)  

Cost of sales ($ millions)

  $ 110       $ 172     (36%)   $ 238       $ 292   (18%)  

Cash costs (per oz)

  $ 510       $ 582     (12%)   $ 542       $ 581   (7%)  

All-in sustaining costs (per oz)

  $ 961       $ 740     30%   $ 978       $ 768   27%  

All-in costs (per oz)

  $ 961       $ 740     30%   $ 978       $ 768   27%  

 

 

  Summary of Financial Data

  For the three months ended June 30   For the six months ended June 30  

 

   

 

2015    

  2014     % Change   2015       2014   % Change  

 

Segment EBIT ($ millions)

  $ 67       $ 101     (34%)   $ 140       $ 159   (12%)  

Segment EBITDA ($ millions)

  $ 93       $ 137     (32%)   $ 192       $ 225   (15%)  

Capital expenditures ($ millions)

  $ 68       $ 33     106%   $ 136       $ 64   113%  

Minesite sustaining

  $ 68       $ 33     106%   $ 136       $ 64   113%  

Minesite expansion

  -       -     -   -       -   -  

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 34% and 12% lower, respectively, than the same prior year periods. The decreases were primarily due to a decrease in sales volume combined with a lower realized gold price; partially offset a decrease in cost of sales.

Gold production for the three and six month periods ended June 30, 2015 was 20% and 14% lower, respectively, compared to the same prior year periods. The decreases were primarily due to lower ore grades from Federico phase 3, partially offset by increased throughput due to improved primary crusher availability.

Cost of sales for the three and six month period ended June 30, 2015 was 36% and 18% lower, respectively, compared to the same prior year periods. The decreases were primarily due to a reduction in operating costs resulting from an increase in capitalized stripping costs

combined with lower royalty costs as a result of lower sales volume, partially offset by an increase in the allocation of shared services costs to the site. For the three and six month periods ended June 30, 2015, cash costs were $72 per ounce and $39 per ounce lower, respectively, compared to the same prior year periods. The decreases were primarily due to the lower cost of sales, partially offset by the impact of lower production levels on unit production costs. All-in sustaining costs increased by $221 per ounce and $210 per ounce over the same prior year periods primarily due to an increase in minesite sustaining costs, partially offset by lower cash costs.

Capital expenditures for the three and six month period ended June 30, 2015 increased by 106% and 113%, respectively, compared to the same prior year periods. The increases were primarily due to an increase in minesite sustaining capital expenditures relating to the

 

 

BARRICK SECOND QUARTER 2015   37   MANAGEMENT’S DISCUSSION AND ANALYSIS


construction of the phase 4B and phase 5A leach pad expansions combined with higher capitalized stripping costs.

As part of our commitment to continuous cost improvement, we continue to work towards improving operating performance and reducing costs through improved maintenance and blasting activities, reduced contractor services costs, strict optimized capital allocation and recovery of ounces from inventory through management of the leach pad.

In 2015, we continue to expect production to be in the range of 575 to 625 thousand ounces and now expect cash costs to be in the range of $580 to $630 per ounce and all-in sustaining costs to be in the range of $950 to $1,035 per ounce.

 

 

  Turquoise Ridge, Nevada USA

 

  Summary of Operating Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

        2015

             2014              % Change              2015              2014              % Change    

 

 

Total tonnes mined (000s)

     90         78         15%         183         152         20%     

Ore tonnes processed (000s)

     94         85         11%         178         170         5%     

Average grade (grams/tonne)

     18.91         19.31         (2%)         19.23         20.26         (5%)     

Gold produced (000s/oz)

     52         48         8%         101         102         (1%)     

Gold sold (000s/oz)

     53         45         18%         99         101         (2%)     

Cost of sales ($ millions)

     $ 37         $ 26         42%         $ 68         $ 53         28%     

Cash costs (per oz)

     $ 575         $ 482         19%         $ 576         $ 442         30%     

All-in sustaining costs (per oz)

     $ 780         $ 687         14%         $ 747         $ 595         26%     

All-in costs (per oz)

     $ 780         $ 687         14%         $ 747         $ 595         26%     

 

 
  Summary of Financial Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

2015

     2014      % Change      2015      2014      % Change    

 

 

Segment EBIT ($ millions)

     $ 26         $ 31         (16%)         $ 50         $ 77         (35%)     

Segment EBITDA ($ millions)

     $ 32         $ 35         (9%)         $ 61         $ 85         (28%)     

Capital expenditures ($ millions)

     $ 10         $ 9         11%         $ 16         $ 15         7%     

Minesite sustaining

     $ 10         $ 9         11%         $ 16         $ 15         7%     

Minesite expansion

     -         -         -         -         -         -     

 

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 16% and 35% lower, respectively, than the same prior year periods. The decreases were primarily due to lower realized price combined with an increase in underground mining costs, partially offset by an increase in sales volume in second quarter 2015.

Gold production for the three and six month period ended June 30, 2015 was 8% higher and 1% lower, respectively, compared to the same prior year periods. The increased production in second quarter 2015 was primarily due to the processing of more ore tonnes resulting from increased productivity due to transitioning to fully mechanized topcuts in first quarter 2015, which were subsequently processed in second quarter 2015. For the six months ended June 30, 2015, the decrease in gold production was primarily due to the processing of lower grade ore.

Cost of sales for the three and six month period ended June 30, 2015 was 42% and 28% higher, respectively, compared to the same prior year periods. The increases were primarily due to an increase in underground labor costs, as we added manpower to support production growth, higher maintenance costs due to the timing of planned replacement of major components and higher processing costs resulting from the processing of increased ore tonnes. For the three and six month periods ended June 30, 2015, cash costs per ounce were $93 per ounce and $134 per ounce higher, respectively, compared to the same prior year periods. The increases were primarily due to higher costs of sales. For second quarter 2015, the increase was partially offset by the impact of higher sales volume on unit production costs. All-in sustaining costs increased by $93 per ounce and $152 per ounce over the same prior year periods due to

 

 

BARRICK SECOND QUARTER 2015   38   MANAGEMENT’S DISCUSSION AND ANALYSIS


the higher cash costs combined with slightly higher capital expenditures.

Capital expenditures for the three and six month period ended June 30, 2015 increased by 11% and 7%, respectively, compared to the same prior year periods. The increases were primarily due to higher minesite sustaining capital expenditures for water treatment and ventilation, partially offset by lower capitalized development costs, compared to the same prior year periods.

As part of our commitment to continuous cost improvement, we are working towards improving operating performance and reducing costs through increased productivity, including an initiative to increase tonnage per foot mined by increasing mining dimensions. This initiative has been successful and as a result will be extended to all topcut headings.

In 2015, we continue to expect production to be in the range of 175 to 200 thousand ounces at cash costs of $570 to $600 per ounce and now expect all-in sustaining costs to be in the range of $775 to $825 per ounce.

 

 

  Porgera, Papua New Guinea

 

  Summary of Operating Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

        2015

             2014              % Change              2015              2014              % Change    

 

 

Total tonnes mined (000s)

     4,727         3,634         30%         9,624         7,639         26%     

Ore tonnes processed (000s)

     1,435         1,406         2%         2,723         2,673         2%     

Average grade (grams/tonne)

     2.95         3.02         (2%)         3.13         3.03         3%     

Gold produced (000s/oz)

     118         120         (2%)         236         230         3%     

Gold sold (000s/oz)

     125         119         5%         240         236         2%     

Cost of sales ($ millions)

     $ 126         $ 133         (5%)         $ 234         $ 267         (12%)     

Cash costs (per oz)

     $ 910         $ 952         (4%)         $ 861         $ 952         (10%)     

All-in sustaining costs (per oz)

     $ 1,128         $ 1,026         10%         $ 1,099         $ 1,019         8%     

All-in costs (per oz)

     $ 1,128         $ 1,026         10%         $ 1,099         $ 1,019         8%     

 

 
  Summary of Financial Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

2015

     2014      % Change      2015      2014      % Change    

 

 

Segment EBIT ($ millions)

     $ 20         $ 18         11%         $ 55         $ 34         62%     

Segment EBITDA ($ millions)

     $ 32         $ 37         (14%)         $ 82         $ 75         9%     

Capital expenditures ($ millions)

     $ 26         $ 7         271%         $ 54         $ 12         350%     

Minesite sustaining

     $ 26         $ 7         271%         $ 54         $ 12         350%     

Minesite expansion

     -         -         -         -         -         -     

 

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 11% and 62% higher, respectively, than the same prior year periods. The increases were primarily due to a decrease in operating costs combined with an increase in sales volume, partially offset by a lower realized gold price.

Gold production for the three and six month period ended June 30, 2015 was 2% lower and 3% higher, respectively, compared to the same prior year periods. The decrease in second quarter 2015 was primarily due to lower ore grades as a result of processing low sulfur ore to mitigate current low lime availability issues and allow for continued mill production. For the six month period ended June 30, 2015, the increase in production was primarily due to higher head grade driven by the improved performance from both open pit and underground operations.

Cost of sales for the three and six month period ended June 30, 2015 was 5% and 12% lower, respectively, compared to the same prior year periods. The decreases were primarily due to lower operating costs as a result of a decrease in power and diesel costs, the impact of the devaluation of the Australian dollar, as well as an increase in capitalized stripping costs. For the three and six month periods ended June 30, 2015, cash costs were $42 and $91 per ounce lower, respectively, compared to the same prior year periods primarily due to the decrease in cost of sales combined with the impact of higher sales volumes on unit production costs. All-in sustaining costs increased by $102 per ounce and $80 per ounce over the same prior year periods due to a significant increase in capitalized stripping.

 

 

BARRICK SECOND QUARTER 2015   39   MANAGEMENT’S DISCUSSION AND ANALYSIS


Capital expenditures for the three and six month period ended June 30, 2015 increased by 271% and 350%, respectively, compared to the same prior year periods. The increases were primarily due to a significant increase in capitalized stripping costs as a result of a change in the 2015 mine plan that increased open pit mining activity combined with an increase in minesite sustaining capital expenditures due to the commencement of the

concentrate export project as well as a gas turbine power management system and controls project.

Due to the divestment of 50% of our ownership interest in Porgera, we now expect 2015 gold production to be in the range of 400 to 450 thousand ounces at cash costs of $775 to $825 per ounce and all-in sustaining costs of $1,025 to $1,125 per ounce.

 

 

  Kalgoorlie, Australia

 

  Summary of Operating Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

        2015

             2014              % Change              2015              2014              % Change    

 

 

Total tonnes mined (000s)

     10,243         8,606         19%         19,518         17,543         11%     

Ore tonnes processed (000s)

     1,535         1,471         4%         2,679         2,955         (9%)     

Average grade (grams/tonne)

     2.03         2.05         (1%)         1.96         1.98         (1%)     

Gold produced (000s/oz)

     81         84         (4%)         140         162         (14%)     

Gold sold (000s/oz)

     85         80         6%         145         170         (15%)     

Cost of sales ($ millions)

     $ 78         $ 75         4%         $ 144         $ 160         (10%)     

Cash costs (per oz)

     $ 778         $ 805         (3%)         $ 853         $ 814         5%     

All-in sustaining costs (per oz)

     $ 886         $ 958         (8%)         $ 1,045         $ 987         6%     

All-in costs (per oz)

     $ 886         $ 958         (8%)         $ 1,045         $ 987         6%     

 

 
  Summary of Financial Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

2015

     2014      % Change      2015      2014      % Change    

 

 

Segment EBIT ($ millions)

     $ 18         $ 29         (38%)         $ 27         $ 58         (53%)     

Segment EBITDA ($ millions)

     $ 31         $ 39         (21%)         $ 49         $ 79         (38%)     

Capital expenditures ($ millions)

     $ 6         $ 10         (40%)         $ 23         $ 26         (12%)     

Minesite sustaining

     $ 6         $ 10         (40%)         $ 23         $ 26         (12%)     

Minesite expansion

     -         -         -         -         -         -     

 

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 38% and 53% lower, respectively, than the same prior year periods. The decrease in second quarter 2015 was primarily due to a lower realized gold price combined with an increase in depreciation expense, partially offset by an increase in sales volume. For the six month period ended June 30, 2015, the decrease was primarily due to a reduction in sales volume combined with a lower realized gold price.

Gold production for the three and six month period ended June 30, 2015 was 4% and 14% lower, respectively, compared to the same prior year periods. The decreases were primarily due to increased maintenance time on the SAG mill and operational downtime as a result of issues relating to the conveyor and lube system.

Cost of sales for the three and six month period ended June 30, 2015 was 4% higher and 10% lower, respectively, compared to the same prior year periods. The increase in second quarter 2015 was primarily due to

more ore tonnes mined resulting in a decrease in capitalized stripping costs. For the six month period ended June 30, 2015 the decrease was primarily due to lower operating costs resulting from a decrease in ore tonnes processed combined with the impact of the devaluation of the Australian dollar. For the three and six month periods ended June 30, 2015, cash costs were $27 per ounce lower and $39 per ounce higher, respectively, compared to the same prior year periods. The decrease in second quarter 2015 was primarily due to the impact of higher sales volume on unit production costs. For the six month period ended June 30, 2015, the increase in cash costs per ounce were primarily due to the impact of lower sales volume on unit production costs combined with an increase in shared services costs allocated to the mine site. All-in sustaining costs were $72 per ounce lower and $58 per ounce higher, respectively, compared to the same prior year periods primarily reflecting the impact of lower and higher cash costs, respectively.

 

 

BARRICK SECOND QUARTER 2015   40   MANAGEMENT’S DISCUSSION AND ANALYSIS


Capital expenditures for the three and six month period ended June 30, 2015 decreased by 40% and 12%, respectively, compared to the same prior year periods. The decreases were primarily due to lower capitalized stripping costs, partially offset by higher capital expenditures associated with an emissions reduction program.

Our guidance remains unchanged from our previous guidance range of 315 to 330 thousand ounces at cash costs of $775 to $800 per ounce and all-in sustaining costs of $915 to $940 per ounce.

 

 

  Acacia Mining plc1, Africa

 

  100% basis                                          
  Summary of Operating Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
             2015              2014              % Change              2015              2014              % Change    

 

 

Total tonnes mined (000s)

     10,322         10,355         -         20,475         19,892         3%     

Ore tonnes processed (000s)

     2,484         1,925         29%         4,559         3,770         21%     

Average grade (grams/tonne)

     2.60         3.20         (19%)         2.80         3.20         (13%)     

Gold produced (000s/oz)

     186         178         5%         367         347         6%     

Gold sold (000s/oz)

     184         172         7%         355         331         7%     

Cost of sales ($ millions)

     $ 187         $ 172         9%         $ 361         $ 334         8%     

Cash costs (per oz)

     $ 777         $ 749         4%         $ 780         $ 752         4%     

All-in sustaining costs (per oz)

     $ 1,149         $ 1,105         4%         $ 1,133         $ 1,118         1%     

All-in costs (per oz)

     $ 1,140         $ 1,169         (2%)         $ 1,130         $ 1,198         (6%)     

 

 
  Summary of Financial Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
     2015      2014      % Change      2015      2014      % Change    

 

 

Segment EBIT ($ millions)

     $ 36         $ 44         (18%)         $ 69         $ 90         (23%)     

Segment EBITDA ($ millions)

     $ 70         $ 79         (11%)         $ 136         $ 155         (12%)     

Capital expenditures ($ millions)

     $ 42         $ 59         (29%)         $ 83         $ 113         (27%)     

Minesite sustaining

     $ 44         $ 49         (10%)         $ 84         $ 89         (6%)     

Minesite expansion

     ($ 2)         $ 10         (120%)         ($ 1)         $ 24         (104%)     

 

 
1 

Formerly African Barrick Gold plc.

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 18% and 23% lower, respectively, than the same prior year periods. The decreases were primarily due to higher cost of sales combined with a lower realized gold price, partially offset by an increase in sales volume.

Gold production for the three and six month period ended June 30, 2015 was 5% and 6% higher, respectively, compared to the same prior year periods. The increase for second quarter 2015 was due to increased production at Bulyanhulu, partially offset by lower production at North Mara and Buzwagi. For the six month period ended June 30, 2015, the increased production was due to higher production at Bulyanhulu and North Mara, partially offset by lower production at Buzwagi. Production at Bulyanhulu for the three and six month periods ended June 30, 2015 increased 42% and 26%, respectively, over the same prior year periods primarily due to increased production from the new CIL plant, which was commissioned in fourth quarter 2014,

combined with the mining of higher grade ore from the underground and improved throughput, partially offset by lower recoveries, due to instability issues relating to the elution circuit. The lower production at North Mara in second quarter 2015 was primarily due to the mining of lower grade ore from the Nyabirama pit and moving away from the main higher grade ore zone of the Gokona pit. Increased production at North Mara in the first half of 2015 was primarily due to increased throughput as a result of business improvement initiatives in the mining and milling areas. Production at Buzwagi decreased 17% and 10% compared to the same prior year periods, respectively, primarily due to lower grade, partially offset by increased recoveries resulting from process plant enhancements made in 2014 and increased throughput resulting from improved plant availability.

Cost of sales for the three and six month period ended June 30, 2015 was 9% and 8% higher, respectively, compared to the same prior year periods. The increases were primarily due to a decrease in capitalized stripping

 

 

BARRICK SECOND QUARTER 2015   41   MANAGEMENT’S DISCUSSION AND ANALYSIS


costs combined with an increase in contractor services costs, increased maintenance costs and higher consumable costs resulting from the CIL plant becoming operational. This was partially offset by lower labor costs as a result of headcount reductions and lower fuel costs. Cash costs were up 4% from the same prior year periods, primarily due to the increase in cost of sales, partially offset by the impact of higher sales volume on unit production costs. All-in sustaining costs for the three and six month periods ended June 30, 2015 increased 4% and 1%, respectively, over the same prior year periods reflecting the higher cash costs, partially offset by a decrease in minesite sustaining capital expenditures.

Capital expenditures for the three and six month period ended June 30, 2015 decreased by 29% and 27%, respectively, compared to the same prior year periods. The decreases were primarily due to a reduction in minesite expansion capital expenditures attributable to lower costs relating to the CIL plant which was commissioned in fourth quarter 2014 combined with a decrease in minesite sustaining capital expenditures arising from a reduction in capitalized stripping costs.

Our guidance remains unchanged from our previous guidance range of 480 to 510 thousand ounces (Barrick’s share) at cash costs of $695 to $725 per ounce and all-in sustaining costs of $1,050 to $1,100 per ounce.

 

 

Zaldívar, Chile

 

  Summary of Operating Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

        2015

             2014              % Change              2015              2014              % Change    

 

 

Copper produced (millions of lbs)

     52         54         (4%)         104         108         (4%)     

Copper sold (millions of lbs)

     46         50         (8%)         99         105         (6%)     

Cost of sales ($ millions)

     $ 101         $ 123         (18%)         $ 215         $ 234         (8%)     

C1 cash costs (per lb)

     $ 1.85         $ 1.85         -         $ 1.81         $ 1.76         3%     

C3 fully allocated costs (per lb)

     $ 2.18         $ 2.23         (2%)         $ 2.18         $ 2.13         2%     

 

 
  Summary of Financial Data   

For the three months ended June 30

    

For the six months ended June 30  

 

 

 
    

 

2015

     2014      % Change      2015      2014      % Change    

 

 

Segment EBIT ($ millions)

     $ 22         $ 50         (56%)         $ 49         $ 110         (55%)     

Segment EBITDA ($ millions)

     $ 38         $ 65         (42%)         $ 84         $ 143         (41%)     

Capital expenditures ($ millions)

     $ 15         $ 22         (32%)         $ 28         $ 52         (46%)     

Minesite sustaining

     $ 15         $ 22         (32%)         $ 28         $ 52         (46%)     

Minesite expansion

     -         -         -         -         -         -     

Project capex

     -         -         -         -         -         -     

 

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 56% and 55% lower, respectively, than the same prior year periods. The decreases were primarily due to a lower realized copper price combined with a decrease in sales volume.

Copper production for the three and six month periods ended June 30, 2015 was 4% lower compared to the same prior year periods. The decrease was primarily due to flooding at the mine as a result of a severe rain event at the end of first quarter 2015, which negatively impacted production in the first half of the year.

Cost of sales for three and six month periods ended June 30, 2015 were 18% and 8% lower, respectively, than the same prior year periods. The decrease in second quarter 2015 was primarily due to the purchase of copper cathode at market prices to satisfy contractual copper sales obligations in second quarter 2014. For the six

month period ended June 30, 2015, the decrease was primarily due to lower acid and maintenance costs. For the three and six month period ended June 30, 2015, C1 cash costs were in line and 3% higher, respectively, than the same prior year periods. The increase in the first half of 2015 was primarily due to the impact of lower sales volume on unit production costs combined with the an increase in shared services costs allocated to the mine site. C3 fully allocated costs per pound were $0.05 per pound lower and $0.05 per pound higher, respectively, compared to the same prior year periods, reflecting the effect of the above factors on C1 cash costs.

Capital expenditures for the three and six month period ended June 30, 2015 decreased by 32% and 46%, respectively, compared to the same prior year periods due to lower capitalized stripping costs.

 

 

BARRICK SECOND QUARTER 2015   42   MANAGEMENT’S DISCUSSION AND ANALYSIS


Our guidance remains unchanged from our previous guidance range of 230 to 250 million pounds at C1 cash costs of $1.65 to $1.95 per pound and C3 fully allocated costs to be in the range of $2.00 to $2.30 per pound.

 

 

Lumwana, Zambia

  Summary of Operating Data    For the three months ended June 30      For the six months ended June 30    

 

 
    

 

2015

     2014      % Change      2015      2014      % Change    

 

 

 

Copper produced (millions of lbs)

     63         13         385%         129         63         105%     

 

Copper sold (millions of lbs)

     66         23         187%         134         79         70%     

 

Cost of sales ($ millions)

     $ 136         $ 73         86%         $ 273         $ 219         25%     

 

C1 cash costs (per lb)

     $ 2.01         $ 2.49         (19%)         $ 1.95         $ 2.55         (24%)     

 

C3 fully allocated costs (per lb)

     $ 2.73         $ 3.21         (15%)         $ 2.60         $ 3.24         (20%)     

 

 

 

  Summary of Financial Data

   For the three months ended June 30     

For the six months ended June 30  

 

 

 
    

 

2015

     2014      % Change      2015      2014      % Change    

 

 

 

Segment EBIT ($ millions)

     ($ 6)         ($ 11)         45%         ($ 17)         ($ 24)         29%     

 

Segment EBITDA ($ millions)

     $ 3         $ 2         50%         $ 10         $ 12         (17%)     

 

Capital expenditures ($ millions)

     $ 29         $ 59         (51%)         $ 43         $ 91         (53%)     

 

Minesite sustaining

     $ 29         $ 59         (51%)         $ 43         $ 91         (53%)     

 

Minesite expansion

     -         -         -         -         -         -     

 

Project capex

     -         -         -         -         -         -     

 

 

Financial Results

Segment EBIT for the three and six month periods ended June 30, 2015 were 45% and 29% higher, respectively, than the same prior year periods. The increases are primarily due to an increase in sales volume resulting from the mill shutdown that occurred in second quarter 2014 as a result of the partial collapse of the terminal end of the main conveyor that negatively impacted production, partially offset by a lower realized copper price.

Copper production for the three and six month period ended June 30, 2015 was 385% and 105% higher, respectively, compared to the same prior year periods. The increases were primarily due to the conveyor collapse mentioned above combined with better operating conditions at the mine in 2015 resulting from less rainfall.

Cost of sales for the three and six month period ended June 30, 2015 was 86% and 25% higher, respectively, compared to the same prior year periods. The increases were primarily due to higher mining costs as a result of more ore tonnes mined compared to the same prior year periods, partially offset by lower depreciation expense resulting from the impairment charge taken in fourth quarter 2014. For the three and six month period ended June 30, 2015, C1 cash costs were 19% and 24% lower, respectively, than the same prior year periods. The decreases were primarily due to the impact of higher

sales volume on unit production costs and a continued positive trend in mining and processing efficiency resulting in a lower unit cost. C3 fully allocated costs per pound were $0.48 and $0.64 per pound lower respectively, compared to the same prior year periods reflecting the impact of lower C1 cash costs and lower depreciation as a result of the impairment taken in fourth quarter 2014. This was partially offset by a higher royalty rate of 20%, which was effective in the first six months of 2015, compared to 6% in the same prior year periods.

Capital expenditures for the three and six month period ended June 30, 2015 decreased by 51% and 53%, respectively, compared to the same prior year periods. The decreases were primarily due to lower capitalized stripping costs combined with the deferral of minesite sustaining expenditures in anticipation of the suspension of operations.

On April 20, 2015, the Zambian government announced amendments to the country’s mining tax regime that would replace the recently adopted 20 percent gross royalty on open pit mines with a nine percent royalty, along with the reintroduction of a 30 percent corporate income tax and a 15 percent variable profits tax. The legislation was passed in late July. In third quarter 2015 we will evaluate the potential for a reversal of previous impairments recorded in fourth quarter 2014.

 

 

BARRICK SECOND QUARTER 2015   43   MANAGEMENT’S DISCUSSION AND ANALYSIS


Also in second quarter 2015, the Zambian power authority (“ZESCO”) announced reduction to power generation necessitated by the low water levels in its reservoirs as a result of the poor rainfall experienced during the recent rainy season. We are working with industry and ZESCO to develop an optimal load shedding program to minimize the impact to production.

Our guidance remains unchanged from our previous guidance range of 250 to 270 million pounds at C1 cash costs of $1.90 to $2.15 per pound and C3 fully allocated costs to be in the range of $2.65 to $2.95 per pound.

 

 

 

 
FINANCIAL CONDITION REVIEW      
  Summary Balance Sheet and Key Financial Ratios      

 

 
  ($ millions, except ratios and share amounts)    As at June 30, 2015      As at December 31, 2014    

 

 

 

Total cash and equivalents

     $ 2,122         $ 2,699     

 

Current assets

     4,668         3,451     

 

Non-current assets

     26,403         27,729     

 

 

 

Total Assets

     $ 33,193         $ 33,879     

 

 

 

Current liabilities excluding short-term debt

     $ 2,126         $ 2,227     

 

Non-current liabilities excluding long-term debt

     5,472         5,709     

 

Debt (current and long-term)

     12,823         13,081     

 

 

 

Total Liabilities

     $ 20,421         $ 21,017     

 

 

 

Total shareholders’ equity

     10,169         10,247     

 

Non-controlling interests

     2,603         2,615     

 

 

 

Total Equity

     $ 12,772         $ 12,862     

 

 

 

Total common shares outstanding (millions of shares)1

     1,165         1,165     

 

 

Key Financial Ratios:

     

 

 

 

Current ratio2

     2.62:1         2.40:1     

 

Debt-to-equity3

     1.00:1         1.02:1     

 

Debt-to-total capitalization4

     0.38:1         0.39:1     

 

 

  1  Total common shares outstanding do not include 3.9 million stock options.

  2  Represents current assets divided by current liabilities (including short-term debt) as at June 30, 2015 and December 31, 2014.

  3  Represents debt divided by total shareholders’ equity (including minority interest) as at June 30, 2015 and December 31, 2014.

  4  Represents debt divided by capital stock and debt as at June 30, 2015 and December 31, 2014.

Balance Sheet Review

 

Total assets were $33.2 billion at June 30, 2015, in line with total assets at December 31, 2014. Our asset base is primarily comprised of non-current assets such as property, plant and equipment and goodwill, reflecting the capital intensive nature of the mining business and our history of growing through acquisitions. Other significant assets include production inventories, indirect taxes and other government receivables, and cash and equivalents. We typically do not carry a material accounts receivable balance, since only sales of concentrate and copper cathode have a settlement period.

Total liabilities at June 30, 2015 totaled $20 billion, consistent with total liabilities at December 31, 2014.

Shareholders’ Equity

 

  As at July 27, 2015    Number of shares    

 

 

 

Common shares

     1,164,669,758     

 

Stock options

     4,936,361     

 

 

Comprehensive Income

Comprehensive income consists of net income or loss, together with certain other economic gains and losses, which, collectively, are described as “other comprehensive income” or “OCI”, and excluded from the income statement.

For second quarter 2015 other comprehensive income was a gain of $57 million on an after-tax basis. The gain reflected gains of $37 million on hedge contracts

 

 

BARRICK SECOND QUARTER 2015   44   MANAGEMENT’S DISCUSSION AND ANALYSIS


designated for future periods, caused primarily by changes in currency exchange rates, copper prices, and fuel prices, reclassification adjustments totaling $35 million for losses on hedge contracts designated for 2015 (or ineffective amounts) that were transferred to earnings or PPE in conjunction with the recognition of the related hedge exposure, $2 million in gains for currency translation adjustments, and $1 million of gains recorded as a result of realized changes in equity investments, partially offset by $6 million of losses recorded as a result in changes in the fair value of investments held during the quarter, and $12 million loss due to tax expense on the overall increase in OCI.

Included in accumulated other comprehensive income at June 30, 2015 were unrealized pre-tax losses on currency, commodity and interest rate hedge contracts totaling $77 million. The balance primarily relates to currency hedge contracts that are designated against operating costs and capital expenditures, primarily over the next two years, including $12 million remaining in crystallized hedge losses related to our Australian dollar contracts that were settled in third quarter 2012 or closed out in the second half of 2013 and $16 million in crystallized hedge gains related to our silver contracts. These hedge gains/losses are expected to be recorded in earnings at the same time the corresponding hedged operating costs/depreciation are recorded in earnings.

Financial Position and Liquidity

Our capital structure comprises a mix of debt and shareholders’ equity. As at June 30, 2015, our total debt was $12.8 billion (debt net of cash and equivalents was $10.7 billion) and our debt-to-equity ratio and debt-to-total capitalization ratios were 1:1 and 0.38:1, respectively. This compares to debt as at December 31, 2014 of $13.1 billion (debt net of cash and equivalents was $10.4 billion), and debt-to-equity and debt-to-total capitalization ratios of 1.02:1 and 0.39:1, respectively. We have attributable debt principal of less than $100 million maturing by the end of 2015 and less than $800 million due by the end of 2017 (refer to note 18B to the consolidated financial statements). Our $4.0 billion revolving credit facility (“2012 Credit Facility”) is fully undrawn and expires in January 2020.

LOGO

 

1 

Amounts exclude capital leases and include 60% of the Pueblo Viejo financing and 100% of the Acacia financing.

Our top priority is restoring a strong balance sheet and we have targeted a reduction in our debt of $3 billion by the end of 2015. Thus far, we have announced agreements representing $2.45 billion from asset sales, joint ventures and streaming. In addition, we have also retired approximately $250 million in debt using cash on hand in the first half of this year. Collectively, these actions represent $2.7 billion, or 90 percent of our target. To begin with, we intend to use a portion of the net proceeds from the sale of the Cowal mine to redeem the outstanding $229 million aggregate principal amount of 2.90% notes due 2016 issued by Barrick. The notes will be redeemed on September 9, 2015 in accordance with their terms.

Our primary source of liquidity is our operating cash flow, which is dependent on the ability of our operations to deliver projected future cash flows. The company’s Board of Directors has reduced the quarterly dividend by 60 percent to $0.02 per share as a prudent measure to increase financial flexibility in light of current market conditions1. The Board of Directors has also approved a Dividend Reinvestment Plan (the “DRIP”), which we intend to make available to eligible shareholders for the first time with payment of the above-mentioned dividend on September 15, 2015 to shareholders of record on August 31, 2015. The DRIP will allow registered or beneficial holders of Barrick’s common shares who reside in Canada or the United States to reinvest cash dividends paid on their common shares in additional common shares at a discount to the average market price (as defined in the DRIP), currently set at 3% and subject to change at the discretion of the board of directors. Other options to enhance liquidity include drawing the $4.0 billion available under our 2012 Credit Facility (subject to

 

1 

The declaration and payment of dividends is at the discretion of the Board of Directors and will depend on the company’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

 

 

BARRICK SECOND QUARTER 2015   45   MANAGEMENT’S DISCUSSION AND ANALYSIS


compliance with covenants and the making of certain representations and warranties, this facility is available for drawdown as a source of financing); further non-core asset sales or joint ventures opportunities; and issuances of debt or equity securities in the public markets or to private investors, which could be undertaken for liquidity enhancement and/or in connection with establishing a strategic partnership. Many factors, including but not limited to, general market conditions and then prevailing metals prices could impact our ability to issue securities on acceptable terms, as could our credit ratings. Moody’s and S&P currently rate our long-term debt Baa2 (negative) and BBB- (stable), respectively after our credit rating was downgraded by S&P on March 2, 2015 to BBB- (stable), which is the lowest investment grade rating. Further changes in our ratings could affect the trading prices of our securities and our cost of capital. If we were to borrow under our 2012 Credit Facility, the applicable interest rate on the amounts borrowed would be based, in part, on our credit ratings at the time. The key financial covenant in the 2012 Credit Facility (undrawn as at August 5, 2015) requires Barrick to maintain a consolidated tangible net worth (“CTNW”) of at least $3.0 billion. Barrick’s CTNW was $5.7 billion as at June 30, 2015.

Cash and equivalents and cash flow

Total cash and cash equivalents as at June 30, 2015 were $2.1 billion2. Our cash position consists of a mix of term deposits, treasury bills and money market investments and is primarily denominated in US dollars.

 

 

 

 

 

 

 

2 

Includes $591 million cash held at Acacia and Pueblo Viejo, which may not be readily deployed outside of Acacia and/or Pueblo Viejo.

Summary of Cash Inflow (Outflow)

 

  ($ millions)    For the three months
ended June 30
    

For the six months  

ended June 30  

 

 

 
     2015      2014      2015      2014    

 

 

Operating inflows

     $ 525         $ 488         $ 841         $ 1,073     

 

 

Investing activities

           

Capital Expenditures1

     $ (499)         $ (616)         $ (1,013)         $ (1,232)     

Divestitures

     -         86         2         166     

Other

     1         (10)         45         10     

 

 

Total investing outflows

     $ (498)         $ (540)         $ (966)         $ (1,056)     

 

 

Financing activities

           

Net change in debt

     $ (85)         $ (18)         $ (267)         $ 40     

Dividends

     (58)         (58)         (116)         (116)     

Proceeds from divestment of 10% of issued ordinary share capital of Acacia

     -         -         -         186     

Other

     1         -         (42)         2     

 

 

Total financing (outflows) inflows

     $ (142)         $ (76)         $ (425)         $ 112     

 

 

Effect of exchange rate

     (1)         1         (7)         (4)     

 

 

Increase/(decrease) in cash and equivalents

     ($ 116)         ($ 127)         (557)         125     

 

 

 

  1 

The amounts include capitalized interest of $13 million and $17 million for the three and six months ended June 30, 2015, respectively (2014: $11 million and $13 million, respectively).

In second quarter 2015, we generated $525 million in operating cash flow, compared to $488 million of operating cash flow in the same prior year period. The increase in operating cash flow primarily reflects working capital improvements, particularly a lower draw down of accounts payable and accruals relating to our Pascua-Lama project, partially offset by lower realized gold and copper prices and lower gold sales volume. The most significant driver of the change in operating cash flow is market gold and copper prices. The ability of our operations to deliver projected future cash flows within the parameters of a reduced production profile, as well as future changes in gold and copper market prices, either favorable or unfavorable, will continue to have a material impact on our cash flow and liquidity. The principal uses of operating cash flow are to fund our capital expenditures, interest and dividend payments.

Cash used in investing activities in second quarter 2015 amounted to $498 million compared to $540 million in the same prior year period. The decrease of $42 million compared to second quarter 2014 is primarily due to a decrease in capital expenditures, partially offset by lower proceeds from divestitures as we completed the sale of two of our Australian mines and one of our North American mines in first half 2014. In second quarter 2015, capital expenditures on a cash basis were $499

 

 

BARRICK SECOND QUARTER 2015   46   MANAGEMENT’S DISCUSSION AND ANALYSIS


million compared to $616 million in second quarter 2014. The decrease of $117 million is primarily due to a decrease in project capital expenditures due to the suspension of our Pascua-Lama project, combined with a decrease in minesite development capital due to a reduction in capitalized stripping costs across most sites.

Net financing cash outflows for second quarter 2015 amounted to $142 million, compared to $76 million of cash outflows in the same prior year period. The net financing cash outflows for second quarter 2015 primarily consist of $88 million of debt repayments and $58 million of dividend payments. The net financing cash outflows for second quarter 2014 primarily consist of $18 million in debt repayments combined with $58 million of dividend payments.

 

 

  Summary of Financial Instruments

  As at June 30, 2015          

 

Financial Instrument

     Principal/Notional Amount            Associated Risks      

 

           

 

  Interest rate

Cash and equivalents

        $ 2,122       million   

 

  Credit

 

           

 

  Credit

Accounts receivable

        $ 354       million   

 

  Market

 

           

 

  Market

Other investments

        $ 12       million   

 

  Liquidity

 

 

Accounts payable

        $ 1,319       million      Liquidity

 

Debt

        $ 12,920       million   

 

  Interest rate

 

Restricted share units

        $ 52       million   

 

  Market

 

Deferred share units

        $ 4       million   

 

  Market

 

     CAD         120       million   

 

  Market/liquidity

     CLP         51,000       million   

 

  Credit

     AUD         250       million   

 

  Interest rate

Derivative instruments - currency contracts

     ZAR         171       million   

 

           

 

  Market/liquidity

           

 

  Credit

Derivative instruments - energy contracts

     Diesel         7       million bbls         

 

  Interest rate

 

 

Derivative instruments - interest rate contracts

     Receive float interest rate swaps         $ 142       million      Market/liquidity

 

Commitments and Contingencies

Litigation and Claims

We are currently subject to various litigation proceedings as disclosed in note 22 to the consolidated financial statements, and we may be involved in disputes with other parties in the future that may result in litigation. If we are unable to resolve these disputes favorably, it may have a material adverse impact on our financial condition, cash flow and results of operations

 

BARRICK SECOND QUARTER 2015   47   MANAGEMENT’S DISCUSSION AND ANALYSIS


Contractual Obligations and Commitments

 

             Payments due                       
             As at June 30, 2015                       

 

 
  ($ millions)    20151      2016      2017      2018      2019      2020 and
thereafter
     Total    

 

 

 

Debt2

                    

 

Repayment of principal

     $ 83         $ 660         $ 127         $ 873         $ 871         $ 9,985         $ 12,599     

 

Capital leases

     41         65         62         56         42         55         321     

 

Interest

     329         651         630         620         549         6,443         9,222     

 

Provisions for environmental rehabilitation3

     76         112         71         77         127         2,035         2,498     

 

Operating leases

     35         49         48         46         36         58         272     

 

Restricted share units

     18         9         20         5         -         -         52     

 

Pension benefits and other post-retirement benefits

     12         22         22         22         22         433         533     

 

Derivative liabilities4

     85         95         34         16         1         -         231     

 

Purchase obligations for supplies and consumables5

     390         349         216         145         119         264         1,483     

 

Capital commitments6

     72         18         9         9         5         8         121     

 

Social development costs7

     28         8         6         6         6         174         228     

 

 

 

Total

     $ 1,169         $ 2,038         $ 1,245         $ 1,875         $ 1,778         $ 19,455         $ 27,560     

 

 

 

  1 Represents the obligations and commitments for the remainder of the year.
  2

Debt and Interest - Our debt obligations do not include any subjective acceleration clauses or other clauses that enable the holder of the debt to call for early repayment, except in the event that we breach any of the terms and conditions of the debt or for other customary events of default. The debt and interest amounts include 100% of the Pueblo Viejo financing, even though our attributable share is 60 per cent of this total, consistent with our ownership interest in the mine. We are not required to post any collateral under any debt obligations. Projected interest payments on variable rate debt were based on interest rates in effect at June 30, 2015. Interest is calculated on our long-term debt obligations using both fixed and variable rates.

  3

Provisions for Environmental Rehabilitation - Amounts presented in the table represent the undiscounted uninflated future payments for the expected cost of provisions for environmental rehabilitation.

  4

Derivative Liabilities - Amounts presented in the table relate to derivative contracts disclosed under note 18C to the consolidated financial statements. Payments related to derivative contracts may be subject to change given variable market conditions.

  5

Purchase Obligations for Supplies and Consumables - Includes commitments related to new purchase obligations to secure a supply of acid, tires and cyanide for our production process.

  6

Capital Commitments - Purchase obligations for capital expenditures include only those items where binding commitments have been entered into.

  7

Social Development Costs - Includes Pascua-Lama’s commitment related to the potential funding of a power transmission line in Argentina of $93 million, expected to be paid in 2020 and thereafter.

 

 

INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting and disclosure controls and procedures as defined in our 2014 annual MD&A.

Together, the internal control over financial reporting and disclosure controls and procedures frameworks provide internal control over financial reporting and disclosure. Due to its inherent limitations, internal control over financial reporting and disclosure may not prevent or detect all misstatements. Further, the effectiveness of internal control is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may change.

Management will continue to monitor the effectiveness of its internal control over financial reporting and disclosure controls and procedures under the new organizational structure and may make modifications from time to time as considered necessary.

 

 

BARRICK SECOND QUARTER 2015   48   MANAGEMENT’S DISCUSSION AND ANALYSIS


 

REVIEW OF QUARTERLY RESULTS

Quarterly Information1

 

     2015      2014      2013    

 

 
  ($ millions, except where indicated)    Q2      Q1      Q4      Q3      Q2      Q1      Q4      Q3    

 

 

 

Revenues

     $ 2,231         $ 2,245         $ 2,510         $ 2,598         $ 2,458         $ 2,647         $ 2,942         $ 2,985     

 

Realized price per ounce - gold2

     1,190         1,219         1,204         1,285         1,289         1,285         1,272         1,323     

 

Realized price per pound - copper2

     2.66         2.55         2.91         3.09         3.17         3.03         3.34         3.40     

 

Cost of sales

     1,689         1,708         1,799         1,642         1,631         1,719         1,853         1,788     

 

Net earnings (loss)

     (9)         57         (2,851)         125         (269)         88         (2,830)         172     

 

Per share (dollars)2,3

     (0.01)         0.05         (2.45)         0.11         (0.23)         0.08         (2.61)         0.17     

 

Adjusted net earnings2

     60         62         174         222         159         238         406         577     

 

Per share (dollars)2,3

     0.05         0.05         0.15         0.19         0.14         0.20         0.37         0.58     

 

Operating cash flow

     525         316         371         852         488         585         1,016         1,231     

 

Adjusted operating cash flow2

     $ 525         $ 316         $ 371         $ 852         $ 488         $ 585         $ 1,085         $ 1,300     

 

 

 

  1 Sum of all the quarters may not add up to the annual total due to rounding.
  2 Calculated using weighted average number of shares outstanding under the basic method of earnings per share.
  3

Realized price, adjusted net earnings, adjusted EPS and adjusted operating cash flow are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please see pages 50 - 56 of this MD&A.

 

Our recent financial results reflect a trend of declining spot gold prices, and as a result of an emphasis on cost control and maximizing free cash flow, costs have also decreased. Our adjusted net earnings and adjusted operating cash flow levels have fluctuated with gold and copper realized prices and production levels each quarter. In fourth quarter 2014, we recorded asset and goodwill impairments of $2.8 billion (net of tax effects and non-controlling interests), primarily at Lumwana, Zaldívar and Cerro Casale. The net loss in second quarter 2014 reflected asset and goodwill impairment charges of $514 million relating to Jabal Sayid as a result

of classifying the project as held for sale. In fourth quarter 2013, we recorded asset and goodwill impairment charges totaling $2.8 billion (net of tax effects and non-controlling interests), primarily at Pascua-Lama, Porgera, Veladero and goodwill related to our Australia Pacific segment. The net loss in second quarter 2013 reflected asset and goodwill impairment charges totaling $8.7 billion (net of tax and non-controlling interest effects), primarily at Pascua-Lama, Buzwagi, Jabal Sayid and goodwill related to our global copper, Australia Pacific and Capital Projects segments.

 

 

 

IFRS CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

 

Management has discussed the development and determination of our critical accounting estimates and significant accounting policies with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure relating to such estimates and policies in conjunction with its review of this MD&A. The accounting policies and methods we utilize determine how we report our financial condition and results of operations, and they may require management to make estimates or rely on assumptions about matters that are inherently uncertain. Our significant accounting policies are disclosed in note 2 of our most recent Annual Consolidated Financial Statements. A summary of current and future accounting policy changes is disclosed in notes 2B and 2C of the accompanying interim consolidated financial statements, respectively, including our early adoption of IFRS 9 Financial Instruments in first quarter 2015.

Critical Accounting Estimates and Judgments

Certain accounting estimates have been identified as being “critical” to the presentation of our financial condition and results of operations because they require us to make subjective and/or complex judgments about matters that are inherently uncertain; or there is a reasonable likelihood that materially different amounts could be reported under different conditions or using different assumptions and estimates. Our significant accounting judgments, estimates and assumptions are disclosed in note 3 of the Annual Consolidated Financial Statements and an update is provided in note 3 of the accompanying interim consolidated financial statements.

Pascua-Lama

The Pascua-Lama project received $570 million in value added tax (“VAT”) refunds in Chile relating to the development of the Chilean side of the project. These amounts must be repaid if the project does not enter

 

 

BARRICK SECOND QUARTER 2015   49   MANAGEMENT’S DISCUSSION AND ANALYSIS


production by 2017. However, in light of the temporary suspension of construction of the Pascua-Lama project, Barrick currently expects to be able to extend the 2017 deadline in order to avoid repayment of these amounts. The Pascua-Lama project has also recorded $437 million in VAT recoverable in Argentina relating to the development of the Argentine side of the project. These amounts may not be recoverable if the project does not enter into production and are subject to devaluation risk as the amounts are recoverable in Argentine pesos.

Accounting for impairment of non-current assets

In accordance with our accounting policy, goodwill is tested for impairment in the fourth quarter and also when there is an indicator of impairment. Non-current assets are tested for impairment when events or changes in circumstances suggest that the carrying amount may not be recoverable. No potential indicators of impairment at our operating segment level were identified in second quarter 2015. Based on the results of our last impairment test performed in fourth quarter 2014, the carrying value of the CGUs that are most sensitive to the change in sales prices used in the annual test are:

 

 
  As at June 30, 2015    Carrying value    

 

 

Cortez1

     $3,824     

 

Zaldívar1,2

     2,420     

 

Pascua-Lama2

     1,263     

 

Veladero1

     1,090     

 

Bald Mountain2

     522     

 

Cerro Casale2

     514     

 

Lumwana2

     335     

 

Round Mountain2

     151     

 

 
1 

Carrying value includes goodwill.

2 

These CGUs have been impaired or had an impairment reversal in 2014 and therefore their fair value approximates carrying value.

As disclosed on page 25, the Zambian government announced amendments to the country’s mining tax regime. The legislation was passed in late July. In third quarter 2015 we will evaluate the potential for a reversal of previous impairments recorded in fourth quarter 2014.

Subsequent to quarter end, the trading price of the company’s shares declined such that the carrying value of our net assets exceeded our market capitalization, which is a potential indicator of impairment. If this potential indicator of impairment exists at the end of third quarter 2015, we may be required to conduct an impairment assessment.

As noted on page 45, the key financial covenant in the 2012 Credit Facility requires Barrick to maintain a CTNW of at least $3.0 billion. Barrick’s CTNW would be reduced by the amount of any non-current asset impairments, repayments of VAT refunds or write-downs of VAT receivables. Barrick’s CTNW was $5.7 billion as at June 30, 2015.

 

 

 

NON-GAAP FINANCIAL PERFORMANCE MEASURES

 

We use certain non-GAAP financial performance measures in our MD&A. For a detailed description of each of the non-GAAP measures used in this MD&A, please refer to the Non-GAAP Financial Performance Measures in our 2014 annual MD&A. The non-GAAP financial performance measures set out in this MD&A are intended to provide additional information to investors and do not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Starting with our first quarter 2015 MD&A, we have amended our calculation of cash costs to exclude hedge gains/losses in the individual mine site figures. Hedge gains/losses will be included in the

consolidated company cash costs, but are not allocated because hedging is done at a corporate level and not within the control of the mine site. Comparative figures have been restated to reflect this change.

Also starting with our first quarter 2015 MD&A, we have begun including costs that were formerly part of operating segment administration costs in cash costs. This was done to reflect the change in our operating structure that occurred at the end of 2014 to remove all regional oversight and hold the mine sites directly accountable for the cost of the functional services they require to run their business.

 

 

BARRICK SECOND QUARTER 2015   50   MANAGEMENT’S DISCUSSION AND ANALYSIS


Reconciliation of Net Earnings to Adjusted Net Earnings and Adjusted Net Earnings per Share1

 

  ($ millions, except per share amounts in dollars)    For the three months ended June 30      For the six months ended June 30    

 

 
     2015      2014      2015      2014    

 

 

Net earnings (loss) attributable to equity holders of the Company

     $ (9)         ($ 269)         $ 48         ($ 181)     

Impairment charges related to intangibles, goodwill, property, plant and equipment, and investments2

     22         525         25         536     

Acquisition/disposition (gains)/losses3

     (4)         (24)         (26)         (23)     

Foreign currency translation (gains)/losses4

     30         31         36         144     

Tax adjustments5

     12         (112)         12         (112)     

Other expense adjustments6

     3         42         21         85     

Unrealized losses/(gains) on non-hedge derivative instruments7

     6         (34)         6         (52)     

 

 

Adjusted net earnings

     $ 60         $ 159         $ 122         $ 397     

 

 

Net earnings (loss) per share8

     (0.01)         (0.23)         0.04         (0.16)     

Adjusted net earnings per share8

     0.05         0.14         0.10         0.34     

 

 
  1

Amounts presented in this table are after-tax and net of non-controlling interest.

  2

Impairment charges for the three and six month period ended June 30, 2015 is presented net of tax and non-controlling interest $13 million and $14 million expense, respectively (2014: ($13) million and ($11) million benefit, respectively).

  3

Acquisition/disposition losses for the three and six month period ended June 30, 2015 is presented net of tax ($2) million benefit and $1 million expense, respectively (2014: ($3) million and ($1) million benefit, respectively).

  4

Foreign currency translation losses for the three and six month period ended June 30, 2015 is presented net of tax $8 million and $7 million expense, respectively (2014: $4 million and $9 million expense, respectively).

  5

Tax adjustments for the three and six month period ended June 30, 2015 is presented net of non-controlling interest $8 million expense, respectively (2014: nil, respectively).

  6

Other expense adjustments for the three and six month period ended June 30, 2015 is presented net of tax nil and $8 million expense, respectively (2014: $13 million and $19 million expense, respectively).

  7

Unrealized losses/(gains) on non-hedge derivative instruments for the three and six month period ended June 30, 2015 is presented net of tax ($3) million and ($2) million benefit, respectively (2014: $11 million and $17 million expense, respectively).

  8

Calculated using weighted average number of shares outstanding under the basic method of earnings per share.

Reconciliation of Operating Cash Flow to Free Cash Flow

 

  ($ millions)    For the three months ended June 30                          For the six months ended June 30    

 

 
     2015      2014      2015      2014    

 

 

Operating cash flow

     $ 525         $ 488         $ 841         $ 1,073     

Capital expenditures

     (499)         (616)         (1,013)         (1,232)     

 

 

Free cash flow

     $ 26         ($ 128)         ($ 172)         ($ 159)     

 

 

 

BARRICK SECOND QUARTER 2015   51   MANAGEMENT’S DISCUSSION AND ANALYSIS


Reconciliation of Gold Cost of Sales to Cash costs per ounce, All-in sustaining costs per ounce and All-in costs per ounce

 

  ($ millions, except per ounce information in dollars)         For the three months ended
June 30
     For the six months ended
June 30  
 

 

 
         Reference    2015      2014      2015      2014    

 

 
 

Cost of sales

   A      $ 1,410         $ 1,407         $ 2,834         $ 2,851     
 

Cost of sales applicable to non-controlling interests1

   B      (137)         (131)         (294)         (252)     
 

Cost of sales applicable to power sales

   C      (16)         (22)         (29)         (35)     
 

Other metal sales

   D      (32)         (44)         (74)         (92)     
 

Realized non-hedge (gains)/losses

   E      27         (5)         47         (9)     
 

Treatment and refinement charges

   F      3         3         6         3     
 

 

 
 

Total production costs

        $ 1,255         $ 1,208         $ 2,490         $ 2,466     
 

 

 
 

Depreciation

   G      ($ 339)         ($ 306)         ($ 668)         ($ 623)     
 

 

 
 

Cash Costs

        $ 916         $ 902         $ 1,822         $ 1,843     
 

 

 
 

General & administrative costs

   H      56         66         111         153     
 

Rehabilitation - accretion and amortization (operating sites)

   I      37         31         71         64     
 

Mine on-site exploration and evaluation costs

   J      15         6         21         8     
 

Mine development expenditures2

   K      164         177         330         365     
 

Sustaining capital expenditures2

   K      125         130         259         224     
 

 

 
 

All-in sustaining costs

        $ 1,313         $ 1,312         $ 2,614         $ 2,657     
 

 

 
 

Community relations costs not related to current operations

   L      4         7         7         12     
 

Rehabilitation - accretion and amortization not related to current operations

   I      3         3         6         8     
 

Exploration and evaluation costs (non-sustaining)

   J      34         44         69         72     
 

Non-sustaining capital expenditures2

              
 

Pascua-Lama

   K      (4)         (12)         -         31     
 

Cortez

   K      18         4         30         10     
 

Goldstrike thiosulfate project

   K      5         63         33         127     
 

Bulyanhulu CIL

   K      -         6         (1)         15     
 

Hemlo

   K      -         -         37         -     
 

Other

   K      27         7         39         11     
 

 

 
 

All-in costs

        $ 1,400         $ 1,434         $ 2,834         $ 2,943     
 

 

 
 

Ounces sold - consolidated basis (000s ounces)

        1,624         1,683         3,208         3,464     
 

Ounces sold - non-controlling interest (000s ounces)1

        (158)         (167)         (357)         (330)     
 

Ounces sold - equity basis (000s ounces)

        1,466         1,516         2,851         3,134     
 

 

 
 

Total production costs per ounce3

        $ 855         $ 796         $ 874         $ 787     
 

 

 
 

Cash costs per ounce3

        $ 624         $ 594         $ 640         $ 588     
 

Cash costs per ounce (on a co-product basis)3,4

        $ 648         $ 615         $ 666         $ 610     
 

 

 
 

All-in sustaining costs per ounce3

        $ 895         $ 865         $ 918         $ 849     
 

All-in sustaining costs per ounce (on a co-product basis)3,4

        $ 919         $ 886         $ 944         $ 871     
 

 

 
 

All-in costs per ounce3

        $ 954         $ 945         $ 995         $ 940     
 

All-in costs per ounce (on a co-product basis)3,4

        $ 978         $ 966         $ 1,021         $ 962     
 

 

 
  1 

Relates to interest in Pueblo Viejo and Acacia held by outside shareholders.

  2 

Amounts represent our share of capital expenditures.

  3 

Total production costs, cash costs, all-in sustaining costs, and all-in costs per ounce may not calculate based on amounts presented in this table due to rounding.

  4 

Amounts presented on a co-product basis remove the impact of other metal sales (net of non-controlling interest) from cost per ounce calculations that are produced as a by-product of our gold production.

 

BARRICK SECOND QUARTER 2015   52   MANAGEMENT’S DISCUSSION AND ANALYSIS


($ millions, except per ounce information in dollars)    For the three months ended June 30      For the six months ended June 30    

 

 
          2015      2014      2015      2014    

 

 
  

References

           

A

  

Cost of sales - gold

           
  

Cost of sales (statement of income)

     $ 1,689         $ 1,631         $ 3,397         $ 3,350     
  

Less: cost of sales - copper

     (237)         (198)         (488)         (451)     
  

Direct mining, royalties and community relations

     212         169         426         384     
  

Depreciation

     25         30         62         71     
  

Hedge gains

     -         (1)         -         (4)     
  

Less: cost of sales - non-operating sites

     -         (2)         -         (5)     
  

Less: cost of sales - corporate

     (42)         (24)         (75)         (43)     
  

 

 
  

Total Cost of Sales - Gold

     $ 1,410         1,407         $ 2,834         2,851     
  

 

 

B

  

Cost of sales applicable to non-controlling interests

           
  

Cost of sales applicable to Acacia (Note 5)

           
  

Direct mining, royalties and community relations

     $ 153         $ 137         $ 294         $ 269     
  

Depreciation

     34         35         67         65     
  

 

 
  

Total related to Acacia

     $ 187         $ 172         $ 361         $ 334     
  

 

 
  

Portion attributable to non-controlling interest

     $ 63         $ 60         $ 124         $ 104     
  

 

 
  

Cost of sales applicable to Pueblo Viejo (Note 5)

           
  

Direct mining, royalties and community relations

     $ 154         $ 152         $ 316         $ 321     
  

Depreciation

     70         66         139         120     
  

 

 
  

Total related to Pueblo Viejo

     $ 224         $ 218         $ 455         $ 441     
  

 

 
  

Portion attributable to non-controlling interest

     $ 74         $ 71         $ 170         $ 148     
  

 

 
  

Cost of sales applicable to non-controlling interests

     $ 137         $ 131         $ 294         $ 252     
  

 

 

C

  

Cost of sales applicable to power sales

  
  

Equal to the cost of sales related to power sales from our Pueblo Viejo mine that are included in consolidated costs of sales but excluded from cash costs. These figures cannot be tied directly to the financial statements or notes.

   

D

  

Other metal sales

  
  

By-product revenues from metals produced in conjunction with gold are deducted from the costs incurred to produce gold (Note 6). By product revenues from metals produced net of copper, power revenues and non-controlling interest for the three and six months ended June 30, 2015 were $18 million and $43 million, respectively (2014: $33 million and $70 million, respectively).

    

E

  

Realized non-hedge gains/losses on fuel hedges

  
  

(Gains)/Losses on non-hedge derivatives (Note 18D)

     ($ 8)         $ 44         ($ 11)         $ 65   
  

Less: unrealized (gains)/losses and de-designated realized losses

     35         (49)         58         (74)   
  

 

 
  

Realized non-hedge (gains)/losses

     $ 27         ($ 5)         $ 47         ($ 9)   
  

 

 

F

  

Treatment and refinement charges

  
  

Treatment and refinement charges, which are recorded against concentrate revenues, for the three and six months ended June 30, 2015 were $3 million and $6 million, respectively (2014: $3 million and $3 million, respectively).

   

 

BARRICK SECOND QUARTER 2015   53   MANAGEMENT’S DISCUSSION AND ANALYSIS


  ($ millions, except per ounce information in dollars)    For the three months ended June 30      For the six months ended June 30    

 

 
         2015      2014      2015      2014    

 

 
  G     Depreciation - gold      
    Depreciation (Note 7)      $ 419         $ 400         $ 840         $ 802     
    Less: copper depreciation      (25)         (30)         (62)         (71)     
    Less: NCI portion      (39)         (38)         (83)         (66)     
    Less: Depreciation - corporate assets      (16)         (26)         (27)         (42)     
 

 

 
    Total depreciation - gold      $ 339         $ 306         $ 668         $ 623     
 

 

 
  H     General & administrative costs      
 

Total general & administrative costs (statement of income)

     $ 70         $ 82         $ 137         $ 185     
 

Less: non-gold and non-operating general & administrative costs

     (5)         (13)         (12)         (26)     
    Less: NCI portion      (6)         (4)         (10)         (7)     
    Add: World Gold Council fees      -         1         -         2     
    Less: non-recurring items      (3)         -         (4)         (1)     
 

 

 
    Total general & administrative costs      $ 56         $ 66         $ 111         $ 153     
 

 

 
  I     Rehabilitation - accretion and amortization   
 

Includes depreciation (Note 7) on the assets related to rehabilitation provisions of our gold operations of $27 million and $50 million for the three and six months ended June 30, 2015, respectively (2014: $18 million and $37 million, respectively) and accretion (Note 11) on the rehabilitation provision of our gold operations of $13 million and $27 million for the three and six months ended June 30, 2015, respectively (2014: $16 million and $35 million, respectively).

     

  J     Exploration and evaluation costs      
    Exploration and evaluation costs (Note 8)      $ 52         $ 53         $ 97         $ 85     
 

Less: exploration and evaluation costs - non-gold & NCI

     (3)         (3)         (7)         (5)     
 

 

 
    Total exploration and evaluation costs - gold      $ 49         $ 50         $ 90         $ 80     
 

 

 
    Exploration & evaluation costs (sustaining)      15         6         21         8     
    Exploration and evaluation costs (non-sustaining)      34         44         69         72     
 

 

 
    Total exploration and evaluation costs - gold      $ 49         $ 50         $ 90         $ 80     
 

 

 
  K     Capital expenditures      
    Gold segments (Note 5)      $ 369         $ 417         $ 792         $ 813     
    Pascua-Lama operating unit (Note 5)      (4)         (12)         -         31     
    Other gold projects      5         16         7         24     
 

 

 
    Capital expenditures - gold      $ 370         $ 421         $ 799         $ 868     
 

 

 
    Less: NCI portion      (27)         (39)         (55)         (71)     
    Less: capitalized interest (Note 11)      (8)         (7)         (17)         (14)     
 

 

 
    Total capital expenditures - gold      $ 335         $ 375         $ 727         $ 783     
 

 

 
    Mine development expenditures      164         177         330         365     
    Sustaining capital expenditures      125         130         259         224     
    Non-sustaining capital expenditures      46         68         138         194     
 

 

 
    Total capital expenditures - gold      $ 335         $ 375         $727         $783     
 

 

 
  L     Community relations costs      
    Community relations costs (Note 7)      $ 17         $ 19         $ 28         $ 33     
 

Less: community relations costs relating to current operations

     (13)         (12)         (21)         (21)     
 

 

 
 

Community relations costs not related to current operations

     $ 4         $ 7         $ 7         $ 12     
 

 

 

 

BARRICK SECOND QUARTER 2015   54   MANAGEMENT’S DISCUSSION AND ANALYSIS


Reconciliation of Copper Cost of Sales to C1 cash costs per pound and C3 fully allocated costs per pound

  

  ($ millions, except per pound information in dollars)    For the three months ended June 30             For the six months ended June 30    

 

 
     2015      2014             2015      2014    

 

 

Cost of sales

     $ 237         $ 196            $ 488         $ 451     

Depreciation/amortization

     (25)         (28)            (62)         (69)     

Treatment and refinement charges

     41         14            83         47     

Less: royalties

     (36)         (6)                          (69)         (17)     

Non-routine charges

     -         -            -         (1)     

Other metal sales

     -         -            -         (1)     

Other1

     -         (27)            -         (27)     

 

 

C1 cash cost of sales

     $ 217         $ 149            $ 440         $ 383     

 

 

Depreciation/amortization

     25         28            62         69     

Royalties

     36         6            69         17     

Non-routine charges

     -         -            -         1     

Other expense (income)

     1         2            (7)         3     

 

 

C3 fully allocated cost of sales

     $ 279         $ 185            $ 564         $ 473     

 

 

Pounds sold - consolidated basis (millions pounds)

     112         73            233         184     

 

 

C1 cash cost per pound2

     $ 1.94         $ 2.04            $ 1.89         $ 2.08     

 

 

C3 fully allocated cost per pound2

     $ 2.50         $ 2.52            $ 2.42         $ 2.59     

 

 

 

  1 

Includes $17 million related to copper cathode purchases and $10 million of abnormal costs related to the conveyor collapse at Lumwana, as these costs are not indicative of our normal production costs.

  2 

C1 cash costs per pound and C3 fully allocated costs may not calculate based on amounts presented in this table due to rounding.

 

BARRICK SECOND QUARTER 2015   55   MANAGEMENT’S DISCUSSION AND ANALYSIS


EBITDA and Adjusted EBITDA

           

 

 
  ($ millions, except per share amounts in dollars)    For the three months ended June 30      For the six months ended June 30    

 

 
     2015      2014      2015      2014    

 

 

Net earnings (loss)

     $ (9)         $(223)         $80         $(96)     

Income tax expense

     103         123         208         412     

Finance costs1

     179         181         359         361     

Finance income

     (2)         (3)         (4)         (6)     

Depreciation

     419         400         840         802     

 

 

EBITDA

     $ 690         $ 478         $ 1,483         $ 1,473     

Impairment charges

     35         512         40         524     

 

 

Adjusted EBITDA

     $ 725         $ 990         $ 1,523         $ 1,997     

 

 

Reported as:

           

 

 

Cortez

     117         184         178         355     

Goldstrike

     100         155         218         350     

Pueblo Viejo

     161         230         367         467     

Lagunas Norte

     136         104         281         246     

Veladero

     93         137         192         225     

Turquoise Ridge

     32         35         61         85     

Porgera

     32         37         82         75     

Kalgoorlie

     31         39         49         79     

Acacia

     70         79         136         155     

Zaldívar

     38         65         84         143     

Lumwana

     3         2         10         12     

Other

     (88)         (77)         (135)         (195)     

Impairment charges

     (35)         (512)         (40)         (524)     

 

 

EBITDA

     $ 690         $ 478         $ 1,483         $ 1,473     

Impairment charges

     35         512         40         524     

 

 

Adjusted EBITDA

     $ 725         $ 990         $ 1,523         $ 1,997     

 

 
1 

Finance costs exclude accretion.

 

Reconciliation of Sales to Realized Price per ounce/pound

  

     For the three months ended June 30      For the six months ended June 30    

 

 
  ($ millions, except per ounce/pound information in dollars)    Gold      Copper      Gold      Copper    

 

 
     2015      2014      2015      2014      2015      2014      2015      2014    

 

 

Sales

     $ 1,921         $ 2,150         $ 257         $ 237         $ 3,840         $ 4,429         $ 524         $ 542     

Sales applicable to non-controlling interests

     (189)         (215)         -         -         (432)         (426)         -         -     

Realized non-hedge gold/copper derivative (losses) gains

     -         -         -         (3)         -         -         -         (6)     

Treatment and refinement charges

     3         3         41         14         6         3         83         47     

Export duties

     9         15         -         -         19         25         -         -     

Other1

     -         -         -         (17)         -         -         -         (17)     

 

 

Revenues - as adjusted

     $ 1,744         $ 1,953         $ 298         $ 231         $ 3,433         $ 4,031         $ 607         $ 566     

 

 

Ounces/pounds sold (000s ounces/millions pounds)

     1,466         1,516         112         73         2,851         3,134         233         184     

 

 

Realized gold/copper price per ounce/pound2

     $ 1,190         $ 1,289         2.66         $ 3.17         $ 1,204         $ 1,287         $ 2.60         $ 3.08     

 

 
1 

Revenue related to copper cathode purchases made in second quarter 2014.

2 

Realized price per ounce/pound may not calculate based on amounts presented in this table due to rounding.

 

BARRICK SECOND QUARTER 2015   56   MANAGEMENT’S DISCUSSION AND ANALYSIS


Consolidated Statements of Income

 

Barrick Gold Corporation

(in millions of United States dollars, except per share data) (Unaudited)

   Three months ended
June 30,
     Six months ended
June 30,
 

 

 
     2015      2014      2015      2014  

 

 

Revenue (notes 5 and 6)

   $     2,231        $     2,458        $   4,476        $ 5,105    

 

 

Costs and expenses (income)

           

Cost of sales (notes 5 and 7)

     1,689          1,631          3,397              3,350    

General and administrative expenses

     70          82          137          185    

Exploration, evaluation and project expenses (note 8)

     97          105          183          205    

Impairment charges (note 10B)

     35          512          40          524    

Loss on currency translation

     33          31          31          110    

Closed mine rehabilitation

     (19)         27          (11)         49    

Loss (gain) on non-hedge derivatives (note 18D)

             (44)         11          (65)   

Other expense (note 10A)

     32          17          14          36    

 

 

Income before finance items and income taxes

   $ 286        $ 97        $ 674        $ 711    

Finance items

           

Finance income

                               

Finance costs (note 11)

     (194)         (200)         (390)         (401)   

 

 

Income (loss) before income taxes

   $ 94        $ (100)       $ 288        $ 316    

Income tax expense (note 12)

     (103)         (123)         (208)         (412)   

 

 

Net income (loss)

   $ (9)       $ (223)       $ 80        $ (96)   

 

 

Attributable to:

           

Equity holders of Barrick Gold Corporation

   $ (9)       $ (269)       $ 48        $ (181)   

Non-controlling interests (note 21)

   $       $ 46        $ 32        $ 85    

 

 

Earnings (loss) per share data attributable to the equity holders of Barrick Gold Corporation (note 9)

  

Net income (loss)

           

Basic

   $ (0.01)       $ (0.23)       $ 0.04        $ (0.16)   

Diluted

   $ (0.01)       $ (0.23)       $ 0.04        $ (0.16)   

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

BARRICK SECOND QUARTER 2015   57   FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Statements of Comprehensive Income

 

Barrick Gold Corporation

(in millions of United States dollars) (Unaudited)

   Three months ended
June 30,
     Six months ended
June 30,
 

 

 
     2015      2014      2015        2014  

 

 

Net income (loss)

   $         (9)       $     (223)       $         80          $       (96)   

Other comprehensive income (loss), net of taxes

           

Movement in equity investments fair value reserve:

           

Net unrealized change on equity investments, net of tax $nil, $nil, $nil and $nil

     (6)                 (11)           22    

Net realized change on equity investments, net of tax $nil, $nil, $nil and $nil

                     18              

Impairment losses on equity investments, net of tax $nil, $nil, $nil and $nil

             14          -            16    

Items that may be reclassified subsequently to profit or loss:

           

Unrealized gains (losses) on derivatives designated as cash flow hedges, net of tax ($13), ($3), $1 and $1

     24          13          (33)           28    

Realized (gains) losses on derivatives designated as cash flow hedges, net of tax $1, $1, $nil and $1

     36          (31)         51            (54)   

Currency translation adjustments, net of tax $nil, $nil, $nil and $nil

                     (30)             

 

 

Total other comprehensive income (loss)

     57                  (5)           26    

 

 

Total comprehensive income (loss)

   $ 48        $ (215)       $ 75          $ (70)   

 

 

Attributable to:

           

Equity holders of Barrick Gold Corporation

   $ 48        $ (261)       $ 43          $ (155)   

Non-controlling interests

   $       $ 46        $ 32          $ 85    

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

BARRICK SECOND QUARTER 2015   58   FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Statements of Cash Flow

 

Barrick Gold Corporation

(in millions of United States dollars) (Unaudited)

   Three months ended
June 30,
     Six months ended
June 30,
 

 

 
     2015      2014      2015      2014  

 

 

OPERATING ACTIVITIES

           

Net income (loss)

   $ (9)       $ (223)       $ 80        $ (96)   

Adjusted for the following items:

           

Depreciation

     419          400          840          802    

Finance costs

     194          200          390          401    

Impairment charges (note 10B)

     35          512          40          524    

Income tax expense (note 12)

     103          123          208          412    

(Increase) decrease in inventory

     (41)         (37)         (65)           

Loss (gain) on non-hedge derivatives

             (44)         11          (65)   

Gain on sale of long-lived assets

     (2)         (22)         (26)         (23)   

Other operating activities (note 13A)

     121          16          (88)         (225)   

 

 

Operating cash flows before interest and income taxes

     828          925          1,390          1,735    

Interest paid

     (274)         (276)         (349)         (352)   

Income taxes paid

     (29)         (161)         (200)         (310)   

 

 

Net cash provided by operating activities

     525          488          841          1,073    

 

 

INVESTING ACTIVITIES

           

Property, plant and equipment

           

Capital expenditures (note 5)

     (499)         (616)         (1,013)         (1,232)   

Sales proceeds

                     19          37    

Divestitures

             86                  166    

Investments sales

             27          33          52    

Other investing activities (note 13B)

     (6)         (39)         (7)         (79)   

 

 

Net cash used in investing activities

     (498)         (540)         (966)         (1,056)   

 

 

FINANCING ACTIVITIES

           

Proceeds from divestment of 10% of issued ordinary share capital of Acacia

                             186    

Debt

           

Proceeds

     3                  5          133    

Repayments

     (88)         (18)         (272)         (93)   

Dividends

     (58)         (58)         (116)         (116)   

Funding from non-controlling interests

     21          -              22            

Disbursements to non-controlling interests

     (20)         -              (64)           

 

 

Net cash (used in) provided by financing activities

     (142)         (76)         (425)         112    

 

 

Effect of exchange rate changes on cash and equivalents

     (1)                 (7)         (4)   

 

 

Net (decrease) increase in cash and equivalents

     (116)         (127)         (557)         125    

Cash and equivalents excluding assets classified as held for sale at the beginning of period

     2,258          2,672          2,699          2,404    

Add: cash and equivalents of assets classified as held for sale at the beginning of period

     -                      -              20    

 

 

Cash and equivalents at the end of period

   $ 2,142        $ 2,549        $ 2,142        $ 2,549    

 

 

Less: cash and equivalents of assets classified as held for sale at the end of period

     20                  20            

 

 

Cash and equivalents excluding assets classified as held for sale at the end of period

   $     2,122        $     2,549        $     2,122        $     2,549    

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

BARRICK SECOND QUARTER 2015   59   FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Balance Sheets

 

Barrick Gold Corporation

(in millions of United States dollars) (Unaudited)

  As at June 30,     As at December 31,  

 

 
    2015     2014  

 

 

ASSETS

   

Current assets

   

Cash and equivalents (note 18A)

  $ 2,122       $ 2,699     

Accounts receivable

    354         418     

Inventories (note 15)

    2,465         2,722     

Other current assets

    335         311     

 

 

Total current assets (excluding assets classified as held for sale)

  $ 5,276       $ 6,150     

Assets classified as held for sale (note 4A)

    1,514         -     

 

 

Total current assets

  $ 6,790       $ 6,150     

Non-current assets

   

Equity in investees (note 14)

    208         206     

Other investments

    12         35     

Property, plant and equipment (note 16)

    18,331         19,193     

Goodwill

    4,291         4,426     

Intangible assets

    305         308     

Deferred income tax assets

    687         674     

Non-current portion of inventory (note 15)

    1,388         1,684     

Other assets

    1,181         1,203     

 

 

Total assets

  $ 33,193       $ 33,879     

 

 

LIABILITIES AND EQUITY

   

Current liabilities

   

Accounts payable

  $ 1,319       $ 1,653     

Debt (note 18B)

    462         333     

Current income tax liabilities

    24         84     

Other current liabilities

    409         490     

 

 

Total current liabilities (excluding liabilities classified as held for sale)

  $ 2,214       $ 2,560     

Liabilities classified as held for sale (note 4A)

    374         -     

 

 

Total current liabilities

  $ 2,588       $ 2,560     

Non-current liabilities

   

Debt (note 18B)

    12,361         12,748     

Provisions

    2,347         2,561     

Deferred income tax liabilities

    2,069         2,036     

Other liabilities

    1,056         1,112     

 

 

Total liabilities

  $ 20,421       $ 21,017     

 

 

Equity

   

Capital stock (note 20)

  $ 20,865       $ 20,864     

Deficit

    (10,714)        (10,739)    

Accumulated other comprehensive loss

    (303)        (199)    

Other

    321         321     

 

 

Total equity attributable to Barrick Gold Corporation shareholders

  $ 10,169       $ 10,247     

Non-controlling interests (note 21)

    2,603         2,615     

 

 

Total equity

  $ 12,772       $ 12,862     

 

 

Contingencies and commitments (notes 15, 16 and 22)

   

 

 

Total liabilities and equity

  $ 33,193       $ 33,879     

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

BARRICK SECOND QUARTER 2015   60   FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Statements of Changes in Equity

 

         

 

             
Barrick Gold Corporation         Attributable to equity holders of the company              

 

 
(in millions of United States dollars) (Unaudited)   Common Shares
(in thousands)
    Capital stock     Retained
deficit
    Accumulated
other
comprehensive
income (loss)1
    Other2     Total equity
attributable to
shareholders
    Non-controlling
interests
    Total equity  

 

 

At December 31, 2014

    1,164,670      $ 20,864      $ (10,739   $ (199   $ 321      $ 10,247      $ 2,615      $ 12,862     

 

 

Impact of adopting IFRS 9 on January 1, 2015 (note 2B)

    -        -        99        (99     -        -        -        -     

 

 

At January 1, 2015 (restated)

    1,164,670      $ 20,864      $ (10,640   $ (298   $ 321      $ 10,247      $ 2,615      $ 12,862     

 

 

Net income

    -        -        48        -        -        48        32        80     

Total other comprehensive loss

    -        -        -        (5     -        (5     -        (5)    

 

 

Total comprehensive income (loss)

    -        -        48        (5     -        43        32        75     

 

 

Transactions with owners

               

Dividends

    -        -        (116     -        -        (116     -        (116)    

Recognition of stock option expense

    -        1        -        -        -        1        -        1     

Funding from non-controlling interests

    -        -        -        -        -        -        22        22     

Other decrease in non-controlling interest

    -        -        -        -        -        -        (66     (66)    

Other decreases

    -        -        (6     -        -        (6     -        (6)    

 

 

Total transactions with owners

    -        1        (122     -        -        (121     (44     (165)    

 

 

At June 30, 2015

    1,164,670      $ 20,865      $ (10,714   $ (303   $ 321      $ 10,169      $ 2,603      $ 12,772     

 

 

    

               

 

 

At January 1, 2014

    1,164,652      $ 20,869      $ (7,581   $ (69   $ 314      $ 13,533      $ 2,468      $ 16,001     

 

 

Net income (loss)

    -        -        (181     -        -        (181     85        (96)    

Total other comprehensive income

    -        -        -        26        -        26        -        26     

 

 

Total comprehensive income (loss)

    -        -        (181     26        -        (155     85        (70)    

 

 

Transactions with owners

               

Dividends

    -        -        (116     -        -        (116     -        (116)    

Issued on exercise of stock options

    18        -        -        -        -        -        -        -     

Recognized on divestment of 10% of Acacia

    -        -        -        -        7        7        177        184     

Derecognition of stock option expense

    -        (7     -        -        -        (7     -        (7)    

Funding from non-controlling interests

    -        -        -        -        -        -        2        2     

 

 

Total transactions with owners

    18        (7     (116     -        7        (116     179        63     

 

 

At June 30, 2014

    1,164,670      $ 20,862      $ (7,878   $ (43   $ 321      $ 13,262      $ 2,732      $ 15,994     

 

 

1 Includes cumulative translation losses at June 30, 2015: $152 million (June 30, 2014: losses of $73 million).

2 Includes additional paid-in capital as at June 30, 2015: $283 million (December 31, 2014: $283 million; June 30, 2014: $283 million) and convertible borrowings - equity component as at June 30, 2015: $38 million (December 31, 2014: $38 million; June 30, 2014: $38 million).

The accompanying notes are an integral part of these consolidated financial statements.

 

BARRICK SECOND QUARTER 2015   61   FINANCIAL STATEMENTS (UNAUDITED)


NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

 

Barrick Gold Corporation.      Tabular dollar amounts in millions of United States dollars, unless otherwise shown. References to A$, ARS, C$, CLP, DOP, EUR, GBP, JPY, PGK, SAR, TZS, ZAR, and ZMW are to Australian dollars, Argentine pesos, Canadian dollars, Chilean pesos, Dominican pesos, Euros, British pound sterling, Japanese yen, Papua New Guinea kina, Saudi riyal, Tanzanian shillings, South African rand, and Zambian kwacha, respectively.

1 > CORPORATE INFORMATION

Barrick Gold Corporation (“Barrick” or the “Company”) is a corporation governed by the Business Corporations Act (Ontario). The Company’s head and registered office is located at Brookfield Place, TD Canada Trust Tower, 161 Bay Street, Suite 3700, Toronto, Ontario, M5J 2S1. We are principally engaged in the production and sale of gold and copper, as well as related activities such as exploration and mine development. Our producing gold mines are located in Canada, the United States, Peru, Argentina, Australia, Dominican Republic and Papua New Guinea. We also hold a 63.9% equity interest in Acacia Mining plc (“Acacia”), a company listed on the London Stock Exchange that owns gold mines and exploration properties in Africa. Our Copper business contains producing copper mines located in Chile and Zambia and a mine under construction in Saudi Arabia. We also have projects located in South America and North America. We sell our gold and copper production into the world market.

2 > SIGNIFICANT ACCOUNTING POLICIES

A)

Statement of Compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). These interim financial statements should be read in conjunction with Barrick’s most recently issued Annual Report which includes information necessary or useful to understanding the Company’s business and financial statement presentation. In particular, the Company’s significant accounting policies were presented in Note 2 of the consolidated financial statements for the year ended December 31, 2014, and have been consistently applied in the preparation of these interim financial statements except for note 2J, “Other Investments”, which as a result of the adoption of IFRS 9 in the current interim period has been replaced with the following: Investments in

publicly quoted equity securities that are neither subsidiaries nor associates are categorized as Fair Value through Other Comprehensive Income (“FVOCI”) using the irrevocable election available in IFRS 9 for these instruments. FVOCI equity investments (referred to as “Other Investments”) are recorded at fair value with all realized and unrealized gains and losses recorded permanently in OCI. These interim consolidated financial statements were authorized for issuance by the Board of Directors on August 5, 2015.

 

B)

New Accounting Standards Effective in 2015

Impact of Adoption of IFRS 9 (2014)

We have early adopted all of the requirements of IFRS 9 Financial Instruments 2014 (“IFRS 9”) as of January 1, 2015. IFRS 9 uses a single approach to determine whether a financial asset is classified and measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments and the contractual cash flow characteristics of the financial asset. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9. IFRS 9 introduced a single expected credit loss impairment model, which is based on changes in credit quality since initial recognition. The adoption of the expected credit loss impairment model did not have a significant impact on the company’s financial statements.

IFRS 9 changes the requirements for hedge effectiveness and, consequently for the application of hedge accounting. The IAS 39 effectiveness test is replaced with a requirement for an economic relationship between the hedged item and hedging instrument, and for the ‘hedged ratio’ to be the same as that used by the entity for risk management purposes. Certain restrictions that prevented some hedging strategies and hedging instruments from qualifying for hedge accounting were removed under IFRS 9. Generally, the mechanics of hedge accounting remain unchanged.

As a result of the early adoption of IFRS 9, we have changed our accounting policy for financial instruments retrospectively, except as described below. The change did not result in a change in carrying value of any of our financial instruments on transition date. The two main areas of change are the accounting for a) equity securities previously classified as available for sale and b) derivative

 

 

BARRICK SECOND QUARTER 2015   62   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


instruments, which includes the accounting for hedging relationships that now qualify for hedge accounting and the exclusion of the time value component of options from hedging instruments.

 

a)

Impact of adoption on the accounting for equity securities previously designated as available for sale

The revised policy on the accounting for Other Investments, which represent equity securities previously designated as available for sale, is described in note 2A). The adjustment to opening retained earnings on January 1, 2015 was $95 million with a corresponding adjustment to accumulated other comprehensive income. There was no impact on net income for 2015.

 

b)

Impact of adoption on accounting for derivative instruments

We have reassessed all of our existing hedging relationships that qualified for hedge accounting under IAS 39 upon adoption of IFRS 9 and these have continued to qualify for hedge accounting under IFRS 9. We have also reassessed economic hedges that did not qualify for hedge accounting under IAS 39. IFRS 9 has enabled us to apply hedge accounting for most of our fuel positions, thus reducing the volatility of reported net income. These positions previously did not qualify for hedge accounting since component hedging was not permitted under IAS 39. We have applied these changes prospectively from January 1, 2015.

Under IFRS 9, we also began separating the intrinsic value and time value of option contracts and designating only the change in intrinsic value as the hedging instrument. IFRS 9 does not require restatement of comparatives. However, we have reflected the retrospective impact of the adoption of IFRS 9 relating to the change in accounting for time value of option contracts as an adjustment to opening retained earnings. The adjustment to opening retained earnings on January 1, 2015 was $4 million with a corresponding adjustment to accumulated other comprehensive income. There was no impact on net income.

We recognize a financial asset or a financial liability when we become a party to the contractual provisions of the instrument. Financial assets are initially measured at fair value and are derecognized either when we have transferred substantially all the risks and rewards of ownership of the financial asset or when cash flows expire.

We classify and measure financial assets (excluding derivatives) on initial recognition as described below:

 

Cash and equivalents and restricted cash include cash, term deposits, treasury bills and money market investments with original maturities of less than 90 days. All of these are classified as financial assets at fair value through profit or loss and are measured at fair value. Unrealized gains or losses related to changes in fair value are reported in income;

 

Trade and other receivables are classified as and measured at amortized cost using the effective interest method, less impairment allowance, if any;

 

Equity instruments are designated as financial assets at fair value through other comprehensive income and are recorded at fair value on the settlement date, net of transaction costs. Future changes in fair value are recognized in other comprehensive income and are not recycled into income.

Financial liabilities (excluding derivatives) are derecognized when the obligation specified in the contract is discharged, cancelled or expired. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements and since we do not have any financial liabilities designated at fair value through profit or loss, the adoption of IFRS 9 did not impact our accounting policies for financial liabilities.

 

C)

New Accounting Standards Issued But Not Yet Effective

IFRS 15 Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which covers principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. In July 2015, the IASB deferred the effective date of the standard to annual reporting periods beginning on or after January 1, 2018, with earlier application permitted. We are currently assessing the impact on our consolidated financial statements along with the planned timing of our adoption of IFRS 15.

3 > SIGNIFICANT JUDGMENTS, ESTIMATES, ASSUMPTIONS AND RISKS

The judgments, estimates, assumptions and risks discussed here reflect updates from the most recently filed annual consolidated financial statements for the year ended December 31, 2014. For judgments, estimates, assumptions and risks related to other areas not discussed in these interim consolidated financial statements, please refer to Notes 3 and 27 of the 2014 annual consolidated financial statements.

 

 

BARRICK SECOND QUARTER 2015   63   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


A)

Gold and Copper Mineral Reserves

At the end of each fiscal year, as part of our annual business cycle, we prepare estimates of the proven and probable reserves and the portion of resources expected to be extracted economically for each mineral property. We prospectively revise calculations of depreciation of property, plant and equipment and also transfer amounts allocated to non-depreciable mining interest to mining interest subject to depreciation based on the ounces/pounds that have become probable of being economically extracted. The effect of changes in the proven and probable reserves and the portion of resources expected to be extracted economically on depreciation expense for the three months ended June 30, 2015 was an increase of $92 million (2014: $48 million increase ) and for the six months ended June 30, 2015 was an increase $187 million (2014: $93 million increase ). The effect of transfers to mining interest subject to depreciation on depreciation expense for the three months ended June 30, 2015 was an increase of $2 million (2014: $2 million increase ) and for the six months ended June 30, 2015 was an increase of $5 million (2014: $3 million increase).

 

B)

Provision for Environmental Rehabilitation (“PER”)

Provisions are updated each reporting period for changes to expected cash flows and for the effect of changes in the discount rate, foreign exchange rate and the change in estimate is added or deducted from the related asset and depreciated over the expected economic life of the operation to which it relates. We recorded a decrease of $122 million (2014: $93 million increase) to the PER at our minesites for the three months ended June 30, 2015 primarily due to an increase in the discount rate.

 

C)

Impairment and reversal of impairment for non-current assets and impairment of goodwill

Non-current assets other than goodwill are tested for impairment, or reversal of impairment, when events or changes in circumstances suggest that the carrying amount may not be fully recoverable, or an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. We conduct an annual test for impairment of goodwill in the fourth quarter of each fiscal year and at any other time of the year if an indicator of impairment or reversal of impairment is identified. We recorded $35 million (2014: $512 million) of impairment charges for the three months ended June 30, 2015 and $40 million (2014: $524 million) of impairment charges for the six months ended June 30, 2015.

We have not identified any indicators that prior impairments are required to be tested for reversal in the three months ended June 30, 2015.

D)

Liquidity risk

Liquidity risk is the risk of loss from not having access to sufficient funds to meet both expected and unexpected cash demands. We manage our exposure to liquidity risk by maintaining cash reserves, access to undrawn credit facilities and access to public debt markets, by staggering the maturities of outstanding debt instruments to mitigate refinancing risk and by monitoring of forecast and actual cash flows.

As part of our capital allocation strategy, we evaluate our capital expenditures in order to ensure they generate an appropriate risk-adjusted return. We work towards divesting assets that do not meet our capital allocation criteria.

Our primary source of liquidity is our operating cash flow. Other options to enhance liquidity include drawing the $4.0 billion available under our 2012 Credit Facility (subject to compliance with covenants and the making of certain representations and warranties, this facility is available for drawdown as a source of financing), further asset sales and issuances of debt or equity securities in the public markets or to private investors, which could be undertaken for liquidity enhancement and/or in connection with establishing a strategic partnership. Many factors, including but not limited to general market conditions and then prevailing metals prices, could impact our ability to issue securities on acceptable terms, as could our credit ratings. Moody’s and S&P currently rate our long-term debt Baa2 (negative) and BBB- (stable), respectively. Our credit rating was downgraded by S&P on March 2, 2015, to BBB- (stable) which is the lowest investment grade rating. Changes in our ratings could affect the trading prices of our securities or our cost of capital. If we were to borrow under our 2012 Credit Facility, the applicable interest rate on the amounts borrowed would be based, in part, on our credit ratings at the time. The key financial covenant in the 2012 Credit Facility (undrawn as at June 30, 2015) requires Barrick to maintain a consolidated tangible net worth (“CTNW”) of at least $3.0 billion (Barrick’s CTNW was $5.7 billion as at June 30, 2015).

 

 

BARRICK SECOND QUARTER 2015   64   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


4 > DIVESTITURES

A)   Assets and liabilities as held for sale

On July 23, 2015, we completed the sale of our Cowal mine in Australia for cash consideration of $550 million. As at June 30, 2015, all of the assets and liabilities of Cowal were classified as held for sale.

On May 26, 2015, we announced the sale of 50% of our interest in the Porgera mine in Papua New Guinea to Zijin Mining Group Company (‘Zijin’) for cash consideration of $298 million. As at June 30, 2015, all of the assets and liabilities of Porgera were classified as held for sale as the transaction will result in a loss of control. The transaction is expected to close in third quarter 2015.

B)  Disposition of 50 percent interest in Jabal Sayid

On July 13, 2014, Barrick entered into an agreement to form a joint venture with Ma’aden to operate the Jabal Sayid copper project. Ma’aden, which is 50 percent owned by the Saudi Arabian government, acquired its 50 percent interest in the new joint venture company for cash consideration of $216 million. The transaction closed on December 3, 2014. As at June 30, 2014, all of the assets and liabilities of Jabal Sayid were classified as held for sale, as the transaction resulted in a loss of control. Consequently the assets and liabilities were written down to their fair value less costs of disposal, which resulted in an impairment loss of $514 million, including $316 million of goodwill. Refer to note 17 for further details of the impairment loss.

C)  Disposition of Australian assets

On January 31, 2014, we closed the sale of our Plutonic mine for total cash consideration of $22 million. In addition, on March 1, 2014, we completed the sale of our Kanowna mine for total cash consideration of $67 million. The transactions resulted in a loss of $5 million in 2014.

D)  Disposition of 10 percent interest in Acacia

On March 11, 2014, we completed the divestment of 41 million ordinary shares in Acacia, representing 10 percent of the issued ordinary share capital of Acacia for net cash proceeds of $186 million. Subsequent to the divestment, we continue to retain a controlling financial interest in Acacia and continue to consolidate Acacia. We accounted for the divestment as an equity transaction and, accordingly, recorded the difference between the proceeds received and the carrying value of $179 million as $7 million of additional paid-in capital in shareholders’ equity.

E)  Disposition of Marigold mine

On April 4, 2014, we completed the divestiture of our minority interest in the Marigold mine, for total cash consideration of $86 million. The transaction resulted in a gain of $21 million, which we recorded in 2014.

F)  Disposition of 50 percent interest in Zaldivar

On July 30, 2015, we announced the sale of 50% of our Zaldívar copper mine in Chile to Antofagasta Plc for total cash consideration of $1.005 billion. As a result, we expect to record a goodwill impairment of approximately $400 million in third quarter 2015. The transaction is expected to be completed in late 2015 and is subject to customary closing conditions.

 

 

BARRICK SECOND QUARTER 2015   65   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


5 > SEGMENT INFORMATION

As a result of the organizational changes that were implemented in third quarter 2014, we have determined that our Co-Presidents, acting together, are Barrick’s Chief Operating Decision Maker (“CODM”). Beginning in fourth quarter 2014, CODM reviews the operating results, assesses performance and makes capital allocation decisions at the mine site or project level, with the exception of Acacia which is reviewed and assessed as a separate business. Therefore, each individual mine site and Acacia are operating segments for financial reporting purposes. For segment reporting purposes, we present our reportable operating segments as follows: eight individual gold mines, two individual copper mines, Acacia and our Pascua-Lama project. The remaining operating segments have been grouped into an other category consisting of our remaining gold mines.

Segment performance is evaluated based on a number of measures including operating income before tax, production levels and unit production costs. Certain costs are managed on a consolidated basis and are therefore not reflected in segment income. Starting January 1, 2015, we updated the allocation of our general and administration costs to individual mine sites to reflect the removal of all regional oversight and have the mine sites directly accountable for the cost of the functional services they require to run their business. The prior period has been restated to reflect the change in presentation.

 

  Consolidated Statement of Income Information  

 

 
          Cost of Sales                    
 For the three months ended
 June 30, 2015
  Revenue             Direct mining,
royalties and
community
relations
      Depreciation       Exploration,
evaluation and
project expenses
      Other expenses
(income)1
      Segment income   
(loss)   
 

 

 

Goldstrike

    $ 193        $ 85        $ 28          $ 6        $ 2        $ 72      

Cortez

    241        121        74          (1)        4        43      

Pueblo Viejo

    315        154        70          -        -        91      

Lagunas Norte

    195        57        46          1        1        90      

Veladero

    178        84        26          -        1        67      

Turquoise Ridge

    64        31        6          -        1        26      

Porgera

    150        114        12          1        3        20      

Kalgoorlie

    98        65        13          1        1        18      

Acacia

    230        153        34          5        2        36      

Lumwana

    132        127        9          -        2        (6)      

Zaldivar

    125        85        16          -        2        22      

Pascua-Lama

    -        -        6          23        (2)        (27)      

Other Mines2

    298        163        68          2        27        38      

 

 
    $ 2,219        $ 1,239        $ 408          $ 38        $ 44        $ 490      

 

 

 

BARRICK SECOND QUARTER 2015   66   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


  Consolidated Statement of Income Information  

 

 
          Cost of Sales                    
  For the three months ended
  June 30, 2014
  Revenue             Direct mining,
royalties and
community
relations
      Depreciation       Exploration,
evaluation and
  project expenses
      Other expenses
(income)1
    Segment  
  income (loss)  
 

 

 

Goldstrike

    $ 264        $ 107        $ 30          $ -        $ 2        $ 125     

Cortez

    293        108        63          -        1        121     

Pueblo Viejo

    383        152        66          -        1        164     

Lagunas Norte

    155        50        11          -        1        93     

Veladero

    276        136        36          1        2        101     

Turquoise Ridge

    58        22        4          -        1        31     

Porgera

    153        114        19          1        1        18     

Kalgoorlie

    103        65        10          -        (1)        29     

Acacia

    227        137        35          6        5        44     

Lumwana

    63        60        13          -        1        (11)     

Zaldivar

    175        108        15          -        2        50     

Pascua-Lama

    -        -        6          30        5        (41)     

Other Mines2

    303        188        76          10        19        10     

 

 
    $ 2,453        $ 1,247        $ 384          $ 48        $ 40        $ 734     

 

 

 

  Consolidated Statement of Income Information

 

 

 
          Cost of Sales                    
  For the six months ended
  June 30, 2015
  Revenue     Direct mining,
royalties and
community
relations
      Depreciation       Exploration,
evaluation and
project expenses
    Other expenses
(income)1
    Segment  
income (loss)  
 

 

 

Goldstrike

    $ 430        $ 202        $ 60          $ 6        $ 4        $ 158     

Cortez

    432        247        144          1        6        34     

Pueblo Viejo

    681        316        139          -        (2)        228     

Lagunas Norte

    400        115        87          1        3        194     

Veladero

    379        186        52          1        -        140     

Turquoise Ridge

    119        57        11          -        1        50     

Porgera

    294        207        27          1        4        55     

Kalgoorlie

    174        122        22          1        2        27     

Acacia

    443        294        67          10        3        69     

Lumwana

    258        246        27          -        2        (17)     

Zaldivar

    266        180        35          -        2        49     

Pascua-Lama

    -        -        8          56        (13)        (51)     

Other Mines2

    588        331        142          4        21        90     

 

 
    $ 4,464        $ 2,503        $ 821          $ 81        $ 33        $ 1,026     

 

 

 

BARRICK SECOND QUARTER 2015   67   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


  Consolidated Statement of Income Information  

 

 
          Cost of Sales                    
  For the six months ended
  June 30, 2014
  Revenue             Direct mining,
royalties and
community
relations
        Depreciation       Exploration,
evaluation and
project expenses
    Other expenses
(income)1
    Segment  
income (loss)  
 

 

 

 

Goldstrike

    $ 624        $ 270        $ 72          $ 1        $ 3        $ 278     

 

Cortez

    544        185        115          -        4        240     

 

Pueblo Viejo

    788        321        120          -        -        347     

 

Lagunas Norte

    356        106        26          -        4        220     

 

Veladero

    456        226        66          1        4        159     

 

Turquoise Ridge

    131        45        8          -        1        77     

 

Porgera

    303        226        41          1        1        34     

 

Kalgoorlie

    219        139        21          -        1        58     

 

Acacia

    442        269        65          11        7        90     

 

Lumwana

    197        183        36          -        2        (24)     

 

Zaldivar

    346        201        33          -        2        110     

 

Pascua-Lama

    -        -        8          74        9        (91)     

 

Other Mines2

    685        414        161          21        16        73     

 

 
 

 

 

 

$ 5,091

 

  

    $ 2,585        $ 772          $ 109        $ 54        $ 1,571     

 

 
1 

Other expenses include accretion expense, which is included within finance costs in the consolidated statement of income. For the three months ended June 30, 2015, accretion expense was $12 million (2014: $14 million) and for the six months ended June 30, 2015, accretion expense was $23 million (2014: $28 million).

2 

Includes exploration and evaluation expense and losses from equity investees.

Reconciliation of Segment Income to Income Before Income Taxes

 

    For the three months ended June 30     For the six months ended June 30    

 

 
    2015     2014     2015     2014    

 

 

 

Segment income

    $ 490        $ 734        $ 1,026        $ 1,571     

 

Other revenue1

    12        5        12        14     

 

Other cost of sales/amortization1,2

    (42)        -        (73)        7     

 

Exploration, evaluation and project expenses not attributable to segments

    (59)        (57)        (102)        (96)     

 

General and administrative expenses

    (70)        (82)        (137)        (185)     

 

Other (expense) income not attributable to segments

    -        9        (4)        (10)     

 

Impairment charges not attributable to segments

    (35)        (512)        (40)        (524)     

 

Loss on currency translation

    (33)        (31)        (31)        (110)     

 

Closed mine rehabilitation

    19        (27)        11        (49)     

 

Finance income

    2        3        4        6     

 

Finance costs (includes non segment accretion)

    (182)        (186)        (367)        (373)     

 

(Loss) gain on non-hedge derivatives

    (8)        44        (11)        65     

 

 

 

Income (loss) before income taxes

    $ 94        $ (100)        $ 288        $ 316     

 

 
1 

Includes revenue and costs from Pierina which is not part of any of our operating segments. Pierina entered closure in 2013.

2 

Includes all realized hedge gains/losses.

 

BARRICK SECOND QUARTER 2015   68   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


  Capital Expenditures Information    Segment capital expenditures1  
  

 

 

 
     For the three months ended June 30      For the six months ended June 30    
     2015      2014      2015      2014    

 

 

 

Goldstrike

     $ 37         $ 138         $ 130         $    254     

 

Cortez

     57         66         90         120     

 

Pueblo Viejo

     28         40         61         71     

 

Lagunas Norte

     18         19         31         43     

 

Veladero

     68         33         136         64     

 

Turquoise Ridge

     10         9         16         15     

 

Porgera

     26         7         54         13     

 

Kalgoorlie

     6         10         23         26     

 

Acacia

     42         59         83         115     

 

Lumwana

     29         59         43         91     

 

Zaldivar

     15         22         28         52     

 

Pascua-Lama

     (4)         (12)         -         31     

 

Other Mines

     77         36         168         92     

 

 

 

Segment total

     $ 409         $ 486         $ 863         $    987     

 

Other items not allocated to segments

     5         16         7         24     

 

 

 

Total

     $ 414         $ 502         $ 870         $ 1,011     

 

 
1 

Segment capital expenditures are presented for internal management reporting purposes on an accrual basis. Capital expenditures in the Consolidated Statements of Cash Flow are presented on a cash basis. For the three months ended June 30, 2015, cash expenditures were $499 million (2014: $616 million) and the decrease in accrued expenditures was $85 million (2014: $114 million decrease). For the six months ended June 30, 2015, cash expenditures were $1,013 million (2014: $1,232 million) and the decrease in accrued expenditures was $143 million (2014: $221 million decrease).

 

6 > REVENUE

 

    For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
    2015     2014     2015     2014    

 

 

Gold bullion sales

       

Spot market sales

    $ 1,848        $ 2,088        $ 3,702        $ 4,317     

Concentrate sales

    73        62        138        112     

 

 
    $ 1,921        $ 2,150        $ 3,840        $ 4,429     

Copper sales

       

Copper cathode sales

    $ 125        $ 174        $ 266        $ 345     

Concentrate sales

    132        63        258        197     

 

 
    $ 257        $ 237        $ 524        $ 542     

 

 

Other sales1

    $ 53        $ 71        $ 112        $ 134     

 

 

Total

    $ 2,231        $ 2,458        $ 4,476        $ 5,105     

 

 
1 

Revenues include the sale of by-products for our gold and copper mines and energy sales from Monte Rio.

Provisional Copper and Gold Sales

We have provisionally priced sales for which price finalization, referenced to the relevant copper and gold index, is outstanding at the balance sheet date. Our exposure at June 30, 2015 to the impact of movements in market commodity prices for provisionally priced sales is set out in the following table:

    Volumes subject to
final pricing
Copper (millions)
Gold (000’s)
    Impact on net   
income before   
taxation of 10%   
movement in   
market price US$   
 

 

 
  For the six months
  ended June 30
  2015     2014     2015     2014    

 

 

Copper pounds

    61        18        $ 16        $ 6     

Gold ounces

    20        17        2        2     

 

 

For the three months ended June 30, 2015, our provisionally priced copper sales included provisional pricing losses of $12 million (2014: $4 million gains ) and our provisionally priced gold sales included provisional pricing adjustments of $nil million (2014: $1 million losses). For the six months ended June 30, 2015, our provisionally priced copper sales included provisional pricing losses of $24 million (2014: $15 million losses ) and our provisionally priced gold sales included provisional pricing losses of $1 million (2014: $2 million gains).

At June 30, 2015, our provisionally priced copper and gold sales subject to final settlement were recorded at average prices of $2.61/lb (2014: $3.19/lb) and $1,182/oz (2014: $1,278/oz), respectively. The sensitivities in the above table show the impact of a 10 percent change in commodity prices, while holding all other variables constant.

 

 

BARRICK SECOND QUARTER 2015   69   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


7 > COST OF SALES

 

    For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
    2015     2014     2015     2014    

 

 

Direct mining cost1,2

    $ 1,164        $ 1,139        $ 2,350        $ 2,367     

 

Depreciation

    419        400        840        802     

Royalty expense

    89        73        179        148     

Community relations

    17        19        28        33     

 

 
    $ 1,689        $ 1,631        $ 3,397        $ 3,350     

 

 
1 

Direct mining cost includes charges to reduce the cost of inventory to net realizable value as follows: $33 million for the three months ended June 30, 2015 (2014: $25 million) and $88 million for the six months ended June 30, 2015 (2014: $41 million).

2 

Direct mining cost includes the costs of extracting by-products.

Beginning in January 1, 2015, we updated the allocation of general & administration (“G&A”) costs to individual mine sites to reflect the removal of all regional oversight and have the mine sites directly accountable for the cost of the functional services they require to run their business. These costs now form part of mine site G&A costs which is included within direct mining costs.

8 > EXPLORATION, EVALUATION AND PROJECT EXPENSES

 

    For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
    2015     2014     2015     2014    

 

 

Exploration

       

Minesite exploration

    $ 12        $ 10        $ 19        $ 17     

Global programs

    34        37        68        59     

 

 
    $ 46        $ 47        $ 87        $ 76     

Evaluation costs

    6        6        10        9     

 

 

Exploration and evaluation expense1

    $ 52        $ 53        $ 97        $ 85     

Advanced project costs:

       

Pascua-Lama

    22        25        54        67     

Jabal Sayid

    -        7        -        17     

Other project related costs:

       

Cerro Casale

    2        3        4        6     

Kainantu

    -        1        -        2     

Reko Diq

    -        3        -        5     

Corporate Development

    20        8        26        16     

Community relations related to projects

    1        5        2        7     

 

 

Exploration, evaluation and project expenses

    $ 97        $ 105        $ 183        $ 205     

 

 
1 

Approximates the impact on operating cash flow.

 

 

9 > EARNINGS (LOSS) PER SHARE

 

     For the three months ended June 30      For the six months ended June 30  
  

 

 

 
     2015      2014      2015      2014  

 

 
  ($ millions, except shares in millions and per
  share amounts in dollars)
   Basic      Diluted      Basic      Diluted      Basic      Diluted      Basic      Diluted    

 

 

Net income (loss)

     $ (9)         $ (9)         $ (223)         $ (223)         $ 80         $ 80         $ (96)         $ (96)     

Net income attributable to non-controlling interests

     -         -         (46)         (46)         (32)         (32)         (85)         (85)     

 

 

Net income (loss) attributable to equity holders of Barrick Gold Corporation

     $ (9)         $ (9)         $ (269)         $ (269)         $ 48         $ 48         $ (181)         $ (181)     

 

 

Weighted average shares outstanding

     1,165         1,165         1,165         1,165         1,165         1,165         1,165         1,165     

 

 

Earnings per share data attributable to the equity holders of Barrick Gold Corporation

                       

 

 

Net income (loss)

     $ (0.01)         $ (0.01)         $ (0.23)         $ (0.23)         $ 0.04         $ 0.04         $ (0.16)         $ (0.16)     

 

 

 

BARRICK SECOND QUARTER 2015   70   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


10 > OTHER EXPENSES

A

Other Expense (Income)

 

   

For the three months

ended June 30

   

For the six months

ended June 30  

 

 

 
    2015     2014     2015     2014    

 

 

Other expense:

       

Consulting fees

    $ 3        $ 13        $ 5        $ 19     

Bank charges

 

 

4

  

    4        11        9     

Mine site severance and non-operational costs

    1        2        1        8     

Office closure costs

    27        15        27        15     

Management Fee

    1        -        -        -     

Toll Milling

    4        2        4        1     

World Gold Council fees

    -        1        -        2     

Pension and other post-retirement benefit expense

    1        -        2        3     

 

 

Total other expense

    $ 41        $ 37        $ 50        $ 57     

 

 

Other income:

       

Gain on sale of long-lived assets

    $ (2)        $ (22)      $  (26)        $ (23)     

Insurance recovery

    (1)        (1)        (1)        -     

Royalty income

    (1)        -        (2)        (1)     

Miscellaneous write offs (recovery)

    (4)        3        (4)        3     

Incidental income

    (1)        -        (3)        -     

 

 

Total other income

    $ (9)        $ (20)      $  (36)        $ (21)     

 

 

Total

    $ 32        $ 17        $ 14        $36     

 

 

 

B  Impairment Charges

 

     

   

For the three months

ended June 30

   

For the six months  

ended June 30  

 

 

 
    2015     2014     2015     2014    

 

 

Impairment of long-lived assets

    $ 35        $ 182        $ 40        $ 185     

Impairment of other intangibles

    -        -        -        7     

 

 
    $ 35        $ 182        $ 40        $ 192     

Impairment of goodwill

    -        316        -        316     

Impairment of other investments

    -        14        -        16     

 

 

Total

    $ 35        $ 512        $ 40        $ 524     

 

 

11 > FINANCE COSTS

 

 

    For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
    2015     2014     2015     2014    

 

 

Interest

    $ 181        $ 184        $ 365        $ 366     

Amortization of debt issue costs

    5        5        10        10     

Losses (gains) on interest rate hedges

    1        (1)        1        (1)     

Interest capitalized

    (8)        (7)        (17)        (14)     

Accretion

    15        19        31        40     

 

 

Total

    $ 194        $ 200        $ 390        $ 401     

 

 

 

12 > INCOME TAX EXPENSE

 

  

    For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
    2015     2014     2015     2014    

 

 

Current

    $ 84        $ 201        $ 186        $ 395     

Deferred

    19        (78)        22        17     

 

 
    $ 103        $ 123        $ 208        $ 412     

 

 

The tax rate for income in the six months ended June 30, 2015 was 72% (2014: 130%). After adjusting for the impact of de-recognition of a deferred tax asset, net currency translation losses on deferred tax balances, the impact of impairments, asset sales and non-hedge derivatives and the impact of non-deductible foreign exchange losses, the underlying effective tax rate for ordinary income in the six months ended June 30, 2015 was 53% (2014: 50%).

Currency Translation

Deferred tax balances are subject to remeasurement for changes in currency exchange rates each period. The most significant balances are Argentinean net deferred tax liabilities. In the six months ended June 30, 2015 and 2014, tax expense of $12 million and $44 million respectively primarily arose from translation losses on tax balances in Argentina, due to the weakening of the Argentinean peso against the US dollar. These translation gains/losses are included within deferred income tax expense/recovery.

De-Recognition of a Deferred Tax Asset

In second quarter 2015, we recorded a deferred tax expense of $20 million related to de-recognition of a deferred tax asset in Pueblo Viejo.

Restructure of Internal Debt to Equity

In second quarter 2014, a deferred tax recovery of $112 million arose from a restructure of internal debt to equity in subsidiary corporations, which resulted in the release of a deferred tax liability and a net increase in deferred tax assets.

 

 

BARRICK SECOND QUARTER 2015   71   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


13 > CASH FLOW – OTHER ITEMS

 

  A  Operating Cash Flows – Other Items    For the three months ended June 30      For the six months ended June 30    

 

 
     2015      2014      2015      2014    

 

 

Adjustments for non-cash income statement items:

           

Net currency translation losses

     $  33         $  31         $31         $ 110     

RSU expense

     9         4         16         12     

Stock option expense (recovery)

     -         (7)         1         (7)     

Change in estimate of rehabilitation costs at closed mines

     (19)         27         (11)         49     

Net inventory impairment charges (note 15)

     33         25         88         41     

Cash flow arising from changes in:

           

Accounts receivable

     52         15         54         1     

Other current assets

     4         84         (61)         14     

Accounts payable

     74         (17)         (80)         (294)     

Other current liabilities

     (49)         (19)         (83)         (22)     

Other assets and liabilities

     10         (107)         7         (90)     

Settlement of rehabilitation obligations

     (26)         (20)         (50)         (39)     

 

 

Other net operating activities

     $ 121         $ 16         $ (88)         $ (225)     

 

 
  B  Investing Cash Flows – Other Items    For the three months ended June 30      For the six months ended June 30    

 

 
     2015      2014      2015      2014    

 

 

Value added tax recoverable on project capital expenditures

     $     -         $(39)         $    -         $  (58)     

Other

     (6)         -         (7)         (21)     

 

 

Other net investing activities

     $  (6)         $(39)         $ (7)         $  (79)     

 

 

 

BARRICK SECOND QUARTER 2015   72   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


14 > EQUITY ACCOUNTING METHOD INVESTMENT CONTINUITY

 

     Kabanga      Jabal Sayid1      Total    

 

 

At January 1, 2014

     $  27         $      -         $ 27     

Funds invested

     1         178         179     

 

 

At December 31, 2014

     $  28         $ 178         $ 206     

Funds invested

     2         -         2     

 

 

At June 30, 2015

     $  30         $ 178         $ 208     

 

 

Publicly traded

     No         No      

 

 
1 

A $164 million non-interest bearing shareholder loan due from the Jabal Sayid JV as a result of the divestment of 50 percent interest in Jabal Sayid is presented as part of Other Assets in the Consolidated Financial Statements.

15 > INVENTORIES

 

     Gold     Copper  
             As at June 30, 2015     As at December 31, 2014               As at June 30, 2015     As at December 31, 2014    

 

 

Raw materials

        

Ore in stockpiles

     $ 1,706        $ 2,036          $166        $182     

Ore on leach pads

     389        357          400        392     

Mine operating supplies

     744        875          120        132     

Work in process

     214        245          8        7     

Finished products

        

Gold doré

     62        129          -        -     

Copper cathode

     -        -          22        12     

Copper concentrate

     -        -          15        28     

Gold concentrate

     7        11          -        -     

 

 
  

 

 

 

$ 3,122

 

  

    $ 3,653          $731        $753     

Non-current ore in stockpiles1

     (1,301)        (1,584)          (87)        (100)     

 

 
  

 

 

 

$ 1,821

 

  

    $ 2,069          $644        $653     

 

 
1 

Ore that we do not expect to process in the next 12 months is classified as long-term.

 

     For the three months ended June 30      For the six months ended June 30    

 

 
     2015     2014      2015     2014    

 

 

Inventory impairment charges1

     $ 34        $ 25         $ 89        $ 41     

Inventory impairment charges reversed

     (1)        -         (1)        -     

 

 
1 

Impairment charges in 2015 and 2014 primarily relates to impairments at Cortez.

Purchase Commitments

At June 30, 2015, we had purchase obligations for supplies and consumables of $1,483 million.

 

BARRICK SECOND QUARTER 2015   73   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


16 > PROPERTY, PLANT AND EQUIPMENT

    As at June 30,
2015
    As at December 31,  
2014  
 

 

 

 

Depreciable assets

    $ 14,428        $ 14,947     

 

Non-depreciable assets

   

 

Projects

   

Pascua-Lama

    1,883        1,910     

Cerro Casale1

    444        444     

Donlin Gold

    143        138     

Construction-in-progress2

    1,276        1,490     

Acquired mineral resources and exploration potential

    157        264     

 

 
 

 

 

 

$ 18,331

 

  

    $ 19,193     

 

 
1 

Amount presented on a 100% basis and includes our partner’s non-controlling interest.

2 

Represents assets under construction at our operating mine sites.

Capital Commitments

In addition to entering into various operational commitments in the normal course of business, we had capital commitments of $121 million at June 30, 2015.

17 > IMPAIRMENT OF GOODWILL AND OTHER ASSETS

In accordance with our accounting policy, goodwill is tested for impairment in the fourth quarter and also when there is an indicator of impairment. Non-current assets are tested for impairment when events or changes in circumstances suggest that the carrying amount may not be recoverable. Refer to note 20 of the 2014 annual consolidated financial statements for further information.

Summary of impairments (reversals)

For the three months ended June 30, 2015, we recorded impairment losses of $35 million (2014: $196 million) for non-current assets and $nil million (2014: $316 million) for goodwill, as summarized in the following table:

    For the three months
ended June 30
    For the six months  
ended June 30  
 

 

 
    2015     2014     2015     2014    

 

 

Copper goodwill

    $    -        $ 316        $   -        $ 316     

Jabal Sayid

    -        198        -        198     

Lumwana

    -        4        -        4     

Cortez

    2        -        2        -     

Goldstrike

    6        -        8        -     

Golden Sunlight

    6        -        6        -     

PV

    18        (22)        18        (22)     

Exploration (Kainantu)

    -        -        -        7     

Other investments

    -        14        -        16     

Other

    3        2        6        5     

 

 

Total

    $ 35        $ 512        $ 40        $ 524     

 

 

Indicators of impairment

Second Quarter 2015

In second quarter 2015, we determined that we expect to sell the Monte Rio power asset at our Pueblo Viejo mine. Power supply to Pueblo Viejo is not impacted by this disposition. As a result we recorded an impairment loss of $18 million to reduce it’s carrying value down to its net realizable value.

Subsequent events

Subsequent to quarter end, the trading price of the company’s shares declined such that the carrying value of our net assets exceeded our market capitalization, which is a potential indicator of impairment. If this potential indicator of impairment exists at the end of third quarter 2015, we may be required to conduct an impairment assessment.

In late July 2015, the Zambian government passed legislation that amended the country’s mining tax regime. In third quarter 2015 we will evaluate the potential for a reversal of previous impairments recorded in fourth quarter 2014.

Second Quarter 2014

As at June 30, 2014, our Jabal Sayid project in Saudi Arabia met the criteria as an asset held for sale. Accordingly, we were required to allocate goodwill from the Copper Operating Unit to Jabal Sayid and test the Jabal Sayid group of assets for impairment. We determined that the carrying value exceeded the Fair Value Less Costs of Disposal (“FVLCD”), and consequently recorded $514 million in impairment charges, including the full amount of goodwill allocated on a relative fair value basis, of $316 million. Subsequent to quarter end, on July 13, 2014 we

 

 

BARRICK SECOND QUARTER 2015   74   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


signed an agreement to sell a 50% interest of Jabal Sayid for cash proceeds of $216 million.

We reached an agreement to sell a power-related asset at our Pueblo Viejo mine for proceeds that exceeded its carrying value. This asset had previously been impaired in fourth quarter 2012 and therefore we recognized an impairment reversal of $22 million.

Key assumptions

The key assumptions and estimates used in determining the FVLCD are related to commodity prices, discount rates, NAV multiples for gold assets, operating costs, exchange rates and capital expenditures. In addition, assumptions related to comparable entities, market values per ounce and per pound and the inclusion of reserves and resources in market multiples calculations are used. For further details refer to note 20 of the Annual Consolidated Financial Statements.

The key assumptions used in our impairment testing in second quarter 2014 are summarized in the table below:

 

 

 
     Second Quarter 2014    

 

 

Gold price per oz

     N/A     

Silver price per oz

     N/A     

Copper price per lb

     $3.25     

WACC - gold (range)

     N/A     

WACC - gold (avg)

     N/A     

WACC - copper (range)

     7% - 9%     

WACC - copper (avg)

     7%     

NAV multiple - gold (avg)

     N/A     

LOM years - gold (range)

     N/A     

LOM years - gold (avg)

     N/A     

LOM years - copper (range)

     14 - 24     

LOM years - copper (avg)

     18     

 

 

Sensitivities

Based on the results of our last impairment test performed in fourth quarter 2014, the carrying value of the operating segments and CGUs that are most sensitive to the change in sales prices used in the annual test are:

 

 

 
  As at June 30, 2015    Carrying value    

 

 

Cortez1

     $ 3,824     

Zaldivar1,2

     2,420     

Pascua-Lama2

     1,263     

Veladero1

     1,090     

Bald Mountain2

     522     

Cerro Casale2

     514     

Lumwana2

     335     

Round Mountain2

     151     

 

 
1 

Carrying value includes goodwill.

2 

These CGUs have been impaired or had an impairment reversal in 2014 and therefore their fair value approximates carrying value.

 

 

BARRICK SECOND QUARTER 2015   75   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


18 > FINANCIAL INSTRUMENTS

Financial instruments include cash; evidence of ownership in an entity; or a contract that imposes an obligation on one party and conveys a right to a second entity to deliver/receive cash or another financial instrument.

A Cash and Equivalents

Cash and equivalents include cash, term deposits, treasury bills and money market funds with original maturities of less than 90 days. Cash and equivalents also include $589 million cash held at Acacia and Pueblo Viejo, which may not be readily deployed outside of Acacia and/or Pueblo Viejo.

B Debt

 

     As at June 30, 2015      As at December 31, 2014    

 

 

2.9%/4.4%/5.7% notes1

     $ 2,409         $ 2,409     

3.85%/5.25% notes

     1,984         1,983     

5.80% notes

     395         395     

5.75%/6.35% notes

     856         855     

Other fixed rate notes2

     2,723         2,720     

Project financing

     739         850     

Capital leases3

     321         354     

Other debt obligations

     673         794     

2.5%/4.10%/5.75% notes4

     2,581         2,579     

Acacia credit facility5

     142         142     

 

 
     $ 12,823         $ 13,081     

Less: current portion

     (462)         (333)     

 

 
     $ 12,361         $ 12,748     

 

 

 

1  Consists of $2.4 billion in conjunction with our wholly-owned subsidiary Barrick North America Finance LLC (“BNAF”). This consists of $229 million of BGC notes due 2016, $1.35 billion of BNAF notes due 2021 and $850 million of BNAF notes due 2041. We provide an unconditional and irrevocable guarantee on all BNAF Notes and generally provide such guarantees on all BNAF notes issued, which will rank equally with our other unsecured and unsubordinated obligations.
2  Consists of $2.8 billion in conjunction with our wholly-owned subsidiary Barrick North America Finance LLC (“BNAF”) and our wholly-owned subsidiary Barrick (PD) Australia Finance Pty Ltd. (“BPDAF”). This consists of $500 million of BNAF notes due 2018, $750 million of BGC notes due 2019, $400 million of BPDAF notes due 2020, $250 million of BNAF notes due 2038 and $850 million of BPDAF notes due 2039. We provide an unconditional and irrevocable guarantee on all BNAF and BPDAF notes and generally provide such guarantees on all BNAF and BPDAF notes issued, which will rank equally with our other unsecured and unsubordinated obligations.
3  Consists primarily of capital leases at Pascua-Lama $193 million and Lagunas Norte $106 million (2014: $199 million and $123 million, respectively).
4  Consists of $2.6 billion in conjunction with our wholly-owned subsidiary Barrick North America Finance LLC (“BNAF”). This consists of $252 million of BGC notes due 2018, $1.5 billion of BGC notes due 2023 and $850 million of BNAF notes due 2043. We provide an unconditional and irrevocable guarantee on all BNAF notes and generally provide such guarantees on all BNAF notes issued, which will rank equally with our other unsecured and unsubordinated obligations.
5  Consists of an export credit backed term loan facility.

Jabal Sayid Financing Facility

On April 2, 2015, Ma’aden Barrick Copper Company signed a financing agreement with the Saudi British Bank to finance the Jabal Sayid copper project (an equity method investment for Barrick) for SAR 750 million ($200 million USD). Barrick has provided a guarantee equal to our proportionate ownership interest (50%).

 

BARRICK SECOND QUARTER 2015   76   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


C Derivative Instruments at June 30, 2015

 

 
    Notional amount by term to maturity     Accounting classification by
notional amount
       
 

 

 

 
        Within
1 year
    2 to 3
years
    4+ years     Total     Cash flow
hedge
    Non-hedge     Fair value  
(USD)  
 

 

 

US dollar interest rate contracts

             

Total receive - float swap positions

    $ 28        $ 57        $ 57        $ 142        $ 142        $    -        $    -     

 

 

Currency contracts

             

A$:US$ contracts (A$ millions)

    250        -        -        250        187        63        (60)     

C$:US$ contracts (C$ millions)

    120        -        -        120        120        -        (9)     

CLP:US$ contracts (CLP millions)

    51,000        -        -        51,000        45,346        5,654        (6)     

ZAR:US$ contracts (ZAR millions)

    171        -        -        171        171        -        -     

 

 

Commodity contracts

             

Fuel contracts (thousands of barrels)1

    2,844        3,991        540        7,375        6,840        535        (151)     

 

 

1  Fuel contracts represent a combination of WTI swaps and Brent options. These derivatives hedge physical supply contracts based on the price of fuel across our operating mine sites plus a spread. WTI represents West Texas Intermediate and BRENT represents Brent Crude Oil.

Fair Values of Derivative Instruments

 

    Asset Derivatives     Liability Derivatives  
 

 

 

 
    Consolidated
      Balance Sheet
Classification
    Fair Value at
June 30,
2015
    Fair Value at
December 31,
2014
    Consolidated
Balance Sheet
Classification
    Fair Value at
June 30,
2015
    Fair Value at  
December 31,  
2014  
 

 

 

Derivatives designated as hedging instruments

           

US dollar interest rate contracts

    Other assets        $ 1        $ 2        Other liabilities        $ 1        $ 1     

Currency contracts

    Other assets        -        -        Other liabilities        46        71     

Commodity contracts1

    Other assets        -        -        Other liabilities        141        -     

 

 

Total derivatives classified as hedging instruments

      $ 1        $ 2          $ 188        $ 72     

 

 

Derivatives not designated as hedging instruments

           

US dollar interest rate contracts

    Other assets        $    -        $    -        Other liabilities        $    -        $    -     

Currency contracts

    Other assets        4        4        Other liabilities        33        30     

Commodity contracts

    Other assets        -        3        Other liabilities        10        185     

 

 

Total derivatives not designated as hedging instruments

      $ 4        $ 7          $ 43        $ 215     

 

 

Total derivatives

      $ 5        $ 9          $ 231        $ 287     

 

 
1 

Majority of our fuel contracts are now being designated as hedging instruments as a result of adoption of IFRS 9. These contracts did not qualify for hedge accounting prior to Jan 1, 2015.

 

BARRICK SECOND QUARTER 2015   77   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


As of June 30, 2015, we had 22 counterparties to our derivative positions. We proactively manage our exposure to individual counterparties in order to mitigate both credit and liquidity risks. We have 3 counterparties with which we hold a net asset position of $0.4 million, and 19 counterparties with which we are in a net liability position, for a total net liability of $226 million. On an ongoing basis, we monitor our exposures and ensure that none of the counterparties with which we hold outstanding contracts has declared insolvency.

Cash Flow Hedge Gains (Losses) in Accumulated Other Comprehensive Income

    Commodity price hedges     Currency hedges       Interest rate  
  hedges  
       
    Gold/Silver     Copper       Fuel         Operating    
    costs    
    Administration/
other costs    
    Capital
    expenditures    
      Long-term  
  debt  
    Total      

 

 

At December 31, 2014

    $ 18        $    -        $   -        $ (79)        $   (3)        $    -            $ (25)          $ (89)     

Impact of adopting IFRS 9 on January 1, 2015

    -        -        -        (5)        -        -            -          (5)     

Effective portion of change in fair value of hedging instruments

    -        -        (14)        (6)        (14)        -            -          (34)     

Transfers to earnings:

               

On recording hedged items in earnings/PP&E1

    (5)        -        4        45        6        -            1          51     

 

 

At June 30, 2015

    $ 13        $    -        $ (10)        $ (45)        $ (11)        $    -            $ (24)          $ (77)     

 

 
1 

Realized gains (losses) on qualifying currency hedges of capital expenditures are transferred from OCI to PP&E on settlement.

 

D  Gains (Losses) on Non-hedge Derivatives

 

    For the three months
ended June 30
   

For the six months  

ended June 30  

 

 

 
    2015     2014     2015     2014    

 

 

Commodity contracts

       

Silver

    $    -        $    -        $ 5        $     -     

Copper

    -        (1)        -        1     

Fuel

    1        58        -        72     

Currency contracts

    (12)        -        (16)        (2)     

 

 
    $ (11)        $ 57        $ (11)        $ 71     

 

 

Gains (losses) attributable to copper option collar hedges1

    $    -        $ (17)        $    -        $ (2)     

Gains (losses) attributable to currency option collar hedges1

    -        4        -        2     

Hedge ineffectiveness

    3        -        -        (6)     

 

 
    $ 3        $ (13)        $    -        $ (6)     

 

 
    $   (8)        $ 44        $ (11)        $ 65     

 

 
1 

Represents unrealized gains (losses) attributable to changes in the time value of the collars, which were excluded from the hedge effectiveness assessment in 2014.

19 > FAIR VALUE MEASUREMENTS

A  Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

  As at
  June 30,
  2015
 

Quoted
prices in
active
markets
for
identical
assets

 

(Level 1)

   

Significant
other
observable
inputs

 

(Level 2)

   

Significant
unobservable
inputs

 

(Level 3)

    Aggregate  
fair value  
 

 

 

Cash and equivalents

    $ 2,122        $      -        $    -        $ 2,122     

Other investments

    12        -        -        12     

Derivatives

    -        (226)        -        (226)     

Receivables from provisional copper and gold sales

    -        154        -        154     

 

 
 

 

 

 

$ 2,134

 

  

    $ (72)        $    -        $ 2,062     

 

 
 

 

BARRICK SECOND QUARTER 2015   78   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


B Fair Values of Financial Assets and Liabilities

 

     As at Jun. 30, 2015      As at Dec. 31, 2014    

 

 
     Carrying
amount
     Estimated
fair value
     Carrying
amount
     Estimated  
fair value  
 

 

 

Financial assets

           

Other receivables

     $ 404         $ 404         $ 385         $ 385     

Other investments1

     12         12         35         35     

Derivative assets

     5         5         9         9     

 

 
     $ 421         $ 421         $ 429         $ 429     

 

 

Financial liabilities

           

Debt2

     $ 12,823         $ 12,884         $ 13,081         $ 13,356     

Derivative liabilities

     231         231         287         287     

Other liabilities

     282         282         360         360     

 

 
     $ 13,336         $ 13,397         $ 13,728         $ 14,003     

 

 
1 

Recorded at fair value. Quoted market prices are used to determine fair value.

2 

Debt is generally recorded at amortized cost. The fair value of debt is primarily determined using quoted market prices. Balance includes both current and long-term portions of debt.

We do not offset financial assets with financial liabilities.

Valuation Techniques

Other investments

The fair value of other investments is determined based on the closing price of each security at the balance sheet date. The closing price is a quoted market price obtained from the exchange that is the principal active market for the particular security, and therefore other investments are classified within Level 1 of the fair value hierarchy.

Derivative Instruments

The fair value of derivative instruments is determined using either present value techniques or option pricing models that utilize a variety of inputs that are a combination of quoted prices and market-corroborated inputs. The fair value of all our derivative contracts includes an adjustment for credit risk. For counterparties in a net asset position, credit risk is based upon the observed credit default swap spread for each particular counterparty, as appropriate. For counterparties in a net liability position, credit risk is based upon Barrick’s observed credit default swap spread. The fair value of US dollar interest rate and currency swap contracts is determined by discounting contracted cash flows using a discount rate derived from observed LIBOR and swap rate curves and CDS rates. In the case of currency contracts, we convert non-US dollar cash flows into US dollars using an exchange rate derived from currency swap curves and CDS rates. The fair value of commodity forward contracts is determined by discounting contractual cash flows using a discount rate derived from observed LIBOR and swap rate curves and CDS rates. Contractual cash flows are calculated using a forward pricing curve derived from observed forward prices for

each commodity. Derivative instruments are classified within Level 2 of the fair value hierarchy.

Receivables from Provisional Copper and Gold Sales

The fair value of receivables rising from copper and gold sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted forward price from the exchange that is the principal active market for the particular metal. As such, these receivables, which meet the definition of an embedded derivative, are classified within Level 2 of the fair value hierarchy.

C  Assets Measured at Fair Value on a Non-Recurring Basis

 

  As at
  June 30,
  2015
  

Quoted
prices in
active
markets
for
identical
assets

 

(Level 1)

    

Significant
other
observable
inputs

 

(Level 2)

    

Significant
unobservable
inputs

 

(Level 3)

     Aggregate  
fair value  
 

 

 

Property, plant and equipment1

     $    -         $    -         $ 45         $ 45     

 

 
1 

Property, plant and equipment were written down by $40 million which was included in earnings this period, to their fair value less costs of disposal of $45 million.

20 > CAPITAL STOCK

A    Authorized Capital Stock

Our authorized capital stock includes an unlimited number of common shares (issued 1,164,669,758 common shares); an unlimited number of first preferred shares issuable in series (the first series is designated as the “First Preferred Shares, Series A” and consists of 10,000,000 first preferred shares (issued nil); the second series is designated as the “First Preferred Shares, Series B” and consists of 10,000,000 first preferred shares (issued nil); and the third series is designated as the “ First Preferred Share, Series C Special Voting Share” and consists of 1 Special Voting Share (issued nil)); and an unlimited number of second preferred shares issuable in series (the first series is designated as the “Second Preferred Shares, Series A” and consists of 15,000,000 second preferred shares (issued nil)). Our common shares have no par value.

B    Dividends

The Company’s practice has been to declare dividends after a quarter end in the announcement of the results for the quarter. Dividends declared are paid in the same quarter.

 

 

BARRICK SECOND QUARTER 2015   79   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


21 > NON-CONTROLLING INTERESTS

 

    Pueblo
Viejo
    Acacia     Cerro
Casale
    Other     Total    

 

 

At January 1, 2015

    $ 1,521        $ 758        $ 319        $ 17        $2,615     

Share of income (loss)

    29        5        (1)        (1)        32     

Cash contributed

    -        -        1        21        22     

Increase (decrease) in non-controlling interest1

    (64)        (4)        -        2        (66)     

 

 

At June 30, 2015

    $ 1,486        $ 759        $ 319        $ 39        $2,603     

 

 
1 

Primarily represents disbursements made to non-controlling interest at Pueblo Viejo.

22 > CONTINGENCIES

Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The impact of any resulting loss from such matters affecting these financial statements and noted below may be material.

Except as noted below, no material changes have occurred with respect to the matters disclosed in Note 35 “Contingencies” to the Company’s audited consolidated financial statements for the year ended December 31, 2014 (the “Audited Annual Financial Statements”), and no new contingencies have occurred that are material to the Company since the issuance of the Audited Annual Consolidated Financial Statements.

The description set out below should be read in conjunction with Note 35 “Contingencies” to the Audited Consolidated Financial Statements.

a)  Litigation and Claims Update

U.S. Shareholder Class Action

On April 1, 2015, the Court issued its ruling on the Defendants’ motion to dismiss. The Court dismissed the plaintiffs’ claims relating to the cost and scheduling of the Project. However, the Court allowed the plaintiffs’ claims relating to the environmental risks of the Project and alleged internal control failures to go forward. The Court denied Barrick’s motion for reconsideration of certain aspects of that ruling on June 2, 2015, and the parties have commenced discovery in the case.

Proposed Canadian Securities Class Actions

On May 21, 2015, the Divisional Court affirmed the lower court decision that determined which of the competing counsel groups will take the lead in the Ontario litigation. The losing counsel group is seeking leave to appeal to the Court of Appeal for Ontario.

Pascua-Lama - SMA Regulatory Sanctions

On April 22, 2015, Chile’s environmental regulator reopened the administrative proceeding against Compañía Minera Nevada, Barrick’s Chilean subsidiary that holds the Chilean portion of the Pascua-Lama project, in accordance with the Environmental Court Decision. CMN has filed a petition to limit the scope of this administrative proceeding to the original allegations before the environmental regulator at the time it issued the May 2013 Resolution. A decision from the SMA is pending in this matter.

Also on April 22, 2015, CMN was notified that the SMA has initiated a new administrative proceeding for alleged deviations from certain requirements of the Project’s environmental approval, including with respect to the Project’s environmental impact and a series of monitoring requirements. In May 2015, CMN submitted a compliance program to address certain of the allegations and presented its defense to the remainder of the alleged deviations. The SMA rejected CMN’s proposed compliance program on June 24, 2015. CMN filed an administrative appeal of this decision on July 3, 2015. A decision from the SMA on the administrative appeal and on CMN’s defense to the remainder of the alleged deviations is pending. Further submissions may be required if CMN’s administrative appeal is denied. The new administrative proceeding against CMN is separate from the original administrative proceeding described above, and could result in additional sanctions including new administrative fines and/or the revocation of the Project’s environmental permit.

Pascua-Lama - Environmental Damage Claim

On March 23, 2015, the Environmental Court ruled in favor of CMN in this matter, finding that the Pascua-Lama project has not damaged glaciers in the Project area. The plaintiffs did not file an appeal and the matter is now closed.

Pueblo Viejo - Amparo Action

On June 25, 2015, the Trial Court rejected the Petitioner’s amparo action, finding that the Petitioner failed to produce evidence to support his allegations. The Petitioner appealed the Trial Court’s decision to the Constitutional Court on July 21, 2015. On July 28, 2015, PVDC filed a motion to challenge the timeliness of this appeal as it was submitted after the expiration of the applicable filing deadline.

Marinduque Complaint

On June 11, 2015, the Nevada Supreme Court affirmed the trial court’s decision to dismiss the action on the grounds of forum non conveniens (improper choice of forum). The matter is now closed.

 

 

BARRICK SECOND QUARTER 2015   80   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


23 > SUBSEQUENT EVENTS

Streaming Agreement

On August 5, 2015 we announced that we had entered into a gold and silver streaming agreement with Royal Gold, Inc. (“Royal Gold”) for production linked to Barrick’s 60 percent interest in the Pueblo Viejo mine. In return, Royal Gold has agreed to make an upfront cash payment of $610 million plus continuing cash payments for gold and silver delivered under the agreement.

Under the terms of the agreement, Barrick will sell gold and silver to Royal Gold equivalent to:

 

   

7.5 percent of Barrick’s interest in the gold produced at Pueblo Viejo until 990,000 ounces of gold have been delivered, and 3.75 percent thereafter.

   

75 percent of Barrick’s interest in the silver produced at Pueblo Viejo until 50 million ounces have been delivered, and 37.5 percent thereafter. Silver will be delivered based on a fixed recovery rate of 70 percent. Silver above this recovery rate is not subject to the stream.

Ongoing cash payments to Barrick are tied to prevailing spot prices rather than fixed in advance, maintaining material exposure to higher gold and silver prices in the future. Barrick will receive ongoing cash payments from Royal Gold equivalent to 30 percent of the prevailing spot prices for the first 550,000 ounces of gold and 23.1 million ounces of silver delivered. Thereafter payments will double to 60 percent of prevailing spot prices for each subsequent ounce of gold and silver delivered.

    

 

 

BARRICK SECOND QUARTER 2015   81   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


HEAD OFFICE

 

Barrick Gold Corporation

Brookfield Place

TD Canada Trust Tower

161 Bay Street, Suite 3700

Toronto, Ontario M5J 2S1

 

Telephone: +1 416 861-9911

Toll-free: 1-800-720-7415

Fax: +1 416 861-2492

Email: investor@barrick.com

Website: www.barrick.com

 

SHARES LISTED

 

ABX – The New York Stock Exchange            

            The Toronto Stock Exchange

 

INVESTOR CONTACT:

 

Susan Muir

Senior Director

Investor Relations

Telephone: +1 416 307-5107

Email: s.muir@barrick.com

  

TRANSFER AGENTS AND REGISTRARS

 

CST Trust Company

P.O. Box 700, Postal Station B

Montreal, Quebec H3B 3K3

or

American Stock Transfer & Trust Company, LLC

6201 – 15 Avenue

Brooklyn, New York 11219

 

Telephone: 1-800-387-0825

Fax: 1-888-249-6189

Email: inquiries@canstockta.com

Website: www.canstockta.com

 

 

 

MEDIA CONTACT:

 

Andy Lloyd

Senior Vice President

Communications

Telephone: +1 416 307-7414

Email: alloyd@barrick.com

  


CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

Certain information contained or incorporated by reference in this Second Quarter 2015 Report, including any information as to our strategy, projects, plans or future financial or operating performance, constitutes “forward-looking statements”. All statements, other than statements of historical fact, are forward-looking statements. The words “believe”, “expect”, “anticipate”, “contemplate”, “target”, “plan”, “intend”, “project”, “continue”, “budget”, “estimate”, “potential”, “may”, “will”, “can”, “could” and similar expressions identify forward-looking statements. In particular, this Second Quarter Report 2015 contains forward-looking statements with respect to cash flow forecasts, projected capital, operating and exploration expenditure, targeted cost reductions, mine life and production rates, potential mineralization and metal or mineral recoveries, and information pertaining to Barrick’s Value Realization project (including potential improvements to financial and operating performance and mine life at Barrick’s Lagunas Norte and Pueblo Viejo mines that may result from certain Value Realization initiatives). Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the company in light of management’s experience and perception of current conditions and expected developments, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: fluctuations in the spot and forward price of gold, copper or certain other commodities (such as silver, diesel fuel, liquefied natural gas and electricity); the speculative nature of mineral exploration and development; changes in mineral production performance, exploitation and exploration successes; risks associated with the fact that Value Realization initiatives are still in the early stages of evaluation and additional engineering and other analysis is required to fully assess their impact; diminishing quantities or grades of reserves; increased costs, delays, suspensions and technical challenges associated with the construction of capital projects; operating or technical difficulties in connection with mining or development activities, including disruptions in the maintenance or provision of required infrastructure and information technology systems; uncertainty whether some or all of the Value Realization initiatives will meet the company’s capital allocation objectives; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; adverse changes in our credit rating; the impact of inflation; risk of loss due to acts of war, terrorism, sabotage and civil disturbances; fluctuations in the currency markets; changes in U.S. dollar interest rates; risks arising from holding derivative instruments; changes in national and local government legislation, taxation, controls or regulations and/or changes in the administration of laws, policies and practices, expropriation or nationalization of property and political or economic developments in Canada, the United States, Zambia and other jurisdictions in which the company does or may carry on business in the future; failure to comply with environmental and health and safety laws and regulations; timing of receipt of, or failure to comply with, necessary permits and approvals; litigation; contests over title to properties, particularly title to undeveloped properties, or over access to water, power and other required infrastructure; business opportunities that may be presented to, or pursued by, the company; our ability to successfully integrate acquisitions or complete divestitures; increased costs and risks related to the potential impact of climate change; damage to the company’s reputation due to the actual or perceived occurrence of any number of events, including negative publicity with respect to the company’s handling of environmental matters or dealings with community groups, whether true or not; employee relations; availability and increased costs associated with mining inputs and labor; and the organization of our previously held African gold operations and properties under a separate listed company. In addition, there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion, copper cathode or gold or copper concentrate losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks).

Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this Second Quarter 2015 Report are qualified by these cautionary statements. Specific reference is made to the most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements.

The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

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