As part of plans to reduce its net debt by at least $3 billion by the end of 2015, Barrick Gold has announced its intention to divest the Porgera Joint Venture. The company hopes the divestment and other cost-cutting measures will help restore its balance sheet to a position of strength after posting a December quarter loss of $2.85 billion.
The company also plans to divest its Cowal mine in Central West New South Wales and it states these moves represent ‘disciplined non-core asset sales’. It will also cut the number of staff at its Toronto headquarters from the existing 260 positions to 140 and expects its corporate administration expense to total about $145 million this year.
It states that the return to a lean, decentralized operating model will eliminate bureaucracy and management layers. These initiatives are freeing up country and mine managers to be business owners with a focus on driving greater free cash flow.
The company produced 6.25 million ounces of gold at all-in sustaining costs (AISC) of $864 per ounce in 2014, generating $2.30 billion in operating cash flow. Production guidance for 2015 is 6.2-6.6 million ounces of gold at all-in sustaining costs of $860-$895 per ounce. The company expects to generate positive free cash flow this year at current gold prices.
It expects annual gold production from the current portfolio to exceed 6 million ounces in 2016 and 2017, with all-in sustaining costs lower than this year by 2017.
In its fourth quarter and full year 2014 results released last week, the company stated: “Investments in new projects will compete with share buybacks and acquisitions, along with our objective of paying a dividend to our owners. We expect our portfolio to deliver a 10-15% return on invested capital through the metal price cycle and, as such, individual projects are assessed against a hurdle rate of 15%. We will defer, cancel or sell projects that cannot achieve this target.
“A portion of our capital budget is re-invested in existing mines to sustain or expand them. That capital is not spread evenly across the portfolio and our operations must compete for it. We will focus our investments at mines that meet our overall expectations for returns on invested capital. Assets that are unable to meet our capital allocation objectives over time will be sold.
“Barrick’s five cornerstone mines in the Americas are expected to account for 60% of production in 2015 at average all-in sustaining costs of $725-$775 per ounce. At 2 grams/tonne, these mines have an average reserve grade more than double that of our peer group average. They are among the most attractive assets in the entire gold industry, generating strong free cash flow even in today’s gold price environment, while offering exceptional leverage to higher gold prices. Divestments outside of the Americas, including Porgera and Cowal, will further centre the company’s portfolio on its strongest assets.”
At Porgera in 2014 higher recoveries and throughput from improved mill availability and a focus on reducing sustaining capital contributed to improved production and AISC of 493,000 ounces and $996 per ounce, respectively. Porgera is expected to produce 500,000-550,000 ounces in 2015, reflecting increased underground mining rates and mining from higher grade areas of the open pit. AISC of $1025-$1125 per ounce in 2015 reflects increased sustaining capital in line with the mine plan.
The company is evaluating a number of initiatives with the potential to further reduce costs at Porgera, including lowering energy costs through an alternative electricity supply project, reducing the number of expatriate staff and other external spending.