Barrick Gold Corp. (Barrick) (ABX; www.barrick.com) is celebrating 25 years since its debut on the Canadian TSX. On May 2, 1983, Barrick stock was trading at $1.20 per share, a quarter of a decade later the stock was trading on May 8, 2008 at $40.62, up three and half per cent on good first quarter results and a 33 per cent boost in dividends due to strong cash flows. "We celebrate our 25th as the leader in the gold mining industry, with approximately 125 million ounces of gold reserves and 51 million ounces of measured and indicated resources, located on some of the most prolific gold belts in the world," said chairman, founder and acting CEO, Peter Munk. "Today, Barrick's competitive advantage is its strength, breadth and scale. The Company has the combined financial muscle and more than 20,000 talented employees to execute its development plans for the future."
If the rest of the year follows the first quarter for the Toronto-based gold mining company then more celebrations should follow. Barrick posted sales of almost $2bn with a healthy 25 per cent profit tag; net profit is 17.70 per cent and net income is up 29 per cent. With the average price of gold ticking along at $925/oz for the first three months of 2008 and a market expectation of increased demand from discerning consumers in India and China, coupled with a continued surge in gold prices that may take it over the $1,000/oz mark at any time, the future should be rosy for Barrick.
Nevertheless, success is a hard act to follow and perhaps wisely, Munk erred on the cautious side in a recent interview with journalists where he focused on the challenges in gold mining today. Finding the gold seems the relatively easy part as calling the gold mining industry, “challenging and difficult," Munk described how governments were increasingly demanding a larger slice of the pie. Paying governments more, taken with production setbacks and the increasing worldwide environmental and political opposition to getting a project up and producing, Barrick’s costs rose to $393.00/oz from $309.00/oz from the same period last year.
Munk is hopeful however, that Barrick can get a handle on the situation and maybe, go for the penny and the bun, lower costs and higher production. Barrick is hoping that the production from the Buzwagi project in Tanzania, which should be in production in 2009, the Cortez Hills project in Nevada, which could be a one million ounce a year operation and the Pueblo Viejo project, in the Dominican Republic, which is currently at feasibility study stage, will do the trick. Munk told journalists from Reuters that costs could be cut by as much as 25 per cent when the new mines came on line; Munk also confirmed that Barrick was not adversely affected by the credit crunch crisis.
As for future acquisitions, Barrick will be busy with its 2006 buy of Placer Dome and 2007’s $1.7bn investment in Cortez however, Munk didn’t entirely rule out the prospect of further buys. That said, the high price of bullion will make bargains tough to find and quality acquisitions will be expensive.
Currently, Barrick’s production is around eight million ounces a year. The company’s ambition is to up that to ten million ounces, which is perfectly feasible. How challenging that will be cost wise remains to be seen. The price of gold ebbs and flows, sometimes dramatically in an uncertain economic climate but always seems to settle a little higher. Will the industry become less challenging? Probably not but then what’s the point of doing something well if there isn’t a challenge or two to be overcome in the doing of it?