2012 outlook spoils African Barrick dividend party

Thu Feb 16, 2012 5:43am EST
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By Clara Ferreira-Marques

LONDON (Reuters) - The prospect of power cuts, disappointing growth prospects and soaring costs outweighed the boost from a trebled 2011 dividend in African Barrick Gold ABGL.L results on Thursday, leaving the company's shares more than 9 percent lower.

The Tanzania-focused company last month posted a 2 percent dip in full-year production to 688,278 ounces, after outages at its Buzwagi mine held back output in the final quarter. But with power disruptions set to continue into 2012, it set its target for the year on Thursday at a modest 675,000 to 725,000 ounces -- forecasting what could be another drop.

Costs, meanwhile, jumped 22 percent on the back of industry wide inflation in, for example, the cost of materials, but also a higher headcount and increased use of more expensive generator power to keep mines working, with cash costs per ounce coming in at $692. The miner forecast a similar rate of increase for 2012, with cash costs of $790 to $860 per ounce.

The soaring cost of production, the darker side of rising prices in recent years, is becoming an increasingly painful issue for miners globally and particularly for those in newer frontiers like West and East Africa, where activity has boomed and talent and materials are in short supply.

African Barrick Gold Chief Executive Greg Hawkins said the miner would fight rising costs with increased productivity, increased recoveries and efforts to make its workforce as local as possible, cutting out expensive expatriate staff.

"If the gold price stabilizes, that will put some downward pressure on the cost base. If the gold price keeps going up, the pressure will still be there," he told Reuters.

ABG, a unit of Barrick Gold Corp (ABX.TO: Quote), also warned the power supply issues that dogged production through 2011 would likely continue well into 2012. The miner lost 40,000 ounces of production last year due to Tanzania's unreliable power supply.

It expects to complete back-up power installations at all its mines by the end of the second quarter, mitigating the production impact of power outages -- if not the cost, given the relatively higher cost of diesel-generated power.   Continued...