April 19, 2012 / 10:53 AM / 6 years ago

UPDATE 2-Weak 1st-qtr clouds African Barrick Gold outlook

* Q1 cash cost $925/oz, up 41 pct

* Keeps 2012 output target of 675,000-725,000 oz

* Shares fall 7 percent

By Karen Rebelo

April 19 (Reuters) - African Barrick Gold reported a 17 percent fall in quarterly output, partly due to lower ore quality at its Buzwagi mine in Tanzania, prompting fears that the company might hit the low end of its full-year production outlook.

Shares of the Tanzania-focused company, which reiterated its full-year production forecast of 675,000 ounces to 725,000 ounces, fell 7 percent.

“If they do achieve their guidance it will be at the lower end (of the range),” said Liberum Capital analyst Kate Craig.

“The reason they could miss their production guidance is they still don’t have their waste dump permits at the North Mara mine and at Buzwagi they’ve got further geological challenges impacting their recovery.”

ABG, a unit of the world’s largest gold miner, Barrick Gold Corp, produced 144,643 ounces of attributable gold in the quarter, down from 173,907 ounces last year.

“We had expected ABG to deliver a weak first-quarter result and it did not disappoint,” Investec’s Hunter Hillcoat said. The first-quarter performance suggested full-year production could be at the low end of the range, from his previous expectation of just above the mid-range, Hillcoat added.

The company said it continued to expect a step-up in production levels during the second half.

“Our focus remains on the waste stripping programme at North Mara, ensuring that we manage the power situation in Tanzania,” Chief Executive Greg Hawkins said in a statement.

The company said waste stripping at the North Mara mine also hurt production in the first quarter. Waste stripping is an extraction process that helps miners access higher grade ore.

Apart from lowered production, the gold miner is also battling rising expenses. Cash costs rose 41 percent in the quarter to $925 per ounce, far above the company’s full-year estimate of $790 to $860 per ounce.

Costs jumped 22 percent last year on the back of rising inflation, and increased use of generator power to keep mines working in Tanzania which suffers from erratic power supply.

Rising costs have hurt African Barrick’s market value, with shares falling 15 percent in the first quarter even as gold prices rose more than 6 percent during the period.

Shares of the company were down 4 percent at 353.2 pence at 1028 GMT on the London Stock Exchange. They touched a low of 344.04 earlier in the day. (Reporting by Karen Rebelo in Bangalore; Editing by Maju Samuel)

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