July 23, 2012 / 6:59 AM / 5 years ago

UPDATE 2-African Barrick first-half earnings dented by rising costs

* H1 net down 46 percent to $65 million

* Cash costs jump 43 percent to $938 per ounce

* Maintains full-year production guidance despite H1 drop

* Sees costs at upper end of expectations

* Shares down 6 pct vs 3 pct sector fall

By Sarah Young

LONDON, July 23 (Reuters) - African Barrick Gold Plc suffered a near halving in first-half profits, battered by lower production and a worse-than-expected rise in costs due to an increased reliance on expensive diesel-fueled power generation.

The Tanzania-focused company, a unit of Barrick Gold Corp , said costs would now be at the higher end of its estimated range for the year, but kept its cost of production guidance at $790 to $860 per ounce as improved grades and production levels would help bring down costs.

“When we ... use back-up power, which we’re finding we have to do more and more ... the costs of that are three times the cost of the power off the national grid,” Chief Executive Greg Hawkins told Reuters on Monday.

African Barrick’s power costs were more than analysts were expecting, said Hawkins, meaning the company’s core quarterly earnings (EBITDA) of $81 million came in behind a consensus forecast of $88 million.

For the six months to June 30, the company posted net profit of $65 million, 46 percent lower than in the same period last year, after cash costs in the first six months of the year jumped 43 percent to $938 per ounce, from $655 a year ago.

Westhouse analyst Rob Broke called the quarterly results disappointing, highlighting the jump in the cost of producing each ounce.

Shares in African Barrick traded down 6 percent at 355 pence by 1016 GMT, underperforming the European mining sector as a whole which was 3 percent lower.

HIGHER PRODUCTION

Gold output for the year will still be in line with the company’s forecasts, it said, as it will move to extract the metal from more productive parts of some mines over the rest of the year, easing cost pressures.

“The company will require around 30 percent higher production in the second half to reach the lower end of the guided range,” Canaccord analyst Dmitry Kalachev said. “Although we continue to believe that this is achievable, we note the historically challenging operating environment.”

Hawkins conceded that the company expected the power supply from the Tanzanian national grid to continue to be unreliable, but was confident the higher grades would enable the company to meet 2012 production guidance of between 675,000 and 725,000 ounces of gold, within its target cost range.

“Obviously you’re spending about the same sort of dollars, but you’re getting a lot more production for it and your cash cost per ounce will naturally come down,” he said.

Shrugging off the impact of lower half-year profits, the company announced a 25 percent jump in its interim dividend to $4.0 cents per share.

“We’ve set ourselves up for the second half of the year. We’ve affirmed our confidence in where we’re tracking in terms of what we’ve done with the dividend,” Hawkins said.

African Barrick also said it would spend A$20 million ($20.7 million) on buying exploration properties in Kenya, in a partnership with Lonmin that expands its footprint outside Tanzania for the first time as part of a long-stated plan.

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