TORONTO (Reuters) - Soaring gold prices and a timely decision to ditch its corporate hedge book paid off for Barrick Gold Corp (ABX.TO) in the first quarter as the world's top gold miner reported stronger earnings despite weaker production.
Speaking at the company's annual meeting on Tuesday, Acting Chief Executive Peter Munk painted a bright picture on supply and demand for the metal, pointing to surging jewelry demand from Asia, while noting an increasingly tight supply picture.
Such dynamics, along with gold's increasing appeal as a safe-haven alternative to the U.S. dollar, drove average gold prices up 42 percent on the year, pushing Barrick's realized gold price to a best-ever $925 an ounce.
Barrick took a $557 million charge a year ago to exit its forward sales contracts, or hedges, allowing it to sell its gold at spot prices that hit record high above $1000 in March.
While reluctant to predict how far gold would go, Munk said market dynamics are favorable for the metal.
"We're running out of major gold deposits, and the deposits we do have become increasingly difficult to come on stream," said Munk, the 80-year-old founder of the company, who has been running Barrick since CEO Greg Wilkins took a leave of absence in March, citing a serious medical condition.
Wilkins, who spoke at the meeting, has been in the office on a regular basis, said company spokesman Vince Borg, although there's no word on when or if he might return officially.
Barrick's biggest development headache of late has been its giant Pascua-Lama mine on the border of Argentina and Chile.
The $2.4 billion project, which holds at least 18 million ounces of gold and will also be the world's largest single source of silver, has been delayed amid a cross-border squabble on tax proceeds. Key permits are also outstanding.
Speaking at the meeting, Wilkins called the delay disappointing, but said the company was increasing its efforts to "push it over the goal line."
Stripping out one-time items, adjusted income rose 29 percent year over year. Adjusted earnings per share were 62 cents, about even with the 61 cents expected by analysts polled by Reuters. Net profit climbed to $514 million, or 59 cents a share.
Sales in the quarter jumped to $1.96 billion from $1.1 billion. With costs per ounce at $393 per ounce, operating margins in the quarter were nearly double the margins from 2007, officials said.
The strong operating performance allowed Barrick to raise its six-month dividend by 33 percent to 20 cents a share.
Barrick, which has 27 operating mines, produced 1.7 million ounces of gold in the quarter at a total cash cost of $393 an ounce, down from 2 million ounces at $309 an ounce in the year-before quarter.
The company said gold output was hurt by lower grades and volumes due to planned interruptions in mine production as well as operational disruptions. Barrick said a better performance is expected in the second quarter.
"They had some production problems at some of the mines... but generally, the numbers I think are OK," said Kerry Smith, an analyst at Haywood Securities in Toronto.
UBS Investment Research lifted its price target on Barrick to C$58 from C$54 based on the higher gold price, but said it expects cash costs per ounce could come at the high end of Barrick's expectations.
Copper production eased to 87 million pounds from 100 million pounds, while spot prices climbed to $3.52 a pound from $2.69 a pound.
The company reaffirmed its expectation that it will produce between 7.6 million and 8.1 million ounces of gold this year at cash costs of $390-$415 per ounce and between 380 and 400 million pounds of copper at a cost of $1.15 to $1.25 per pound.
Barrick shares eased 1 Canadian cent to close at C$39.40 on the Toronto Stock Exchange.
Spot gold was around $875 an ounce on Tuesday.
Reporting by Cameron French; editing by Rob Wilson