April 29, 2009 / 12:57 PM / in 9 years

REFILE-UPDATE 3-Barrick Gold profit slides on higher costs

(Refiles to fix typo in headline)

* First-quarter EPS $0.42 vs $0.59

* Sees 2010 production of 7.7 mln-8.1 mln oz

* Expects Pascua Lama construction decision soon (Adds details, comments. In U.S. dollars unless noted)

By Cameron French

TORONTO, April 29 (Reuters) - First-quarter profit at Barrick Gold Corp ABX.TO dropped 28 percent due to weak copper prices and rising costs, but company executives said on Wednesday that new developments in the pipeline should help reduce costs and widen profit margins down the road.

Barrick, the world’s top gold producer, saw costs per ounce rise to $484 in the quarter from $395 a year earlier, due in part to mining of lower grade ore. The company also said hedges it has in place have kept it from realizing the full benefit of falling oil prices and the rising U.S. dollar.

But progress on new developments should see the company opening mines with progressively lower costs, particularly Pascua Lama on the border of Argentina and Chile, a project that could one day produce ounces at less than $100.

The project has been held up by a cross-border tax dispute, but Chilean official said on Wednesday the two sides had resolved tax issues related to transborder services, which had been the key holdup in reaching a deal.

Speaking after Barrick’s annual meeting in Toronto on Wednesday, Chief Executive Aaron Regent said the company should be able to make a construction decision shortly, ideally before the end of June, in order to mobilize workers to take advantage of the short construction season in the Andes.

“This (was) a big hurdle, and there’s a few other points that we have to deal with, but I‘m optimistic that we’ll be able to make a decision shortly,” he told reporters.

Pascua one of several projects that Regent said should help pull mining costs down from first-quarter levels.

Barrick expects the low-cost Buzwagi mine in Tanzania to start pouring gold “shortly”, while the Cortez Hills and Pueblo Viejo projects in Nevada and Dominican Republic should begin output in the next two years.

Further down the road is the massive Donlin Creek deposit in Alaska, which is a joint venture with NovaGold NG.TO. A feasibility study released on Tuesday pegged development costs at $4.5 billion, which Regent acknowledged was high.

“Clearly, one of our objectives will be to see how we can reduce those costs,” he said.

John Ing of Toronto investment deal Maison Placements, said high capital costs were his main concern with Barrick.

“Mining gold has become a very capital-intensive business, and they have some huge projects still to come,” Ing said.

PROFIT FALLS

Barrick earned $371 million, or 42 cents a share in the first quarter, down from $514 million, or 59 cents a share.

Stripping out one-time items, profit was 34 cents a share. just shy of the the profit of 36 cents a share expected by analysts polled by Reuters Estimates.

Gold production rose 0.6 percent to 1.76 million ounces, while copper production jumped 9 percent to 95 million pounds.

Realized gold prices dipped slightly to $912 an ounce from $925, while copper prices fell 16 percent, helping pull revenue down 6.6 percent to $1.8 billion.

Barrick is on track to meet its 2009 forecast for gold production of 7.2 million to 7.6 million ounces, at a cost of $450 to $475 an ounce, while 2010 output is expected to increase to about 7.7 million to 8.1 million ounces, with lower cash costs, the company said.

In a note, Macquarie Research analyst George Albino said the results were essentially in line with his estimates, although copper production was on the weak side.

Barrick’s shares were up 0.5 percent at C$35.77, but are down 20 percent so far this year, despite predictions that, because of the metal’s safe-haven investment status, gold prices will benefit from the global economic crisis and inflationary stimulus spending.

Gold XAU= was at $901 an ounce on Wednesday, up 2.6 percent so far in 2009. (Additional reporting by Susan Taylor in Ottawa; editing by Rob Wilson)

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