July 30, 2009 / 12:32 PM / 8 years ago

UPDATE 3-Barrick Gold profit edges up, sees costs falling

* Q2 EPS $0.56 vs $0.55 year earlier

* Shares rise 2.6 percent as results top estimates

* CEO says new mines, lower commodities should cut costs (Adds details from conference call and analyst comment. In U.S. dollars unless noted)

By Cameron French

TORONTO, July 30 (Reuters) - Barrick Gold Corp (ABX.TO) reported a stronger-than-expected quarterly net profit on Thursday, giving its shares a boost, while the company’s chief executive forecast lower mining costs in the quarters ahead.

The company, the world’s largest gold producer, also maintained its production forecasts for 2009 and 2010 and said its key development projects were progressing on schedule.

Speaking on a conference call, Barrick CEO Aaron Regent said a combination of lower commodity prices, looser labor markets and new lower-cost mines should reverse a trend of rising costs that has diluted the impact of high gold prices.

Total cash costs per ounce were $452 during the quarter, up from $434 in the year-before quarter, but down from $484 in the first quarter.

“We are at the point now when we believe this trend will start to reverse,” said Regent.

He said the company has been renegotiating supply contracts to take advantage of recent declines in consumables such as cyanide and sulfuric acid, which are used in the mining process, as well as for grinding equipment and explosives.

But he said the biggest impact will come from the company’s latest generation of larger, lower-cost mines that have begun to come on line with the initial production from the Buzwagi mine in Tanzania in May.

Buzwagi is expected to produce gold at $335 an ounce, while the larger Cortez Hills and Pueblo Viejo mines, set to come on line in the next two years, should produce metals at $350-$400 an ounce and $275-$300 an ounce, respectively, well below the company’s 2009 guidance of a range of $450 to $475 an ounce.

The Pascua Lama project on the border of Argentina and Chile, which Barrick was able to launch in May after the two countries hammered out a taxation deal, will boast cash costs at a minuscule $20 to $50 an ounce after factoring in silver production as a cost offset.

Barrick expects the mine to come to production in 2012.

While the mining costs are lower, the challenge for Barrick is managing the multibillion price tags to build the projects, said John Ing, president of Toronto investment dealer Maison Placements, noting that Pascua Lama alone is expected to cost as much as $3 billion to build.

“Overall, in the last quarter, mining costs have not been the issue,” he said. “It’s the capital cost that is so large on these projects.”

PROFIT, SHARES UP

The company earned $492 million, or 56 cents a share, in the second quarter, up from a profit of $485 million, or 55 cents a share, in the year-before period.

Adjusted earnings were 49 cents a share, topping the average analyst forecast of 38 Canadian cents a share, as polled by Reuters Estimates.

Just after midday, the Toronto-listed stock was up 92 Canadian cents, or 2.6 percent, at C$36.67.

“Higher than expected quarterly production ... and higher than anticipated realized gold prices accounted for most of the beat,” Jennings Research analyst Ron Coll said in a note.

The result follows weaker-than-expected results and lower sales estimates from world No. 2 producer Newmont Mining (NEM.N) last week. Goldcorp (G.TO) reported on Wednesday core earnings that were roughly in line with estimates, although it took a net loss due to a non-cash foreign exchange loss.

Barrick’s gold production rose just under 1 percent to 1.87 million ounces in the quarter. The company said it is on track to meet its 2009 forecast for gold production of 7.2 million to 7.6 million ounces, while 2010 output is seen in a range of 7.7 million to 8.1 million ounces.

$1=$1.08 Canadian Additional reporting by Euan Rocha

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