October 30, 2008 / 12:52 PM / in 9 years

UPDATE 4-Barrick Gold profit falls, could defer projects

* Profit hit by writedowns

* Core earnings miss estimates as costs rise

* Company could defer some projects (Adds details from conference call; in U.S. dollars, unless noted)

By Cameron French

TORONTO, Oct 30 (Reuters) - Top gold producer Barrick Gold Corp (ABX.TO) reported a 26 percent drop in third-quarter profit on Thursday, on the back of a $97 million writedown, and also became the latest miner to consider deferring projects as it aims to preserve capital.

Barrick earned $254 million, or 29 cents a share, as it was stung by a $97 million charge largely to write down its 20 percent share of Highland Gold (HGM.L), a Russian-focused miner whose stock has been decimated by the recent financial crisis.

While the situation for cash-strapped mining juniors has been more dire than for top producers, tight credit conditions and plunging commodity prices have put even previously rock-solid projects in question, and Barrick said it would have a second look at much of its pipeline.

“We are carefully reviewing our operating and capital expenditure plans, and we continue to look for opportunities to reduce costs and perhaps even defer certain capital programs,” CFO Jamie Sokalsky said on a conference call.

Projects safe from deferment include Barrick’s three main near-term development projects -- Buzwagi in Tanzania, Cortez Hills in Nevada, and Pueblo Viejo in the Dominican Republic -- which are together expected to produce 1.9 million low-cost ounces a year when they’re up and running.

COSTS RISE

Stripping out the writedown, Barrick earned 40 cents a share, which missed analyst forecasts of 49 cents.

Revenue rose 12 percent to $1.88 billion, as realized gold prices averaged $872 an ounce in the quarter, up from $681. Gold output was 1.95 million ounces, up from 1.93 million, although slightly less was sold due to delayed shipments.

Cash costs per ounce rose to $466 from $365 in the year-before quarter.

Barry Allan, an analyst at Research Capital, said higher than expected costs were the main reason for the profit missing estimates.

“I think we all underestimated the bottom line impact of fuel on gold companies,” he said. “That is definitely going to be the name of the game this quarter.”

However, while the recent trend of cost inflation continued in the third quarter, the recent sharp price drop in materials such as oil and sulphuric acid means the picture for the fourth quarter could be significantly different.

“While there has been recent weakness in the gold price, we’ve started to see lower input prices in the market place and this should help to mitigate the impact on margins in the future, assuming that this trend continues,” said Sokalsky.

The impact of this could come gradually, however, as many inputs are locked in with longer-term contracts.

Barrick said 2008 production should be in a range of 7.6 million to 7.8 million ounces, at the low end of its previous estimate, with cash costs between $425 and $445 an ounce.

Barrick has been searching for a new chief executive following the resignation of Greg Wilkins, who had been on leave with a serious, but unspecified, medical condition. Company founder Peter Munk has been acting CEO since March 27.

Speaking on the call, Munk said he expected the CEO search to be completed by the end of the year.

The company’s shares were up 0.4 percent, or 10 Canadian cents at C$28.00 on the Toronto Stock Exchange, moving roughly in line with other Toronto-listed mining stocks.

$1=$1.22 Canadian Reporting by Cameron French; editing by Rob Wilson

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