Welcome to the Barrick 2018 First Quarter Results Conference Call. During the presentation, all participants are in listen only mode. Following the presentation, we will conduct a question and answer session. As a reminder, this conference call is being recorded and a replay will be available on Barrick's website tonight, April 24, 2018. I would now like to turn the conference over to Kelvin Dushninski, President.
Please go ahead, sir.
Good morning and thank you for joining us. Before we begin, I'd like to highlight that during this presentation, we'll be making forward looking statements. This slide includes a summary of the significant risks and factors that could affect Ferrous's future performance and our ability to deliver on these forward looking statements. A review of our most recent AIF will provide you with a more complete discussion. I'm here today with our Chief Financial Officer, Kathryn Robb our Senior Vice President, Operational and Technical Excellence, Greg Walker our CEO of FERRICK Nevada, Bill McNevin and our Executive Vice President of Exploration and Growth, Rob Kritzmaref.
Our other General Managers and members of the Ferro team will also be available for questions following the formal portion of the call. During the Q1, we made good headway on the priorities we set for 2018. Keeping in mind that it's still early in the year, I'd like to update you on the progress we've made so far. Our operations generated $507,000,000 in operating cash flow and $181,000,000 in free cash flow, both an improvement over the prior year quarter. Catherine will speak to you in more detail about this as well as our other financial results.
Operationally, gold production and cost for the quarter were in line with expectations and consistent with what we had previously guided. Our Nevada organic growth projects are progressing well and remained on schedule and within budget. Greg will provide you with an update on the Turquoise Ridge 3rd Shafts and Bill will speak to you on the recent progress made at Cortez Deep South and at Goldrush. Nevada remains a key area of focus for our exploration program Rob will provide you with an update on our recent and encouraging drill results at Formal. With respect to the balance sheet, during the quarter, we are pleased to report that Moody's and Standard and Poor's upgraded our credit ratings, reflecting our progress on debt reduction and improved liquidity.
Finally, before I hand the call over to Catherine, I want to provide a brief update on the status of the discussions with the government of Tanzania concerning the proposed framework agreement for Acacia. The discussions have been constructive and the parties are progressing with the detailed legal concerning the implementation of the conceptual framework. And while there are a number of issues still to be resolved, Verra continues to target the first half of twenty eighteen for completion of a detailed proposal for review by Acacia. With that, I'll hand the call over to Catherine to take you through our Q1 financial results.
Thanks, Kelvin. Net earnings for the quarter were $158,000,000 or $0.14 per share and adjusted net earnings were $170,000,000 or $0.15 per share, up 5% relative to the same period last year, mainly due to the higher gold price and lower depreciation. Operating cash flow increased year over year to $507,000,000 due to higher gold prices, lower cash taxes paid and positive movements in working capital. Free cash flow for the quarter was $181,000,000 up 12% compared to last year due to the higher operating cash flow and slightly lower cash CapEx. Even though on this slide, you can see that our accrued CapEx, which is what we currently use for our all in sustaining calculation, did in fact increase by 4%.
This was due to an increase in project capital at Barrick Nevada, crossroads pre stripping, the Cortez range front declines, the Goldrush exploration declines and the Deep South expansion, as well as the start of construction of the 3rd shaft at Turquoise Ridge. But Greg and Bill will talk about these in more detail later. Our full year guidance for 2018 remains unchanged at 4.5 to 5,000,000 ounces at a cost of sales of $8.10 to $8.50 per ounce and all in sustaining cost of 7 $65 to $8.15 per ounce. With respect to timing, our production is still expected to be second half weighted at lower cost than the first half as we see higher grades and throughput from Barrick Nevada and Poitludesco. 2nd quarter production looks to be roughly in line with the first and is expected to be slightly higher than the Q1.
Greg will provide you a bit more color on this. For copper, we continue to expect production to be in the range of £385,000,000 to £450,000,000 at a cost of sales of $1.80 to $2.10 per pound and all in sustaining cost of $2.30 to $2.60 per pound. Our guidance for total CapEx remains unchanged with $950,000,000 to $1,100,000,000 of sustaining, dollars 450,000,000 to $550,000,000 of growth and a total CapEx of $1,400,000,000 to $1,600,000,000 And now on to the balance sheet. In Q1 of 2018, S and P and Moody's both recognized the huge progress we have made and upgraded Barrick's credit rating fighting significant improvements in free cash flow and liquidity. At the end of Q1, we had a consolidated cash balance of $2,400,000,000 We had less than $100,000,000 of debt due before 2020 and more than 3 quarters of the outstanding $6,400,000,000 is due after 2,030 2.
Despite this recognition from the credit agencies, our goal remains to reduce debt total debt to around $5,000,000,000 by the end of the year. Given how materially we have strengthened our balance sheet, we now do not intend to sell further assets for the purposes of debt repayments and we will use free cash flow and cash on hand to try and achieve this $5,000,000,000 goal. Proceeds from any additional portfolio As we stated before, our objective is to create a sustainable long term business with a robust balance sheet, a strong cash with strong cash flow generation and with the aim of rewarding our shareholders through a combination of share price appreciation, dividends and potential share buybacks. This is a long journey, but one we are committed to. I'd now like to hand it over to Greg, who'll take you through the operational results for the Q1.
Thank you, Catherine. In quarter 1, 2019, we produced 1,050,000 ounces of gold, which is in line with our previous announced guidance. 1st quarter production was also impacted by an earthquake that struck Papua New Guinea on February 26. This earthquake damaged infrastructure at the Porger joint venture power station. The Porger processing plant is currently operating at 25 percent.
We're currently expecting this to improve in stages and get back at full capacity in Q by Q4 in 2019. As Catherine mentioned, we expect the gold production in the 2nd quarter to be roughly in line with the Q1 at about 1,000,000 ounces. This is mainly due to maintenance at Barrick Nevada Roaster and PV Autoclave circuit. The gold all in sustaining cost for Q1 was $804 an ounce, while the cash costs were $5.73 per ounce. This year on year increase of 4% and 5% respectively is in line with our guidance for Q1 costs, which are proportionately higher compared to the balance of 2018.
Buyer costs also partially reflect the higher royalty expenses as a result of the increased realized gold price in Q1. Looking forward, we expect sustaining capital to be higher in Q2 versus Q1 given underground development, stripping and other planned projects such as tailings dam lift. We expect the completion of this sustaining program to lay the foundations for stronger production and lower costs in the second half of twenty eighteen, given access to higher grades and increased throughputs. On the copper side, production in Q1 was £85,000,000 or 11% lower compared to prior year. This is mainly due to the mill and crusher shutdowns at Lomaana along with lower grades in the Q1.
Accordingly, copper all in sustaining costs increased to $2.61 per pound in Q1, a 19% increase over the prior year. Looking forward, we expect this performance to improve as lower realized grades in the Q1 of Loana are expected to increase over the course of 2018. Moving on to Turquoise Ridge. As highlighted now in recent Investor Day, Turquoise Ridge is now a core mine in recognition for growth potential facilitated by the construction of the 3rd shaft. On that front, we are pleased to announce that we appointed decent mining as a shaft sinking contract for this project.
As you can see in these photographs, the dewatering drilling is in progress, Electrical distribution infrastructure is being constructed and the site utility construction is underway. The balance of 2018 will focus on long lead items, purchase of long lead items, the collar excavation and the head frame and hoist installation. We continue to expect the initial production from the 3rd shaft in 2022 with a sustained production in 2023 at a capital cost of $300,000,000 to $325,000,000 on a 100% basis. This shaft is expected to increase annual production on a 100% basis to more than 500,000 ounces per annum with an all in sustaining cost of approximately $6.30 Now I hand over to Bill Mandevan to speak on the development process that we've had at Nevada Project.
Thanks, Greg. As Barrick Nevada CEO, I'm pleased to be leading Barrick Nevada. Want to describe 2 of our top growth projects for you. Gold Rush is our most exciting project and success from 2017 has continued into 2018. We're continuing to work on converting the 9,400,000 ounce resource to reserve, adding to the 1,500,000 ounces converted in 2017.
Barrick has had more drilling success at Red Hill and the nearby Fourmile area, which Rob Kritronoff will describe in a moment. We've completed the portal site and are initiating development for our access declines as pictured to the right. The declines are on track to reach the ore body in 2021 when we will conduct further exploration and start mine development. Detailed engineering and permitting are expected to take place between 2018 2021. We also kept advancing the Deep South project utilizing Roadheader Mining Technology and achieved a milestone when the West Access decline broke through to the existing Cortez Hills underground workings on March 18.
Our focus now includes building out the surface and underground infrastructure that will be used to access and handle material for the mine. Mining at Deep South is expected to result in production of approximately 300,000 high value ounces annually with expected all in sustaining cost of approximately $5.78 per ounce. Project permitting is advancing and we expect to draft the EIS to be published for public comment in the second half of the year. With that, I'd like to hand over to Rob to provide an update on our recent exploration results in Nevada.
Thanks, Bill. You'll recall that last year drilling of pods 1 to 3 in the Red Hill portion of Goldrush resulted in the conversion to reserves of 1.5 1,000,000 ounces, which is shown in red on the slide. This year, there are 35 holes planned to test the open edges of those reserve blocks. 10 of those holes have been completed and 4 are in progress at quarter end. Moreover, a 32 hole infill drilling infill drilling program has commenced on Pod 4 as Phil mentioned with the aim of additional reserve conversion and results today are as expected.
Many assays are still pending, but based on our previous drilling experience at Goldrush, we expect many of the holes to be mineralized. And we have increasing confidence of resource expansion of reserve conversion and potentially grade increases. As I mentioned before, the more work we do, the more thrilled we are with the results and also the extraordinary value Goldrush is expected to generate for our shareholders. But I think the next chapter of this district is being written right now at Fourmile where we have a 2 pronged approach. The first is to continue to scope out the vast area of anomalism through wide space scout drilling.
Last year our most northerly hole
and a very bold step out of that intersected an extremely encouraging intercept of almost 5 meters at 11.5 grams per tonne. That wide space scout drilling program is underway and we'll provide further comments in coming quarters. The second objective is to infill drill part of Fourmile where we discovered very high grade mineralization in white space drilling last year. So let's just zoom in on the next slide and take a closer look at progress and results to date on the infill program. This year, we've planned 24 drill holes demonstrate continuity of the high grade as well as to establish an initial modest inferred resource.
So far, 5 holes have been completed with 4 more in progress. We've received assay results for 3 holes including really a spectacular highlight of 9.1 meters at 40.9 grams a tonne. So for the holes with pending assays, geologists have noted strong alteration and other characteristics comparable to other high grade mineralized holes nearby. As results come in, we'll assess the program with an eye to potentially expand this year's drilling. We're increasingly confident that Fourmile and Goldrush form part of a 7 kilometer long mineralized system, which is similar in length to playing a key role in contributing to our Nevada growth aspirations.
And with that, I'd like to hand back to Sheldon for some final words.
Thanks, Rob. That concludes the presentation. But just before we get into the Q and A portion of the call, I'd like to take a moment to say a few words about our Founder and Chairman Emeritus, Peter Monk, who passed away late last month. Of course, this is a sad time for all of us. Peter was an icon and while pioneers like him cannot be replaced, Peter's legacy is well established and his imprint on the company is indelible.
So you can count on it to continue to be reflected long into the future. So now let's open the line for questions, Tweed.
Thank you. We will now begin the question and answer session. The first question comes from Chris Terry of Deutsche Bank. Please go ahead.
Good morning, guys. Thanks for taking my questions. First one I had is just around the balance sheet and where you see that at. In terms of dividends going forward, how do we think about the cash balance of $2,400,000,000 How low could you take that? And then what do you think about roughly as the timing for when you may have some capital returns for investors?
Then the second question is just on the portfolio side with the changes around, I guess, Pascua Lama and the copper price where it is and potentially undervalued copper division, how do you think about extracting the best value out of those? Should Pascua Lama potentially be divested to somebody else or and then the same with the copper division, I guess? So just want an update on the portfolio construction.
Well, Chris, thank you very much for the question. Maybe I'll we'll go in reverse order and I'll start answering the second question and then defer to Catherine on the balance sheet. Regarding Pasco Loma and the copper portfolio, as we've indicated in prior calls, I mean, the while the copper assets aren't core relative to how we characterize the gold portfolio, they're certainly valuable. And we're going to continue to maximize value of the copper portfolio, and we'll see what happens in the future. Regarding Pasco Loma, as we've indicated, we are focusing now on the optimizing the closure plan on the Pasco side of the project.
Certainly, maintain great option value at Pasco Alama. If there's an opportunity to partner with somebody on that project on a going forward basis, we'll certainly take that into consideration. On the balance sheet, maybe Katrin, I'll speak to Pradeep.
Okay. Thanks. So just to go through the question. So in terms of the balance sheet as a whole, we're sitting with net debt of around $4,000,000,000 As we said, consolidated cash of $2,400,000,000 So with regard to dividends, when we look at the ordinary dividend, really what we're looking at is what is the sustainable dividend that we can pay throughout the cycle. And what I mean by that is what is the downside risk and upside risk in terms of being able to sustain that dividend over the long term.
And so really that's what will trigger increase in the ordinary dividend and it's something we'll be reviewing over the course of the year as we look at our 2019 life of mine plans and future investment requirements. So with regards to your question of specific returns to shareholders, what stated in our press release is that if we were to sell assets or if we were to see surplus cash flows over and above what we were budgeting potentially because of higher gold prices, then we would consider returning these to shareholders alongside reinvesting back into the And so really we just need to see how 2018 and moving into 2019 have how the market plays out. Hopefully that answers your question.
The next question comes from John Bridges of JPMorgan. Please go ahead.
Hi, good morning. Thanks, Kelvin, everybody. Just a geology question and then an accounting question. The intersections at Fourmile, will that require dewatering to access? Is that below the water table?
And then with respect to Tanzania, the cost of the negotiation, how is that going to appear in the accounts? I guess it's premature, but just in principle, do you have an order of magnitude as to what that's like to be and where it's likely to show up in the second half?
Thank you. All right. Thanks, John. Well, maybe Rob starts on the geology piece and then I'll ask Catherine to address the Jaffney and the Astellas.
East. Well, we don't have any wells in the Fourmile area, really just only exploration drill holes. But what I can say is that the Fourmile mineralization is at the same RL as Goldrush. And in addition, the exploration drill holes intersected water at around about the 5,500 foot level versus Goldrush where the water table is around about 5,900 feet. So roughly similar level, probably similar characteristics.
So in the absence of much data, we'd expect similar hydrological characteristics to the Goldrush area.
Okay. I'm just answering the Tanzania question. So what we've already done John is book a provision for the tax. So that €300,000,000 payment that we referenced in the October framework agreement that's now provided for in the balance sheet. The other thing we also did was impairment testing at the end of last year, Acacia did it, we did it ourselves based upon a 50% sharing of economics and other high level framework agreements and commitments.
So at this point in time, the balance sheet does reflect our best knowledge of what the future would look like. And we will update as we get more detail.
From David Houghton of CIBC. Please go ahead.
Good morning, Kelvin and team. Thank you very much for the update. Maybe for Rob, if you don't mind, looking at Fourmile, is Fourmile an extension of Goldrush or is there some discrete changes in mythology, geology, metallurgy that makes it a different kind of ore body?
Thanks for
your question, David. Broadly, it is an extension in that the same stratigraphic interval is mineralized as Goldrush. You'll note that the long axis of Goldrush basically points to, let's call it, 11 o'clock and Fourmile is at a different orientation. As you head towards the north end of the Fourmile area, you're approaching a metamorphic halo from an intrusive that's probably about a little over 2 kilometers to the north. So the structures are tightening up.
You're getting a little bit of metamorphism. We're seeing more breaches and more regular high grade. And in addition, there are other parts of the stratigraphy that are starting to become mineralized there. But in general, I would say 80% of it looks so far similar, but we're optimistic that we're going to continue to find some high grade pressure mineralization.
And for the development plans of Goldrush that are advancing, we saw that the decline portals, etcetera. Where does form a fit within the permitting? Is it within the existing permitted footprint or is it requiring extension? And how would you think about ultimately developing it?
The exploration declines will be accessing the Red Hill area. The Fourmile area is several kilometers to the north. So I'm not really sure how that relates to permitting, but we'll hopefully eventually capture that.
All right. And if I may, flipping over to Catherine now. I'm just wondering the implications of Pascua being suspended. What does that mean as far as impairment testing, the obligations you have for Wheaton and for the VAT?
So as you rightly said, we have suspended the pre feasibility study work to focus our attention on the remediation work on the pathway side. So that option still remains in the future, but at this moment, it's our priority it's not our priority for 2018. So effectively nothing changes. So with respect to the Wheaton Precious Metals stream that remains in place. And you will really have to speak to them in terms of their views on that.
But that option effectively is still there in place. And the only other thing to flag is around the VAT, which also is effectively remains open given so far as the option to develop the asset is still there.
Yes. I guess you've got some time in your side because Wheaton doesn't have to come up for renegotiation till 2020 and the VAT up to 2026 and both of those have been pushed out previously. I guess you've got some time on your side on this one.
That's exactly right. We do recognize the Wheaton Precious Metals cash liability on our balance sheet.
All right. Thank you very much.
Thanks, David.
The next question comes from Greg Barnes of TD Securities. Please go ahead.
Just wanted to talk a little bit about your statement in the press release about expanding the process and capacity in Nevada to take advantage of the opportunities you have there. What are you thinking? When? How? Can you give us some granularity on that?
Hey, Greg. Bill McDevitt is here. Bill will
take that question, please. Yes. So, Greg, basically, we're continuing to evaluate all the different options. We've obviously got different processing systems already in place, and we're looking at what we can do to augment those because looking forward with the success we're having on our exploration front as well as what we've got, which is already significant resources in place. We actually believe we've got a strong opportunity to augment and add to that.
So at this stage, we're still open minded about what we will be adding. So can't be any more specific than that. We're still going through the assessment process.
Is this going to trigger re permitting timelines and things like that?
No. Look, we're obviously very cognizant of making sure we maintain our current pipeline of delivery. And anything we're working on, we'll make sure it goes it's in line with that and doesn't negatively impact it. If anything, it will assist in the future. That's something we're obviously conscious with as we work through things.
And any kind of time frame on when you can provide us more detail on what you're planning on doing?
At this stage, we're still working through pre feasibility level working. So we still got a considerable amount of work ahead of us. I think yes, I think we'll be talking about this again next year. Okay. Thank you.
Thanks, operator.
The next question comes from Kerry Smith of Haywood Securities. Please go ahead.
Thanks, operator. Rob, just on form out for this initial resource, would that be out there early next year, I guess, as part of your 2018 resource update?
Correct, Kerry. It will probably be an initial modest resource. As I said, we continue to
do that scope out drilling.
And so in the years to come, hopefully, we'll build upon that.
But yes, at the end
of this year, early next year we'll be
reporting. Okay. So you'd have maybe 40 or 50 holes to put into that resource then?
We'll see how we go during
the Q1. Right.
Okay. And Catherine, just on the G and A for Q1, it was just about $50,000,000 but your guidance is $275,000,000 Are you expecting the G and A to jump up over the next 3 quarters, let's say, or is the runway going to be more in that $200,000,000 range?
Well, tell me what the share price is going to do, and I'll tell you what our G and A is. I shouldn't be Patricia. So when you look at the big change sort of year on year in our G and A, a significant part of that was the stock based compensation, lower share prices and lower payout meant ultimately that number has come down. So that will change depending upon the Barrick share price and the Acacia share price. With regards to the corporate administration spend, we expect to see that steady, but we do have an increase in digital expenditure into the second quarter and we get to decide exactly how that will evolve in the second half.
But wasn't the $275,000,000 excluding the stock based comp, which was $30,000,000 in the guidance, so $305,000,000 or did I read that wrong?
No, you're right. You're right. Sorry, dollars 340,000,000 was our total G and A. So yes, so what you should expect to see therefore is a slight increase in Q2. But I think it is fair to say that our G and A spend is something we're focusing very strongly on and we would look to manage the increase in G and A over the course of 2018.
Okay. So I think what you're saying is you're still it's going to the G and A is going to climb a
little bit over the remainder of
the year then. Is that what you're suggesting, the cash?
So 275 remains our guidance as of this point. We will update our guidance in due course. But we'll understand we are doing everything we can in order to manage and focus our expenditure where it will add value.
Right. Okay. Okay. I get it. And then the cash tax you paid as well was lower.
What were the main drivers for that? Was it mostly the lower tax rate in Nevada or?
So it's a combination. There were 2 major changes. 1 you've highlighted, which is lower tax rate in the U. S. The other with cash taxes after the PV were lower year on year.
The next question comes from Steven Butler of GMP Securities. Please go ahead.
Thanks, operator. For Greg Walker, Greg, in the second quarter, you'll take some downtime at both Goldstrike and Pueblo Viejo for mill maintenance. Do you have an approximate estimate of the amount of downtime at both of those respective mill operations?
Yes. PV has just finished the auto club downtime, so they've been down for
the first half of this month. So it
will impact the PV production this month. And the rest of the rescheduled for 8 days. So there'll be another 8 days lost out of the roaster at Nevada. So that will impact the first this quarter. We'll still be a little over 1,000,000 ounces, as we said earlier, and much stronger in the second half.
Okay. Thanks, Greg. Rob, for you on the formal graphitecug on Slide 13, you talked about that wildcat or scout drilling step out 5 meters of 11.5 grams. Where approximately is that on the Slide 13? Is it the black drill hole upper left?
I don't have this. Slide 13. No, it's further to the left of the page.
Okay, beyond the page. Okay, that sounds fine. And Bill, can you remind us again the processing method of current choice that you would apply to the bulk of the stockpiled sulfide reserves at Goldstrike? Is it mostly all roaster, double refractory roaster? Is that correct?
Yes. It's predominantly double refractory, but we're obviously processing that through our TTM autoclave process.
Well, that's TTM and autoclave is it for most of
these stuff? So double refractory can go through the ROSA, but it also can go through the Autoclave TTM process. So that's why we're bringing those stockpiles forward through that Autoclave TTM circuit. So we bring that gold forward.
Okay. Okay. Thanks a lot. That's it.
Thanks, Stephen.
This concludes the question and answer session. I would like to turn the conference back over to Kelvin Dushnisky for any closing remarks.
Well, thank you very much, operator, and thanks everybody who dialed into the call today. For those of you interested, I'd like to point out that we'll be hosting our 2nd annual sustainability briefing on Q6. And otherwise, thank you again, and we look forward to updating you on our progress during our Q2 call in July. Thanks very much.
This concludes today's conference call. Should you have any additional questions, please contact Barrick's Investor Relations department. You may now disconnect your lines. Thank you for participating. Have a pleasant day.