Ladies and gentlemen, thank you for standing by. This is the conference operator. 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. At that time, if you have a question, please press star followed by one on your telephone keypad. At any time during the conference, should you need operator assistance, please press star and zero. As a reminder, this conference call is being recorded, and a replay will be available on Barrick's website tonight, April 24th, 2018. I would now like to turn the conference over to Kelvin Dushnisky, President. Please go ahead, sir.
Good morning. 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 Barrick'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, Catherine Raw, our Senior Vice President, Operational and Technical Excellence, Greg Walker, our CEO of Barrick Nevada, Bill MacNevin, and our Executive Vice President of Exploration and Growth, Rob Krcmarov. Our other general managers and members of the Barrick team will also be available for questions following the formal portion of the call. During the first quarter, 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 million in operating cash flow and $181 million 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 third shaft, 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 Fourmile. With respect to the balance sheet, during the quarter, we are pleased to report that Moody's and Standard & 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. The parties are progressing with the detailed legal agreements concerning the implementation of the conceptual framework. While there are a number of issues still to be resolved, Barrick continues to target the first half of 2018 for the 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 million, or $0.14 a share, and adjusted net earnings were $170 million, or $0.15 a 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 million due to higher gold prices, lower cash taxes paid, and positive movements in working capital. Free cash flow for the quarter was $181 million, 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 third shaft at Turquoise Ridge. Greg and Bill will talk about these in more detail later. Our full-year guidance for 2018 remains unchanged at four and a half to five million ounces at a cost of sales of $810-$850 per ounce, and All-In Sustaining Costs of $765-$815 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 Pueblo Viejo. Second quarter production looks to be roughly in line with the first and is expected to be slightly higher than the first quarter.
Greg will provide you a bit more color on this. For copper, we continue to expect production to be in the range of 385 million-450 million pounds at a cost of sales of $1.80-$2.10 per pound, and All-In Sustaining Costs of $2.30-$2.60 per pound. Our guidance for total CapEx remains unchanged, with $950 million to $1.1 billion of sustaining, $450 million-$550 million of growth, and a total CapEx of $1.4 billion-$1.6 billion. Now on to the balance sheet. In the first quarter of 2018, S&P and Moody's both recognized the huge progress we have made and upgraded Barrick's credit rating, citing significant improvements in free cash flow and liquidity. At the end of Q1, we had a consolidated cash balance of $2.4 billion.
We had less than $100 million of debt due before 2020, and more than three-quarters of the outstanding $6.4 billion is due after 2032. Despite this recognition from the credit agencies, our goal remains to reduce total debt to around $5 billion 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 repayment, and we will use free cash flow and cash on hand to try and achieve this $5 billion goal. Proceeds from any additional portfolio optimization will be reinvested back into the business to enhance our project pipeline or return back to shareholders.
As we've stated before, our objective is to create a sustainable long-term business with a robust balance sheet, 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 first quarter.
Thank you, Catherine. In quarter one 2018, we produced 1.05 million ounces of gold, which is in line with our previous announced guidance. First quarter production was also impacted by an earthquake that struck Papua New Guinea on February 26th. This earthquake damaged infrastructure at the Porgera joint venture power station. The Porgera processing plant is currently operating at 25%. We're currently expecting this to improve in stages and be back at full capacity by Q4 in 2018. As Catherine mentioned, we expected gold production in the second quarter to be roughly in line with the first quarter at about 1 million ounces. This is mainly due to maintenance at Barrick Nevada roaster and PV autoclave circuits. The gold All-In Sustaining Cost for Q1 was $804 an ounce, while the cash costs were $573 per ounce.
This year-on-year increase of 4% and 5% respectively is in line with our guidance for first quarter costs, which are proportionally higher compared to the balance of 2018. Higher 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 dams lifts. We expect the completion of this sustaining capital program to lay the foundations for stronger production and lower costs in the second half of 2018, given access to higher grades and increased throughputs. On the copper side, production in Q1 was 85 million pounds, or 11% lower compared to prior year. This was mainly due to the mill and crusher shutdowns at Lumwana, along with lower grades in the first quarter.
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 first quarter at Lumwana are expected to increase over the course of 2018. Moving on to Turquoise Ridge. As highlighted in our recent investor day, Turquoise Ridge is now a core mine in recognition for its growth potential, facilitated by the construction of the third shaft. On that front, we are pleased to announce that we appointed Thyssen Mining as a shaft-sinking contractor 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 purchase of long lead items, the collar excavation, and the headframe and hoist installation.
We continue to expect the initial production from the third shaft in 2022, with a sustained production in 2023 at a capital cost of $300 million-$325 million 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 $630. Now I'll hand over to Bill MacNevin to speak on the development process that we've had at Nevada projects.
Thanks, Greg. As Barrick Nevada CEO, I'm pleased to be leading Barrick Nevada. I want to describe two of our top growth projects for you. Goldrush is our most exciting project, and its success from 2017 has continued into 2018. We are continuing to work on converting the 9.4 million ounce resource to reserve, adding to the 1.5 million ounces converted in 2017. Barrick has had more drilling success at Red Hill and the nearby Fourmile area, which Rob Krcmarov 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 and 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 Costs of approximately $578 per ounce. Project permitting is advancing, and we expect the draft 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 one to three in the Red Hill portion of Goldrush resulted in the conversion to reserves of 1.5 million 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 four are in progress at quarter end. Moreover, a 32-hole infill drilling program has commenced on pod four, as Bill mentioned, with the aim of additional reserve conversion, and results to date 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. 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. I think the next chapter of this district is being written right now at Fourmile, where we have a two-pronged approach. The first is to continue to scope out the vast area of anomalism through wide-spaced scout drilling. Last year, our most northerly hole, and a very bold step out at that, intersected an extremely encouraging intercept of almost five meters at 11.5 grams per ton. That wide-spaced scout drilling program is underway and we'll provide further comments in coming quarters. The second objective is to infill drill a part of Fourmile, where we discovered very high-grade mineralization in wide-spaced drilling last year.
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 to demonstrate continuity of the high grade, as well as to establish an initial modest inferred resource. So far, five holes have been completed with four more in progress. We've received assay results for three holes, including really a spectacular highlight of 9.1 meters at 40.9 grams a ton. For the holes with pending assays, our 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 seven-kilometer-long mineralized system, which is similar in length to the mineralization strike length at Goldstrike.
As our work continues, we get a sense that we're playing a key role in contributing to our Nevada growth aspirations. With that, I'd like to hand back to Bill for some final words.
Thanks, Rob. That concludes the presentation. Just before we get into the Q&A portion of the call, I'd like to take a moment to say a few words about our founder and chairman emeritus, Peter Munk, 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. You can count on it to continue to be reflected long into the future. Now let's open the line for questions, please.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We'll pause for a moment as callers join the queue. 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 $2.4 billion? How low could you take that? Then what do you think about roughly is 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? The same with the copper division, I guess. Just want an update on the portfolio construction.
Well, Chris, thank you very much for the question. Maybe we'll go in reverse order, I'll start answering the second question, then defer to Catherine on the balance sheet. Regarding Pascua Lama and the copper portfolio, as we've indicated in prior calls, while the copper assets aren't core relative to how we characterize the gold portfolio, they're certainly valuable, we're going to continue to maximize value of the copper portfolio, we'll see what happens in the future. Regarding Pascua Lama, as we've indicated, we're focusing now on optimizing the closure plan on the Pascua side of the project. Certainly maintaining great option value at Pascua Lama. If there's an opportunity to partner with somebody on that project on a going-forward basis, we will certainly take that into consideration. On the balance sheet, maybe Catherine, I could defer to you.
Okay, thanks. Just to go through the question. In terms of the balance sheet as a whole, we're sitting with net debt of around $4 billion. As we said, consolidated cash is $2.4 billion. 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. 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?
Really that's what will trigger an increase in the ordinary dividend, 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. With regards to your question of specific returns to shareholders, what we 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 business. Really we just need to see how 2018 and moving into 2019, how the market plays out. Hopefully that answers your question.
Thanks, Kelvin. Thanks, Catherine. That's good. Thanks.
Thanks.
Thank you.
The next question comes from John Bridges of JPMorgan. Please go ahead.
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? Then with respect to Tanzania, the cost of the negotiation, how is that going to appear in the accounts? I guess it's pretty 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.
Well, thanks, John. Well, maybe Rob starts on the geology piece, and I'll ask Catherine to address the Tanzania and the accounting.
Well, we don't have any wells in the Fourmile area. Really just only exploration drill holes. 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. Roughly similar level, probably similar characteristics. In the absence of much data, we'd expect similar hydrological characteristics to the Goldrush area.
Again, just answering the Tanzania question. What we've already done, John, is book a provision for the tax. That $300 million 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, in case you did it, we did it ourselves, based upon the 50% sharing of economics, and other high-level framework agreement commitments. At this point in time, the balance sheet does reflect our best knowledge of what the future would look like. We will update as we get more details.
That good, John?
The next question comes from David Haughton 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 are there some discrete changes in lithology, 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 two km to the north. The structures are tightening up. You're getting a little bit of metamorphism. We're seeing more breccias and more regular high grade. In addition, there are other parts of the stratigraphy that are starting to become mineralized there. 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 breccia mineralization.
For the development plans of Goldrush that are advancing, we saw the decline portals, et cetera. Where does Fourmile fit within the permitting? Is it within the existing permitted footprint, or does it require an extension? How would you think about ultimately developing it?
The exploration declines will be accessing the Red Hill area. The Fourmile area is several km to the north, I'm not really sure how that relates to permitting, we'll hopefully eventually capture that.
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?
As you rightly said, we have suspended the pre-feasibility study work to focus our attention on the remediation work on the Pascua side. That option still remains in the future, but at this moment, it's not our priority for 2018. Effectively nothing changes. With respect to the Wheaton Precious Metals stream, that remains in place. You will really have to speak to them in terms of their views on that. That option effectively is still there in place. The only other thing to flag is around the VAT, which also effectively remains open, given so far as the option to develop the asset is still there.
Yes, I guess you've got some time on your side because Wheaton doesn't have to come up for renegotiation till 2020 and the VAT up to 2026, 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 processing 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?
To Greg, Bill MacNevin's here, Bill will take that question, please.
Yeah. Greg, basically, we're continuing to evaluate all the different options. We've obviously got different processing systems already in place, we're looking at what we can do to augment those. 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. At this stage, we're still open-minded about what we will be adding. 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, anything we're working on, we'll make sure it's in line with that and doesn't negatively impact it. If anything, it'll assist in the future. It's something we're obviously conscious with as we work through things.
Any kind of timeframe 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've still got a considerable amount of work ahead of us. I think we'll be talking about this again next year.
Okay. Thank you.
Thanks.
The next question comes from Kerry Smith of Haywood Securities. Please go ahead.
Thanks, operator. Rob, just on Fourmile for this initial resource, would that be out then early next year, I guess, as part of your 2018 re-resource update?
Correct, Kerry. It'll probably be an initial modest resource. As I said, we continue to do that scope-out drilling, in the years to come, hopefully we'll build upon that. Yes, at the end of this year, early next year, we'll be reporting.
Okay, you'd have maybe 40 or 50 holes to put into that resource then?
We'll see how we go during the field season.
Right. Okay. Catherine, just on the G&A for Q1, it was just about $50 million, and your guidance is $275 million. Are you expecting the G&A to jump up over the next three quarters, let's say, or is the runway going to be more in that $200 million range?
Well, tell me what the share price is going to do, and I'll tell you what our G&A is going to do. No, I shouldn't be facetious. Yeah, when you look at the big change sort of year-on-year in our G&A, a significant part of that was the stock-based compensation. Lower share prices and lower payouts meant ultimately that number has come down. 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're yet to decide exactly how that will evolve in the second half.
Wasn't the $275 million excluding the stock-based comp, which was $30 million in the guidance, $305 million, or did I read that wrong?
Oh, no, you're right. Sorry, $340 million was our level of G&A. Yes. What you should expect to see therefore is a slight increase in Q2. I think it is fair to say that our G&A spend is something we're focusing very strongly on, and we would look to manage the increase in G&A over the course of 2018.
Okay. I think what you're saying is the G&A's going to climb a little bit over the remainder of the year, then. Is that what you're suggesting, the cash?
$275 remains our guidance as of this point. We will update our guidance in due course. We understand we are doing everything we can in order to manage and focus our expenditure where it will add value.
Right. Okay. I get it. 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?
It's a combination. There were two major changes. One you've highlighted, which is the lower tax rate in the U.S. The other with cash taxes, as with the PV, were lower year-on-year.
Okay. That's great. Thank you very much.
Thanks, Kerry.
The next question comes from Steven Butler of GMP Securities. Please go ahead.
Oh, 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 a approximate estimate of the amount of downtime at both of those respective mill operations?
Yeah. Pueblo Viejo has just finished the autoclave downtime, so they've been down for the first half of this month, so it'll impact the Pueblo Viejo production this month. The roaster is scheduled for Eight days.
There'll be another eight days lost out of the roaster out of Nevada. That will impact this quarter. We'll still be a little over a million ounces, as we said earlier, and much stronger in the second half.
Okay. Thanks, Greg. Rob, for you on the Fourmile graphic on slide 13, you talked about that wildcat or scout drilling step out five 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 the Hang on a second. Slide 13. No, it's further to the left of the page.
Okay. Beyond the page. Okay, that sounds fine. Bill, 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?
Yeah. It's predominantly double refractory. We're obviously processing that through our TTM autoclave process.
That's TTM and autoclave, is it, for most of these stockpiles?
Double refractory can go through the roaster, but it also can go through the autoclave TTM process. That's why we're bringing those stockpiles forward through that autoclave TTM circuit. We bring that gold forward.
Okay. Thanks a lot. That's it.
Thanks, Steven.
This concludes the question and answer session. I would like to hand 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 second annual sustainability briefing on June 6th. 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.