Ladies and gentlemen, thank you for standing by. This is the conference operator. Welcome to the Barrick 2022 first quarter results conference call. During the presentation, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. At that time, if you have questions, please press star then one on your telephone keypad. At any time during the conference call, should you need assistance from an operator, please press star then zero. As a reminder, this conference call is being recorded and a replay will be available on Barrick's website later today, May the 4th, 2022. I would now like to turn the conference over to Mark Bristow, Chief Executive Officer. Please go ahead, sir.
Thank you, and, very good morning and good afternoon, ladies and gentlemen. The world today is facing the greatest period of economic, social, and geopolitical disruption it has experienced in more than a generation. Russia's war on Ukraine and its suspected larger ambitions could redraw the map of Europe, breaking down what everyone thought was a permanently settled order. This is already having a painful economic impact on many countries who are dependent on Russian oil and gas, but also on industries worldwide who are facing serious supply and logistics challenges in a rising inflation environment. Meanwhile, over in China, COVID has come back in a big way, dispelling any notion that the worst of the pandemic was behind us. All in all, it's a time of radical change, and no one knows how it's going to turn out.
As far as Barrick is concerned, however, scenario planning is an important part of our regular strategic reviews, and they keep us prepared for all reasonably conceivable outcomes, including the worst-case ones. Our global presence means that our risks are spread widely and the strength of our asset base, our balance sheet, and our management gives us confidence in our ability to navigate the turbulence. Please take note of this cautionary statement, which is also available on the Barrick website. These are the salient features of the past quarter. As we messaged, production was softer than the previous quarters for reasons I'll explain later. As planned, we expect that the second half of the year will be stronger, which should keep us on track to meet our annual guidance. Our best assets generally performed well with Loulo-Gounkoto delivering exceptionally good results.
Other highlights of the quarter include the in-principle agreement with Pakistan for the restart of the Reko Diq copper gold project, which we believe will be a tier one asset by any measure. Also important was the progress we made with the permitting process of Pueblo Viejo's new tailings storage facility, which will transform what is already a tier one mine by adding more than 20 years to its life and as much as 9 million new ounces to the reserves. As we expected, as we expand globally, we continue to strengthen our management team through a number of senior appointments and effective succession planning has facilitated the smooth transition to new chief operating officers for our North American, African, and Middle East regions. ESG, what we call sustainability, remains high on management's priorities.
Last month, we published our fourth annual sustainability report, which highlighted the importance of our integrated approach and updated our greenhouse gas reduction roadmap for the journey to net zero. If you haven't seen the report yet, I would suggest that it's well worth the read. Turning to the numbers, robust operating and free cash flows and a net cash position again strengthened the balance sheet and supported Barrick's inaugural declaration under our new policy of a $0.10 per share performance dividend, which effectively doubles the $0.10 base dividend. It's also worth noting that Kibali has now paid out $1.2 billion on a 100% basis over the last six months, clearing the backlog of locked-up cash in that country.
The past quarter's gold and copper production provided the base from which performance will improve steadily over the course of the year. We remain on track to deliver within our 2022 production guidance. Cost guidance may be at the higher end of the range, due mainly to the increase in global energy prices as well as the inflationary pressures across the global supply chain and the effect of a higher gold price on royalties. At the start of the year, we guided costs by about 5%, and with the recent increases in prices, we see this potentially adding around another 3% to costs.
On the financial side, our improved net cash position of $743 million was driven by operating cash flow of $1 billion with free cash flow of $393 million, the distributions received from Kibali and the continuing monetization of equity positions arising from the sale of non-core assets. Also worth noting is that during the quarter, S&P upgraded our long-term corporate credit rating to BBB+ from BBB with a stable outlook. We also published our first standalone tax contribution report, which highlights the significant contributions we make to the countries and economies where we operate. We continue our health and safety journey to zero harm, but an otherwise credible record was sadly marred by two fatalities during the quarter.
As you would expect, we take these events extremely seriously and among other initiatives, we have increased the on-site engagement and visibility of operational leadership to ensure that these do not happen again. By the end of the quarter, 67% of our entire workforce had been fully vaccinated, and there were very few active cases on sites across the group. As recent events have shown, however, we can't afford to drop our guard, and so we're keeping our protocols in place and updating them on a regular basis. There were no class one environmental incidents during the quarter, and we again improved our water use efficiency, which at 84% was ahead of the annual target of 80%. Greenhouse gas emissions also decreased by 9% quarter-over-quarter.
As one of the group's many community initiatives, Nevada Gold Mines has provided a $30 million loan for the provision of a broadband internet service to the surrounding towns. Elsewhere across the group, Barrick spent $4.9 million on community development projects. The sustainability report I mentioned earlier details our evolving approach to ESG management. It recognizes that global crises such as climate change, poverty, access to water, and biodiversity loss are inextricably linked and should not be treated in isolation. We believe that it's only by integrating these challenges and approaching them holistically that we will be able to make a real difference.
Our 2019 sustainability scorecard was a first for the industry, and the 2022 edition again features a number of firsts, alignment with the reporting standards of the various ESG guidance frameworks, public disclosure of our Scope 3 emissions and a reduction roadmap, a report on social metrics not aligned to dollars spent, and a biodiversity standard and water policy. It also updates the greenhouse gas roadmap that plots our course to net zero and the progress we're making on resolving legacy issues. This year's report again updates our sustainability scorecard, which rates our performance across a wide range of key metrics. While noting many improvements, we achieved our third overall B grade, an honest acknowledgement that fatalities are not acceptable, and there's still a lot of work to be done with regards to our drive to zero harm.
We start the operational report with the North American region, where Nevada is home to three of our tier one mines as well as many of our more interesting future prospects. At the same time, we continue to progress the giant Donlin Gold project in Alaska with an intense winter drilling phase as we search for more opportunities to grow our business in the Americas. These are the operating results for the Nevada Gold Mines. As expected, production was lower following the record quarter four performance, driven by the processing of high-grade stockpiled ore while the Goldstrike Mill was being repaired. Plans are in place, and KPIs are being monitored closely to ensure that the full year guidance will be met. In the meantime, Turquoise Ridge's third shaft is on track for completion this year, which will continue to support operational improvements there.
Results from drilling across the Nevada projects continue to highlight the huge potential of these systems as new targets are developed and resources are expanded. At Turquoise Ridge, geological modeling of the BBT Corridor to the south highlighted the potential for significant additional ounces, which, with early drill results indicating this opportunity. Drilling between and within the legacy Twin Creeks and Turquoise Ridge operations is transforming our understanding of this area, and we continue to make changes to the models with implications for exploration. One of the strongest untested geochemical anomalies in the district has been identified at the fence line target on the legacy boundary between the two operations, and shallow drilling is in progress to define vectors for a deeper core drilling project later in the year.
North Level continues to grow as we step out around the maiden resource of 700,000 ounces declared at the end of last year. Resource delineation drilling is defining additional ounces while further drilling is planned to test the open extensions of high-grade structures around the deposit. North Level remains one of our highest potential near mine satellites in Nevada, and Ren is another expanding opportunity. Last year, we declared a maiden inferred resource of 1.2 million ounces, and recent results have not only confirmed the model but have continued to expand the JB Zone resource to the south. Mineralization remains open at both JB and Corona corridors. We have initiated various mining studies on the geotechnical ventilation and dewatering parameters to optimally design this part of the mine.
Over now to Latin America and Asia Pacific, which ended the quarter having made significant progress with its growth projects. In PNG, we continue to get closer to reopening the mine following the passing by Parliament of legislation necessary for our agreed fiscal arrangements. We expect to complete the remaining outstanding agreements in the next quarter. Although our planned mid-year restart is expected to be delayed by one more quarter. Pueblo Viejo, as I indicated earlier, is a solid tier one asset which delivered on plan regarding production and costs on the back of record throughput, which bodes well for the future long-term performance of the operation. The new tailings storage facility, a key part of the transformational upgrade and expansion project, is continuing to advance down the development path with the ESIA application expected to be filed in quarter three.
At Veladero, the mine delivered on a planned lower production for the quarter despite being partially impacted by COVID-related absenteeism in January. The mine remains on track to meet the 2022 guidance. Construction of the phase seven leach pad also remains on track with the second phase expected to commence in the final quarter of this year. You will have also seen the announcement of our agreement with the government of Pakistan and the province of Balochistan to reconstitute and restart the Reko Diq project, which has been waiting in the wings for more than a decade. It's an extremely exciting project up there with the best of the best copper deposits and with the added attraction of a significant gold endowment. Since the agreement was signed, there's been a change of government in Pakistan, but this is not expected to negatively impact the process.
In fact, I'm due to meet the new prime minister later this month to review progress. Reko Diq is another good example of Barrick's partnership philosophy. We'll operate it, but it will be owned 50% by Barrick, 25% by well-established Pakistan state-owned enterprises and 25% by the province of Balochistan. The various underlying agreements are currently being finalized, and when that's done, we'll start to update the existing feasibility study, which should take around 24 months. As such, Reko Diq could be in production in five to six years, a very short time frame for a mine of this size. Turning now to Africa and the Middle East. This region finished the quarter ahead of its gold production plan on the back of the usual strong performance from the flagship Loulo-Gounkoto and Kibali operations.
At Loulo-Gounkoto, the key production driver was higher grades per ounce. Cost metrics were well managed despite the impact of higher energy prices and increased logistics costs from the continued sanctions and border closures imposed on Mali by ECOWAS, albeit operations at Loulo-Gounkoto remain unaffected. The Loulo District's key mineralized corridors continue to deliver exciting results. Bambadji, across the border in Senegal, is one of the more prospective pieces of ground in our West African portfolio. The team there is prioritizing large controls likely to host potential significant deposits. At Loulo, drilling north of the previously mined P129 satellite deposit has also defined mineralization over 600 meters, with some high-grade intercepts while the results have also highlighted the potential to extend the Faraba complex satellite deposits.
As we planned, production in Kibali was lower than the previous quarters due to planned maintenance and waste stripping. Production is expected to improve this quarter and the Reko Diq mine, like the others, remain on track to achieve its annual guidance. Like Loulo-Gounkoto, Kibali continues to maintain its record of replacing reserves depleted through mining. Resource conversion drilling from underground is successfully defining the potential for sustained growth over and above depletion for both 2022 and beyond. In Tanzania, both North Mara and Bulyanhulu are on track to meet their annual guidance. Their quarter one performance largely reflects the impact of planned maintenance at North Mara and the development of new headings, plus the removal of legacy underground waste at Bulyanhulu.
North Mara's ramp-up of its open pit operations is on schedule, and the project is designed to further de-risk the mine by providing it with another source of mill feed and improved production flexibility. A quick look at the copper portfolio where Jabal Sayid and Zaldívar both delivered production and costs that were in line with or better than guidance. Zaldívar's chloride project was commissioned, providing the infrastructure for enhancing future production. As expected, waste stripping impacted on Lumwana's production, but its performance is forecast to improve steadily throughout the year. Exploration at Lumwana continues to access multiple targets in parallel, redefining the geological models for existing targets and identifying new projects. The overall aim is the definition of an alternate ore source that can provide production flexibility while the Chimiwungo Super Pit pre-stripping and associated infrastructure upgrades are completed.
Early results from ongoing drilling at the Lubwe target are encouraging and show the potential to extend the mineralization a further 1 km to the north. With gold prices remaining high, driven by global geopolitical and economic fears, it's worth noting the unparalleled leverage our portfolio of six tier one gold mines gives Barrick. For every $100 per ounce rise in the gold price, the attributable free cash flow generation generated by our operations over a five-year period increases by around $1.5 billion. The same is true of our copper assets. For every $0.50 Per pound increase in the copper price, the attributable free cash flow generated by those mines over five years rises by about $800 million. Strong cash flows generate peer-leading returns to shareholders as shown in this slide.
The distribution policy inaugurated this quarter effectively doubled the dividend by adding a $0.10 per share performance element to the $0.10 per share base dividend. On an annualized basis, this equates to a yield of approximately 3.5%. The new formula also has the advantage of giving the market guidance on the potential future dividend streams. While we don't believe our current share price fairly reflects its inherent value, it has performed respectably against the spot gold price and the GDX as shown for these periods. This leads me to what I believe is the compelling thesis for investing in Barrick. It includes the peerless quality of our asset base, our proven long-term strategy, combined with reality-based implementation plans, our ability to more than replenish our reserves, and our long, constantly replenished prospect pipeline.
Our approach to sustainability, characterized by tangible on-the-ground action and measurable results and of course, the strength of our balance sheet. Perhaps the characteristic that most distinguishes Barrick from its peers is our focus on tier one assets selected against a set of very clear investment criteria and supported by our ability to operate in both developed and developing countries. There's an old saying that if you're looking for elephants, you have to go to elephant country. We've searched for and found tier one assets in parts of the world that presented challenges that daunted other mining companies and then proceeded to successfully develop and operate them.
While we continue to invest in pursuing new tier one opportunities across all three regions in which we operate, our next stop right now looks to be Pakistan, where once again, perseverance, partnership, and patience have put us on track to deliver one of the world's greatest mining opportunities to our shareholders, our partners, and all our other key stakeholders. Ladies and gentlemen, thank you for your attention, and the team and I are happy to take any questions.
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. Our first question is from Greg Barnes with TD Securities. Please go ahead.
Thank you. Mark, I just want to understand the timing around the permitting of the new tailing facility at Pueblo Viejo. You said you're gonna file an ESIA in Q3, so that would suggest you've picked the site. I was wondering how long it's gonna take the government to approve that site. The site you've picked, is there gonna be a significant delta in the capital cost for the PV expansion, depending on which site you do pick? How much will the CapEx potentially change up or down?
Greg, just to take you through, I think we've shared this with you before. We've been through a lot of sites, more than 30, but we really got down and evaluated around 22 sites. We shortened that down to five sites, and then we passed all our assessments. We used two independent engineering firms to audit our process and passed it back to government. As a consequence, the government then reviewed our selection criteria. We have, as the government announced, reached an agreement on a way forward for the final selection of the sites. We are looking at two sites at the moment, both in the same province as which the mine is located.
We're currently doing invasive evaluation for the foundations of the walls and also making sure that, you know, we don't have any open aquifers that might put the storage of material at risk and whether we have to line it or not. That work, we should be ready to make a final decision, and of course, we'll file that application with all the information with the government. On that basis, we will already have collected the key technical data so that we are ready to make the application for the environmental permit. That will, we're forecasting to do that early Q3. Then it's a matter.
We're working alongside the government in this process, and so we don't see any reason that, you know, that process won't continue as it has in the last couple of quarters. Our plan is that we should certainly be in a position to determine that project is now approved and it's continuing exactly when we get the final permit might be end of this year, towards the end of this year or even early next year, but that won't change the process. That's the first part of your question, and we are engaged now in consultation. We have a couple of infrastructure to finalize.
The first one is, we're gonna be moving the material on a conveyor belt, and so that requires consultation as far as people that might be affected by that infrastructure. Of course, as part of our evaluation, we are also consulting with the communities that might be impacted by the final decision. Again, as we indicated originally, we're also looking at a buffer zone. There are some common areas, no matter what the final decision is, which will also involve relocation. We've done the first round of consultation on that basis.
On the cost side, you know, the costs, the original estimate is around $1.4 billion, $900 million-odd for the expansion of the plant and that associated infrastructure, and then the rest looking to the tailings dam. I think, you know, between $800 and $900, so between $500 and $600 was earmarked for the tailings and waste rock storage. The final estimates will come with the final designs or the more advanced designs once we've got the foundation drilling done, particularly on the dam wall. As you know, this wall has to be like the current El Llagal wall. It's a seismic area, so it's a highly engineered bit of infrastructure.
It will also, just to make it clear, we build the wall as we go. We don't build the wall complete right in the beginning. The facilities that we have shortlisted certainly cover the current forecast life beyond 2040 and some. You know, I'm walking around the capital estimate. We will update that capital estimate as we start finalizing at least the scope of the design, particularly the wall infrastructure. There are some offsets that we're looking at. We've got some opportunities to create quarries within or immediately adjacent to one of the sites, and that would impact materially the cost, the long-term cost. There are a number of other influences.
I think we're very comfortable with our estimates on the relocation costs and we do have a very broad-based support for the sites that we've currently chosen. Or we've currently prioritized, I would add. That's really, you know, where we are today. Greg, the returns of this asset are significant. You know, they certainly meet and any conceivable capital costs where, you know, our 15% return based on $1,200 gold and $2.75 copper, we don't, you know, we've got copper, we don't produce it at this stage in Pueblo Viejo, but it passes the test. We're very comfortable about this project.
It's a very significant project, and it really realizes the original Pueblo Viejo investment back 10 years ago.
Mark, how far away are the two sites from the plant, and how many people have to be relocated approximately?
They're the closest of all the sites. Grant, do you wanna comment on that?
Yeah. As you say, the sites are fairly close to the mine. They're not too far from the existing tailings facility itself. I mean, in terms of the numbers around the resettlement, that's something we still need to get to grips with and get onto the ground and start doing those surveys. That's underway at the moment, and we'll have a clearer picture of the exact numbers in the next couple of months.
Okay, good. Thank you. That's it for me.
Greg, as soon as we've got it, you know, this is a process. As soon as we have definitive framework agreements, we'll share it with the market immediately.
Okay. Thanks, Mark.
The next question is from Cleve Rueckert with UBS. Please go ahead.
Hey, good morning, good afternoon, everybody. Thanks for taking my question. I wanna just zoom out a little bit and think kinda like big picture on, you know, what the guidance means. I think gold prices and copper prices, say they're tracking maybe, you know, a little bit higher about in line with where they were in Q1. Mark, you talked about, I think, production sort of rising and you should get some cost absorption there and, you know, costs fall. Is there any reason to think that free cash flow wouldn't be higher sequentially in the second quarter than what it was in the first quarter?
Sure. That's a fair observation. This all is impacted by tax and when we pay tax. I'll pass it on to Graham. He'll be able to take you through that.
Yeah, that's right, Mark. It's very important to note the second quarter is traditionally our lowest cash flow quarter. That's driven by two key factors. The first is that we pay interest on our bonds semi-annually, so that's second quarter and the fourth quarter. The second quarter also has our highest cash tax payments. That's generally when we make, you know, the most significant payments. When we look at our own internal forecasts for cash flow, quarter two is noticeably lower. That said, we will see some benefits from some of the Kibali cash distributions that came through in the first part of the second quarter, so that will assist, but it is generally our lowest cash flow quarter.
Okay. All right. Thanks, Graham. That's helpful to understand. You know, I guess just sort of taking that one step further, you know, just sticking on the capital allocation theme, you didn't buy back any stock in Q1. You know, I think at the pace you're going, you're very quickly gonna be sort of up in the top level of the graduated dividend framework. You know, if you sort of get to that top level where, you know, the dividend, the special performance dividend is maxed out, would you think about raising it? I mean, or is that the point where you would start to buy back stock? Or should we think about the buyback maybe as more opportunistic relative to the share price?
First, the last part of your question first, and that is if we get to that level, that's a high-class problem and we'll manage it when we get there. I think the key about the ability to buy back stock was that last year we got caught where the market, you know, our share price really got undervalued significantly, and we realized we didn't have a tool to deal with that. You know, we had too many shorts in our stock, and it would've been great to just go and buy up the stock and burn off the shorts.
We now have that tool available, and that's exactly what it's for, is when we feel that on a relative basis our stock price is, you know, underperforming and there's sort of intervention or people impacting it per investment and strategies impacting it, we'll definitely buy back that stock. The current situation, as you know, is a very fluid situation and we are monitoring the market and of course the equity values almost on a daily basis.
Okay. We'll just stay tuned on the dividend.
You do that.
Thanks, Mark.
Thanks.
Take care, guys.
Bye.
The next question is from Matthew O'Murphy with Barclays. Please go ahead.
Hi. Just had one on the gold unit cost guidance, $730-$790 now headed to the higher end. Just wondering if you can break down some of the drivers. I guess if, you know, you go from the midpoint to the high end, call it $30 an ounce. Like, would half of that be your energy price assumption? That's the kind of breakdown I'm wondering about.
I'm gonna pass this to Graham on the granular answer, but I just wanna also point out, Matt, the lower production this quarter. You know, as we lift the production, get back to guidance, we'll temper that unit cost profile. You know, this is not the base on which to work on, just to give it some perspective. Again, Graham, you wanna pick on the detail?
Yeah. Matt, you're right. The biggest chunk of that cost driver is very much energy prices, so both diesel and gas. You know, we've previously given sensitivities on that and where we, you know, we're effectively guiding that for every $10 change in the barrel price of oil, that gives us about a 6% increase on our total cash costs. You know, when you look at energy prices from you know where we were previously looking at sort of $70 and now they're over $100, you can see that makes up the biggest chunk of that movement, and then gas on top of it as well.
The rest is really, I would say more specific commodities, where we're seeing price pressure, things like ammonia nitrate, cyanide, steel balls, those sort of areas. A lot of those have been specifically impacted through the Ukraine crisis where, you know, you've had suppliers either in Russia or Ukraine that are no longer available and therefore you're seeing a bit of a squeeze on those markets or they are related to sort of petrochemical industry and therefore, you know, same drivers as the underlying increase in the diesel price. Those are the biggest changes.
Got it. Okay. Thanks, Graham. I saw you're trying to hire for Goldrush. Just wondering how you're seeing the Nevada labor market these days.
Sorry, Matt, just one thing. Just a correction there. I think I said 6%, but I meant $6 per ounce for every $10 change.
Okay. Yeah
in the barrel, just to be clear.
6% seems low, but okay.
Labor market, Matt, you know, I think the we've been restructuring the whole Barrick human resource organigram. You know, we want. You know, I've just finished a global engagement on all our operations with our executive teams looking at you know, progressing our vision of much flatter structures, deeper reach into our organization, more accountability at levels, taking out management levels because you know, the and also we have a very big commitment to education, both upskilling technical skills and educating right at the base from high school across the globe. And while there is a tightness in the supervision foreman-based areas of Nevada, we've just replaced about 90% of the people we employed last year, we've retained.
Again, as we change the profile of our employment base, we're slightly higher on the turnover. This year to date, we've replaced significantly more than what the resignations or leaving. You know, I think for me it's a challenge, but at the same time it's a significant opportunity as we look to give people more accountability, pay people more, pay people differently, and position particularly Nevada, for a more modern way of mining. You know, we've done an enormous amount of work in Latin America. Mark Hill and the team, we're much more aligned with my vision of how we employ and how we pay.
Africa's, you know, done extremely well and as I pointed out in my presentation too, our succession efforts are really paying dividends. You'll see as we progress and we've reappointed senior executives both through promotion or succession and from external sources. We've been able to do that without having to say, "Oh, so and so is retiring and we're waiting to fill that position." We've done it well within the time. We've got good transition plans to ensure that we have continuity in our operations. You know, again, our focus has been to beef up on our senior, what we call big mine general managers, some of the more important skills that are under pressure, investing in those.
It is a point that we have to manage in the market. At the same time, as I said, it's an opportunity for us to, you know, redefine some of our, management and leadership structures across the group.
Interesting. Okay. Thank you.
Okay.
The next question is from Anita Soni with CIBC. Please go ahead.
Hi. Good morning. I just wanted to get a little bit of clarity on that, cost number. You said it's headed towards the higher end of the $730-$790 guidance range, and then I think you said something to the order of about 2%-3% as a result of, higher oil prices. Is that 2%-3% over the $790 or is that just the 2%-3% that's getting you out of the mid-range and towards the $790?
The latter. That's.
Okay.
Hello, Anita. It's the latter. I need to point out that, you know, there's no magic in managing inflation.
Okay.
It is what it is. We've still got some. You know, we've been really focused on synergies and efficiencies, you know, we've just finished rolling out our new global platform, data platform with all the bolt-ons. We have real-time data we can process from, you know, ore bodies to mine plans, and our managers and operators have access to that real-time data. You know, there's no other mining company that's done that and we've used the latest technology to develop that platform. That's very helpful. As you know, Anita, we're very agile and obsessed about our numbers and the ability to respond intra day to changes. That's where our team is going. Yes, we've got inflation pressures, but we've also got opportunity.
Synergy opportunities and continued improvements that will help mitigate that inflationary pressure. As you've seen, we've adjusted it upward again this at this presentation, and we're gonna keep a very sharp focus on inflation and how we manage that.
Okay. Thank you. That's a good answer. The second question was with regards to the CapEx. I think I had you guys you spent $611 million this quarter. I think the guide was $1.9 billion-$2.2 billion. It's a little over on a quarterly run rate, and it's actually kind of bucking the trend of what everyone else has done, which has been underspending. It's good that you're finding people to do the work because that's a different problem if you can't do that. Does that mean that you know you'll revert back towards the guidance of $1.9 billion-$2.2 billion or could we see this level of spending sustained?
No, I think we're. You know, it's just also the where our big projects are, and remember we're coming to the end of the number three shaft and some of the big projects and ongoing capitals, the PV expansion. You know, it's just the way it's profiled and I'm glad you recognize that we are spending the capital. That's important in any business to be able to deliver on the benefits of those expansion or efficiency projects.
Yeah, otherwise you have production problems later on. Okay, thank you. That's it for my questions.
Okay.
The next question is from Lawson Winder with Bank of America. Please go ahead.
Hi, Mark. Nice to hear from you, and thank you for today's update. Maybe at risk of putting too fine of a point on it, I'd like to just ask quickly again about the buyback. You have stated in the release that you'll acquire your shares when they're trading below what you consider intrinsic value. You just recently, earlier in the call mentioned that, you know, you'll enter when it's relatively underperforming. I guess it would just be kinda helpful for me anyway to sort of square those two. Is intrinsic value perhaps then based on a bit of a moving goal price target?
Yeah. I think there's many variables that impact that along with the actual market itself, Lawson. You know, I think you are putting too fine a focus on this decision. I think what we don't wanna do is get caught like we did last year and don't have any tools to deal with a very soft share price. You know, I think right now we're, you know, it's an interesting time. I think also you need to put my strategy in perspective. You know, when we set out to build this new, you know, value-focused organization, one of the key focuses was get rid of the debt, clean up and make sure we focus on the best people to run our, you know, top quality assets.
This quarter one was a very significant quarter. We dealt with a lot of critical points, things that were worrying analysts and shareholders alike. We strengthened the balance sheet. It now makes us independent of the market. We're a very different organization than we were just three years ago. We've got, you know, an environment ahead of us that I believe is, you know, nobody listening to this call or probably very few have been there before to see hyperinflation and again, the de-globalization of those sort of stable years of the late back end of last century. You know, managing a situation like this, you need the balance sheet strength.
Again, we didn't just transact and keep all the assets. We trimmed them down, making sure we keep those that can manage the cycle. All that is a part of it. The buyback strategy is an integral part of that. We are completely focused on making sure that our shareholders are protected and benefit from our business in a material manner.
Thank you. May I ask one more question? Just your latest thoughts on the potential to grow copper production in Zambia, and in particular, you know, what do you see as a basis for growth there, whether it be an expansion at Lumwana or building a new mine or potentially acquiring existing assets?
The opportunities have to be all of what you point to. Right now our focus is still delivering a more efficient, streamlined Lumwana. We are forecasting significant improvements in production in our life of mine plan just on Lumwana. I touched on you know the opportunity we've uncovered to build some more flexibility into the operation. You know Zambia is a country with a new government that's really business friendly. You know a lot of the conflicts in the industry which led to investors and mining companies leaving and you know disposing of their assets that's sort of gone away. At the same time you know as we keep reinforcing we are very disciplined and you know looking for opportunities that fit our investment filters.
Again, right now in this phase of the market, discovery is a good thing. We have beefed up our exploration competency in the Central African Copperbelt and we're definitely focused on, you know, building the models and making sure that we pursue opportunities. Of course, the Zambian government is very open and extremely willing to work with any long-term investor. We have, you know, built a strong relationship with them and particularly the president and, you know, let's see what it brings. Of course, again, there's some stranded infrastructure in Zambia and Lumwana is a concentrate producer. You know, we look at everything, if it fits our criteria, we'll pursue it.
If it doesn't, one thing we can demonstrate is Zambia meets our long-term filters as we speak today, and it passes the investment test at $275 copper.
Thanks very much for your thoughts.
The next question is from Tanya Jakusconek with Scotiabank. Please go ahead.
Great. Good afternoon and good morning. Thank you for taking my questions. A lot of them have been answered, but I do have three quick ones. The first one is just on, and thank you for the quarterly guidance that you provided on the assets within your press release. Just so from a bigger picture, maybe Mark or Graham, can you guide us whether we are seeing progressive quarter-over-quarter improvement with a strong Q4 and sort of a portfolio? Are we 45-55 production first half second, or are we sort of 48-52? I'm just trying to get a feel for the portfolio quarter-over-quarter and then first half, second half.
I would say, of course, what we do when you have these back-end weighted profiles, Tanya, we try and bring them forward. That's the focus right now is bringing some of the quarter four production forward. We've got big commissionings, you know, and ramp-ups, particularly at Turquoise Ridge. Goldrush right at the end, you know, there's an opportunity there because Cortez moves quite quickly up the value curve towards 1 million ounces starting next year. We wanna get that up and running. You know, your 45, 48, 52, 55, somewhere between those ranges is probably realistic. Graham, you wanna add anything to that?
Yeah. No, I think that's right. I mean,
It'll be nice to be in the middle of those two ranges.
Yeah.
You know, it's somewhere around there.
With quarter-over-quarter improvements?
Yeah, that's right, Tanya. Yeah, it's a progressive process.
Okay, perfect. That's the easy one. I wanted to come back just on the inflation. I know that, you know, about 40% of your cost structure is labor. Just wanted to make sure on that front, one, if you are seeing any labor pressures, and two, if you have any labor agreements that need to be renegotiated this year.
I think the team in Nevada has done an excellent job on negotiating with the one union team that we've got that we inherited in the deal with Newmont. That's established and set for another year. Again, the labor engagements ongoing mostly in South America and Africa, we're largely through them. You know, that's normal course of business. We're not seeing that sort of inflation across the other regions. It's really the U.S . Again, we're managing it, Tanya. You know, that's. It's not, you know, it's difficult, but it's also what we're finding is that when we employ people, we're not short of applications.
When we employ them, one of the things we're really obsessed about is we want people to join us that are aligned with our vision and our DNA. We don't see people as numbers that, you know, come and go. We're very focused on building that human capital foundation. Yes, and the U.S. is really. It's the way that the U.S. labor market has responded to COVID and the alternative opportunities. Of course, you've got some new projects being developed, and the juniors are, you know, promising mines and employing people. All those, that dynamic is real. I wouldn't say that it's a, you know, that's why we run companies, is we manage people.
Okay. That sounded like you don't have any contracts due this year?
No, no, we've got no contracts that would risk our organization.
Okay. Maybe the same on the supply chain contracts. Do you have any for renewal, like cyanide or anything like that?
No, we have very, you know, we've again taken out hundreds of millions of dollars out of the supply chain procurement costs in Barrick. We've still got some way to go before we comfortable that we're super efficient. We've you know the Rehan Khrobah and the team across the group have done a remarkable job managing you know we come from that background, very dynamic situation, and we've managed the COVID impacts. We managed the ECOWAS sanctioning of Mali, which brought challenges on the logistics side. We're now managing the Eastern Europe crisis, along with what you've not talked about, the impact of the COVID lockdowns in China.
Again, what we did is when we put the two companies together, we slimmed down our inventory, our store inventory down to a month because we need to clean out all the working capital. When COVID reared its head, we jacked that up to three months. With the crisis unfolding, and there was lots of warning it was coming, we were already running around and moving some of our Eastern European potential impacted consumables up to five months. We're pretty much in that phase. On the contracts, we have long-term contracts. That's the first thing we did is renegotiate and put in long-term contracts and work more on a partnership basis.
You know, in times like this, there's the sort of knee-jerk reaction where people use the concept of inflation to widen their margin, particularly on the supply side. There are others that work open books with us, and we will definitely work with them to make sure that they stay in business profitably. It's, you know, that we don't look at it as just. That's why we've got, you know, very effective supply chain partners. You know, we will manage this because the one thing we don't want is our service providers to go out of business.
Okay. Nothing there. Just on the, you mentioned in the beginning that you had in your guidance, just reflected a 5% inflation and now you're seeing 3% more, so that puts you at 8% on the cost side, operating costs. Can you comment on the capital side? You know, everyone's focusing on the, you know, operating costs, but we haven't heard much about what's happening or what are you seeing on the capital side as you know, continue some of your mine builds?
In the big capital projects, as you've indicated before, you know, the big pressure at the moment is steel costs, and we pre-purchased most of our steel, certainly for PV and for the Turquoise Ridge number three shaft. Again, we trade that quite actively. You know, we are our own representative, so we manage that risk. There has been some impact on the timing in Pueblo Viejo, which we shared with you last quarter, because of the logistics impact and getting some of the steel manufactured steel into the Dominican Republic. Again, that's all baked into our forecast. As we speak today, you know, there's no material impact on any of our capital projects. Graham?
No, not on the growth projects. I would just say on, obviously on sustaining capital, quite a bit of the capital there is stripping and clearly that does have an energy component to it. You know, some small pressure there, but we don't expect to be going outside of our guidance on capital.
Okay. My final question, if I could, was just on Porgera. Mark, I think you said that, you know, negotiations are going well, but looks like we've slipped a quarter, so we're going into Q3 2022 for a startup. Does that still give us. Does that still mean that it would be Q2 of 2023 that we sort of I think it was six months, right?
Yeah.
To ramp up to full capacity. Should I be thinking Q2 of 2023 as a full ramp-up stage for that operation?
Yeah, that's a reasonable assumption. Of course, you know, while we delay, we're still doing preparation work. We can't do physical mining, but we can work on making sure our equipment is, you know, properly serviced and ready to operate, et cetera. The big challenge is gonna be employing the people. We've got about 1,000 people employed at the moment. We've got to go to, I wanna say, 2,500. Just to update you where we are, we've signed the PPCA, and most importantly, you would've seen ahead of the elections, because parliament stops passing legislation now up to the elections, we got the approval of all the related legislation that needs to endorse our framework agreement.
That's all in place, which is very material for us. We have one signature outstanding on the shareholders' agreement, which we need to incorporate the new Porgera company and therefore and with that apply for the SML, the Special Mining License, a sound SML. That's part of our agreement. As soon as we get that sorted out, we'll be able to then apply for the SML, and then it's a procedural thing. We work with the Mineral Resources Authority, and we deal with the issues, and we'll be moving forward. We're saying we should be at a place to formally start around October at this stage.
Okay.
Remember, there's elections now too, so it's gonna impact on our planning.
Okay. October, so six months after that.
Yeah.
Mid-2023 for startup. Okay, thank you.
Pleasure, Tanya.
The next question is from Mike Parkin with National Bank. Please go ahead.
Hi, guys. Thanks for taking my question. With respect to PV, can you just remind us what your current tailings facility has in terms of capacity and where is there a tight spot in terms of getting the new one approved and constructed and ready for initial deposits of tailings versus when the current one gets built up?
We've got headroom out to 2027 with some additional investments. You know, we expect to be ready to process that long before that. I don't know. Grant, do you have-
Yeah.
Are you on the call? Or John Steele.
Yeah.
Maybe you wanna just give the detail.
Yeah, you're right, Mark. 2027 in terms of the current design of the facility, or at least what we have already built is there a buffer there where we could raise the wall further. You know, based on the schedule that we have now, we don't see that as necessary. As I say, there is that bit of fat, you know, while we construct the new TSF. Now, John, is there anything you wanna add?
No, that's correct, Grant. We've got the five years up until 265 meters, and we can go for an extra three meters on that facility with the redesign. We're comfortable that we have the time on Ngul to allow us to get the next TSF ready.
Mark, does that answer your question?
Mm-hmm.
Thanks, John. Thanks, Grant.
Yeah. If you decide to exercise that additional three-meter lift, that doesn't require any government approval? That's all on the clear.
No, but it's capital. We'd prefer not to do it. Right now there's nothing, no plans to do it.
Okay. Thanks, guys. That's it for me.
Thank you.
The next question is from Jatinder Goel with BNP Paribas. Please go ahead.
Thanks, Alberto. Good morning. I've got a question related to your record analogy, Mark. Which while acknowledging your experience of working in a challenging jurisdiction, the question is more about risk assessment, which is how do you ensure that there aren't other potentially dangerous elements while looking for elephants? It's a country with no mining history, volatile political regime, and difficult history of the project itself. How do you add a safety net against the known elephants that might come across in the future? As an example, Rio Tinto had put in a loan for Mongolian project, including international agencies, but that didn't prevent the government to renegotiate the contract, which got concluded earlier this year. Just trying to understand your approach to risk assessment.
Presumably, you've used the same corporate gold prices that you use for other large-scale projects. Have you used a bigger risk premium to make the IRR hurdle higher for this project?
This project passes a hurdle rate of around 15% at $1,200 gold and $2.75 copper. We don't change that. Just to point out, you know, risks are binary in mining. You either have a mine or you don't. I would point out that, you know, it's unfair to suggest or blame the Mongolian government for the renegotiation of the Mongolian Rio Tinto investment. The reason was because Rio didn't deliver on the original plan and ran up a massive debt. You know, every project's got a story. We have a very strong reputation of delivering on what we say, and that's the first trick in building strong license to operate.
You know, this is an asset that has been effectively there for Barrick for over a decade. It's been a matter of dispute between Barrick and the Pakistani government and that dispute went to arbitration. It received award, it was awarded against. But at the same time, as you know, in Barrick and myself, we believe in finding solutions, not really focusing on fighting with our host country. The product of this negotiation, which I must say took an enormous amount of effort from our negotiating team, is a clear 50/50 as we've demonstrated we'd is the right way to look at partnerships, both in Tanzania and more recently in Papua New Guinea.
At the same time, it's the first time that the Balochistan province has been recognized and will receive a substantial component of the benefits of this investment. Again, our commitment to ensure that we start investing in the community and particularly on upskilling the Baloch people ahead of the mining operations. There are so many things that have been neglected there, and one of them, for instance, is just the accessibility to potable water. In Barrick's case, you know, we have three primary pillars in our commitment to our communities, potable water, primary health, and primary education, all of which need improvement in that region. You know, we've worked in these sort of environments before.
I've spent my entire life working in these sort of environments. This is a perfect opportunity for the mining industry just to demonstrate what it can bring to the economy of a country as we've been able to demonstrate in many parts of the world. You know, I think this is a very fair deal. It's a deal in which the government of Pakistan are investing in. Again, a new way of looking at it. We are bringing the international agencies in. It's the biggest single investment Pakistan's seen, and it has enormous social and economic impacts for the entire Pakistan country and in specifically the Balochistan province. You know, I'm very comfortable. Of course, there are gonna be challenges and bumps along the road.
So far, our experience, despite starting with sort of a conflict situation, the state of Pakistan, and we've been through many governments, just to remind you, in this process has always upheld our agreements. I think that bodes well for a long-term successful partnership with the people of Pakistan.
Thanks, Mark, for the detailed explanation. Just to follow briefly on the same project. Is the decision to reactivate? Obviously there is a long history, and obviously there was a dispute. Was there anything else competing against this project for capital as well, either organically or inorganically? Or is the quality of geology so attractive that other things just find it difficult to compete, whatever is in your near-term time horizon?
We've got another really big project in partnership with NOVAGOLD in Alaska, which we're moving forward on. As I indicated last time I spoke in a public forum and the question was asked, they are mutually exclusive projects. We can afford. You've seen our balance sheet. You know, in my lifetime, I've built three mines at a time. Definitely Barrick and its executive team within the three regions, every one of those teams are quite capable of shepherding a new tier one asset into our portfolio. You know, Reko Diq fits under the LATAM Asia Pacific region. We've still got the African region and the North American region and Donlin Gold fits in under the North American region.
You know, we are never gonna sequence world-class assets that meet our filters. We're gonna invest and bring them to our account.
Thank you very much, Mark.
The next question is from Adam Josephson with KeyBanc. Please go ahead.
Mark and Graham, good afternoon. Thanks very much for taking my questions. You know, Mark, you mentioned earlier just about your stock trading at a discount to what you consider to be its fair value. On the last call, you talked about the discount to, obviously, Newmont. I'm just wondering, you know, how you think about you balance your desire to invest in tier one assets, which you obviously have many of, against some investors' perception that, you know, there's more riskiness here because of your willingness to invest in what they consider risky jurisdictions. You're trying to do the right thing, but balance that with whatever investor perceptions are about the riskiness of your portfolio.
How do you kinda balance those two things, given your belief that you continue to trade at a discount to fair value, presumably in part because of these perceptions?
Okay. Let me try and deal with that quite complicated question. The first part to it is, remember, if you look at the second to last slide, our performance against the GDX is at. You know, we're above the GDX performance, where you look at it over the last 12 months, six months, or since we incorporated the joint venture or merged with Randgold. You know, we are performing in the market at the upper end. Of course, as you point out, Newmont recently has been higher than that, but this is a long-term game. And again, if you look at what we've come from a negative net debt of over $4 billion to a positive net debt of $700 million.
When you look at our cash flow, and you look at our. We've paid out $3.5 billion, I mean, of cash both in the capital reduction, capital returns, and the dividends to our shareholders over that three years. You know, you've got to conclude that Barrick is very much a sustainably profitable mining company. If you stop, there are many examples of it, when you think I started Randgold with $10 million in 1995, and look where we've taken that and now Barrick. You look at the big companies that were there in the market with us back in 1995, so many of them have disappeared because mining is a consumptive industry.
You know, risk is how you manage it. You know, we just have to look at Chile and Peru today. If you look at the dynamics, the tax dynamics within the U.S. and how it changes from one government to another. You've seen, you know, us navigate the challenges across Africa. The point is, you know, people miss the real point of mining, and that is if you can partner with your host country, you create value, and you deliver meaningful change and a contribution to the economy and the people of your host country. That's called license to operate, which we all look at as some sort of intangible tag. It's a genuinely important component of our business in Barrick.
You know, if you're gonna go, you know, a bad asset in a good country is still a bad asset. A good asset in any country is a good asset. To bring back your point about Mongolia is that it's how you exploit it and share the benefits of that exploitation that allows you to keep that asset or not. I'd finish off by something I always say, and that is, have you ever seen the landlord kick out a tenant that's paying full rental?
Right
you know, that's really our philosophy on it. We know, because I know from experience, as we deliver on that, people will want to own our stock.
No, I really appreciate that, Mark. Just one other question. Newmont was asked this as well about, you know, there's all this discussion about inflation for understandable reasons, and that prompted a question on their call about, you know, potentially revisiting their gold price assumption for budgeting purposes. Is that something that you've considered and weighed the pros and cons of? What is your thinking along those lines?
The one thing that
Given where gold is now.
You know, we've shared this with the market going back to 2001. We have a policy, it's a formulaic policy. That's why, you know, we've kept the gold price where it is. We don't make it up. We don't look at the sort of who does what with the gold price. We set the long-term gold price based on input costs. We have a reference point going back to 1998 where we built a model, a specific model for exactly that reason. We've used gold price, long-term gold price of $450 when the gold price was $260.
Of course, as you know, in 2011 or 2010 when everyone chased the gold price up, we stuck at $1,000. We've moved from $400, $450, $650 through the first decade of this century, stopped at $1,000 in 2010 and we moved up to $1,200 when we did the deal with Barrick. Because again, when you fiddle with the gold price without a cost impact, you impact your cut-off grade and also your production profile. Yes, with inflation coming through on our costs it makes sense that we will automatically and continue to review that.
We do anyway because we run our reserves at $1,200 and our resources, and we have full mine plans that support our resource estimates at $1,500. And we look at sensitivities all the time. Rod Quicken, his group, that's their job. You know, there will be a time when the gold price will go down and as there will be times when the gold price we use might go down. You know, that's inevitable in an industry where the input costs are changing, and they're most definitely changing.
No, I appreciate that, Mark. I just want to follow up to that. When might if you were to change your gold price assumption, when do you think that might be? Would it be end of this year? Is there any kind of time, timeline you could give us?
We review our reserves and the assumptions every end of the year as part of our declaration of our resources and reserves. You know, we're very comfortable that we remain profitable at our assumptions throughout this year because we've set those plans and, you know, they are designed to make money at $1,200, so we've got, you know, a fair margin. As we do every year, we'll relook at it when we come to reflect on our reserve statements for the end of this year.
Thanks very much, Mark.
Yeah.
The next question is from John Tumazos with John Tumazos Very Independent Research. Please go ahead.
Mark, thank you very much for your cost breakdowns in great detail. I see that the Nevada cost per ton for open pit mining has risen 39.6% over five quarters. That's a very accurate measure of industry costs. It doesn't affect ore grade, doesn't involve ore grade. Your cash costs per ounce over five quarters have only risen 20.2%, and this was a bad quarter with low output. The next quarter should be lower. In the copper division, cash costs over five quarters have only risen 12.4%. I wish I was, you know, where you are and I could shine your shoes. How is the physics of your cost per ounce or cost per pound only rising a third as much as mining cost per ton?
So, uh-
It seems like you're doing a great job of controlling costs.
Yeah, we are obsessed about controlling costs, but I think you've you know, sort of laid out a metric that we wrestle with all the time, and I'll try and deal with it. The copper costs, you know, Lumwana, when we really got our teeth into it, was very inefficient, and we effectively halved the costs of mining in Lumwana, and we now are just putting in new fleets, so you're gonna see even better efficiencies. Of course, we are working in an inflationary environment, and there will be some cost creep on that. That's the flow through with Lumwana. The same goes for Jabal Sayid, which is really driven by our expansion of the mining, the efficiencies of mining.
We've effectively increased the throughput or production by 50%. As you know, in mining, the economies of scale are always win. We've dropped the grade in Jabal Sayid slightly, but we've increased the efficiency with the same infrastructure. If we've increased the throughput and the copper production materially, that drives for copper. Copper was like a neglected part of our business. That's where the extra efficiency comes from. On Nevada, there's a big change in how we're managing. We've got some fleet that we have to use to shore up an old pit as part of our commitment to the First Nations. There's some inefficient mining there. We are also doing some big tailings upgrades.
Again, we try and sequence that when we strip for mining purposes, so we can move the material to the tailings facility or the leach pads when we build new leach pads. Again, Greg and the team in Nevada have been looking at one of the next steps we've got on efficiency is looking across the Nevada group and saying, are we allocating our fleets both underground and surface, in the most appropriate manner and still further breaking down the fences, so to speak, between the four big operations we've got in Nevada. Again, you'll see that OpEx cost will come down in Nevada. Those are really the drivers. We've got some additional cost pressure in Veladero.
You would have seen, and also we operated, as you correctly pointed out, a lower production for the group, and particularly for Veladero. We are investing in a new fleet or a secondhand but relatively new fleet in Argentina, and that's gonna bring with it some efficiencies as well. We are mobilizing fleet, which we haven't started yet, but we are mobilizing fleet for Porgera, which will in itself also bring significant improvements in our costs. That's why I say when we talk about costs, they're very variable. You can't blame it all on inflation. Some of it is efficiency, some of it is, you know, the age of the equipment and so on. We really drive unit costs. That's how we run Barrick.
We don't run per ounce, we run per ton, unit, costs. I hope that answers your question.
Mark, if I could follow up, several years ago, the Nevada cost per ton for Barrick was as low as $1.40 per ton and appeared to be as good as anybody in the world or pretty close. Do you think it's possible to get back under $2 per ton? And those costs per ton were before the Newmont merger and however that affected improvement or otherwise. Do you think it's possible to get to $2 per ton again?
At $2 you need 300-ton trucks and a big pit. You know, Nevada's open pits are quite far apart now. There is some efficiencies in the Carlin pit still. But that's the point I'm making and I you know I would. The real cost now you know it's changed a lot. I'm thinking you're talking about a decade and a half ago. You know I think long gone are the days where with a 300-ton truck or a 170-ton truck which is most of the stuff that we use you get down under $2. $2.20 in Zambia we are close you know to that sort of $2.20 $2.50 with big 300-ton Komatsu.
Thank you very much.
Sure.
There are no more questions on the conference call.
Well, thank you everyone. That was quite an exhaustive set of questions. I appreciate the interest. We stayed the course. Everyone here is sort of sweating under the lights. But appreciate your time and your interest. Again, we'll be seeing you, some of you in Miami next week, hopefully. Again, we'll be at Indaba for those who are going to Indaba and then some of our team will also be here at PDAC in Toronto. Otherwise, please, if you have any further questions, reach out to the team. We're always, you know, very committed to making sure that you get the right information. Thanks again and have a good day.
This concludes today's conference call. Should you have any additional questions, please contact the Barrick Investor Relations department. You may now disconnect your lines. Thank you for participating and have a pleasant day.