By Nicole Mordant
VANCOUVER, British Columbia (Reuters) - Barrick Gold
Corp.'s
The Toronto-based producer earned $32 million, or 6 cents a share, in the three months ended Sept. 30, compared with earnings of $35 million, or 7 cents a share, in the year-before quarter.
If a one-off gain on a derivative position was stripped out of the results, Barrick posted earnings of 4 cents a share, compared with analysts' expectations of 5 cents.
"They guided us that Q3 was going to be a bit of a weaker quarter," said Canaccord Capital analyst Steven Butler.
"They are keeping a lid on their cash costs with their currency program, which is nice to see. The slight negative is that we still see the creep on the capital cost side of things, affecting Veladero," Butler said.
Barrick warned that construction costs at Veladero in Argentina, one of the four new mines it is building, are expected to increase by up to $70 million from its previous forecast because of price pressures for materials, fuel, labor and exchange rates.
Cash production costs could also be hurt, it said.
To protect itself from rising oil prices, which were looking comfortable above $50 a barrel on Tuesday, Barrick said it had put in place a fuel hedge position for 2.2 million barrels of oil -- half its oil needs in the next three years.
Financial head Jamie Sokalsky said that each $10 rise in the oil price added $3 to $4 to Barrick's costs per ounce of gold mined. "These hedges will provide protection of $2 per ounce for each $10 move in the oil price," he said.
Its cash cost to produce an ounce of gold in the third quarter rose to $218 from $180 in the year-before quarter.
SMALLER HEDGE BOOK CUT
Barrick's stock fell 46 Canadian cents to C$27.08 in Toronto on Tuesday but this was less than other gold-mining issues.
In the quarter, Barrick sold 200,000 ounces of the 1.23 million ounces of gold it produced into hedge contracts, fixed-price sales commitments that it entered into years ago.
A protection strategy in periods of weak gold prices, hedging annoys investors when prices are high, as they are now, as it caps earnings, and this has led Barrick to start winding down its hedge book.
Closing out hedge positions meant the miner, which has the dubious distinction of owning the biggest forward sales book in the industry, earned $9 million less than it would have if it had sold its gold at market prices.
The hedge cut was much smaller than that of the past two quarters, as, had Barrick settled more contracts it would have foregone even more of the benefit of the quarter's sturdy average gold price of $401 an ounce.
"We reduced the hedge book on a couple of (gold price) dips in the quarter -- there weren't many," Barrick chief executive Greg Wilkins said.
At quarter's end, Barrick's hedge book stood at 13.7 million ounces, which is equal to 16 percent of its unmined reserves.
Production, as expected, dropped 17 percent from 1.48 million ounces a year ago due to lower grades at some mines.
(Additional reporting by Rachelle Younglai)
($1=$1.23 Canadian)
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