Americas, forecast all-in sustaining costs would decline to $950 and $1,000 an ounce in 2014


gsr-7741Barrick Gold Corp. (ABX) and Goldcorp Inc. (G) reduced their fourth-quarter operating costs from a year earlier as the largest producers of the metal by market value adapt to the biggest fall in gold prices in three decades.

Barrick’s so-called all-in sustaining costs dropped 14 percent from a year earlier to $899 an ounce, the company today said in a statement. Vancouver-based Goldcorp’s costs fell 11 percent to $810 an ounce by the same metric.

Gold-mining companies are cutting spending, selling assets and reworking mine plans to lower costs and focus on the most profitable production after gold’s biggest annual decline since 1981. Their efforts are starting to pay off. The 10 largest producers may generate $3.07 billion of free cash flow this year and $5.03 billion in 2015, compared with negative $1.4 billion in 2012, according to analysts’ estimates compiled by Bloomberg.

“The industry is managing itself better, they’re running their businesses better, they’re being more disciplined,” Barrick Chief Executive Officer Jamie Sokalsky said today in a telephone interview. “We’re running the business to make higher returns and free cash flow.”

Barrick, which agreed to sell almost $1 billion of assets in the past six months, last year suspended construction of its delayed and overbudget Pascua-Lama project on the Chile-Argentina border, started closing its Pierina mine in Peru and cut its dividend 75 percent.

Shares Climb

While the Toronto-based company has forecast higher costs of $920 to $980 per ounce in 2014, the biggest reason for the increase is expected less production from the low-cost Cortez mine in Nevada, Sokalsky said on the call. Excluding Cortez, the company’s annual costs this year would decline, he said.

Barrick rose 6.1 percent to C$22.08 at the close in Toronto, the biggest gain since Sept. 18. Goldcorp climbed 3.6 percent to C$29.64.

The miners are among gold companies outperforming the metal since the start of the year, following five straight years of underperformance. The 37-company S&P/TSX Global Gold Sector Index has risen 24 percent this year, compared with the 8 percent gain of gold futures in New York.

Goldcorp, which has mines in the Americas, forecast all-in sustaining costs would decline to $950 and $1,000 an ounce in 2014 from $1,031 last year. The company expects output may increase as much as 18 percent this year, as the company starts up new mines in Canada and Argentina, and may be even higher if the miner succeeds in its C$2.89 billion ($2.63 billion) hostile cash-and-stock bid for Osisko Mining Corp.

Industrywide Writedowns

Goldcorp’s costs will fall again in 2015, because the company is starting up new, low-cost mines this year, CEO Chuck Jeannes said today by phone.

“We expect those costs to come down again pretty significantly,” he said.

The 28 percent drop of gold prices took its toll on earnings last year.

Barrick took $2.82 billion of writedowns in the fourth quarter, the company said today in the statement, bringing its total for 2013 to $11.5 billion. Goldcorp reported $443 million of impairments. Two other Canadian producers, Kinross Gold Corp. and Agnico Eagle Mines Ltd., also said they took writedowns when they reported fourth-quarter earnings after the close of regular trading in Toronto yesterday.

Net Losses

Barrick’s writedowns in the fourth quarter included $896 million due to the suspension of Pascua-Lama, $595 million on the Porgera mine in Papua New Guinea and $300 million on the Veladero mine in Argentina. The company took $8.7 billion of writedowns in its second-quarter earnings last year, including $5.1 billion on Pascua-Lama.

Goldcorp took impairment charges on mines in Argentina, Mexico and a Nevada operation it owns with Barrick that the companies have agreed to sell.

Barrick had a net loss of $2.83 billion, or $2.61 a share, compared with a loss of $3.01 billion, or $3.01, a year earlier, while earnings excluding the writedowns and other one-time items were 37 cents a share, missing the 41-cent average of 22 estimates compiled by Bloomberg.

The company reported fourth-quarter gold production of 1.71 million ounces, compared with 2.02 million a year earlier.

Goldcorp’s net loss was $1.09 billion, or $1.34 a share, compared with net income of $504 million, or 47 cents, a year earlier. Excluding writedowns and other one-time items, profit was 9 cents a share, missing the 23-cent average of 19 estimates compiled by Bloomberg.

Gold averaged $1,273.43 an ounce on the Comex in New York in the fourth quarter, 26 percent less than a year earlier and 4.1 percent lower than the third quarter. The metal today posted the longest rally since July 2011, topping $1,300 an ounce for the first time since November.