Barrick Gold Corp. (ABX) posted record fourth-quarter 2010 results driven by higher gold sales volumes and higher prices for both gold and copper. Fourth quarter reported a net income of $896 million or 90 cents per share.   Full year reported net income came in at $3.27 billion.

Adjusted net income was up 57% year over year to $947 million or 95 cents per share compared with $604 million or 61 cents per share in the prior-year quarter, beating the Zacks Consensus Estimate of 83 cents. In full-year 2010, adjusted net income rose 81% year over year to $3.28 billion.

Revenue

In the fourth quarter of 2010, total revenue of $2.9 billion was higher than  $2.4 billion in the prior-year quarter, surpassing the Zacks Consensus Estimate of $2.7 billion. Full-year 2010 total revenue was $10.9 billion versus $8.1 billion in the prior year.

In the reported quarter, gold production was 1.70 million ounces at total cash costs of $486 per ounce or net cash costs of $326 per ounce and was in line with the expectations attributable to strong performance in the North America region.

In full-year 2010, gold production came in at 7.77 million ounces at total and net cash costs of $457 and $341 per ounce, respectively, which was in line with the original guidance despite higher royalties and taxes associated with higher gold prices. The average gold price increased 26% in 2010.

In fourth-quarter 2010, copper production was 82 million pounds at total cash costs of $1.12 per pound.

Region Wise

North America:  North America region produced 0.70 million ounces at total cash costs of $486 per ounce. The Cortez property produced 0.21 million ounces at total cash costs of $329 per ounce. Full-year production of 1.14 million ounces at Cortez exceeded original guidance of 1.08–1.12 million ounces on higher than anticipated grades and recoveries from the Cortez Hills open pit and underground.

The company expects to receive a new Record of Decision for Cortez Hills imminently, which will allow the operation to revert to its original scope. Production at Cortez is anticipated to increase to 1.30–1.45 million ounces at total cash costs of $235–$265 per ounce in 2011.

The Goldstrike operation performed strongly, producing 0.29 million ounces at total cash costs of $490 per ounce in the fourth quarter, primarily due to better-than-expected grades from the open pit and higher roaster throughput.

Full-year 2011 production for the North America region is expected to increase to 3.30-3.46 million ounces at total cash costs of $425-$450 per ounce, driven largely by higher production from Cortez.

South America: This business unit performed as expected, with production of 0.38 million ounces at total cash costs of $297 per ounce in the fourth quarter. The Veladero mine produced 0.24 million ounces at total cash costs of $252 per ounce in the fourth quarter. Full-year production at Veladero was 1.12 million ounces at total cash costs of $256 per ounce due to access to higher grades and the increased throughput from a crusher expansion completed in the third quarter of 2009. The Lagunas Norte operation contributed 0.11 million ounces at total cash costs of $294 per ounce.

In 2011, South America production is expected to be 1.80–1.935 million ounces at total cash costs of $350–$380 per ounce, primarily due to lower grades at Veladero as anticipated in the mine plan.

AustraliaPacific: This business unit produced 0.49 million ounces at total cash costs of $639 per ounce in the reported quarter. The Porgera mine, the region’s largest operation, produced 0.14 million ounces at total cash costs of $578 per ounce.

Australia Pacific is expected to produce 1.85–2.00 million ounces at total cash costs of $610–$635 per ounce in 2011.

African Barrick Gold plc (ABG): Attributable production from ABG in the fourth quarter of 2010 was 0.13 million ounces at total cash costs of $679 per ounce.

Barrick’s share of 2011 production is expected to be 0.515–0.560 million ounces at total cash costs of $590–$650 per ounce.

Financial Position

Operating cash flow was $781 million and adjusted operating cash flow set a new company record rising 56% to $1.44 billion from $921 million in the prior-year period. Full-year 2010 adjusted operating cash flow increased 65% year over year to $4.78 billion. In fiscal 2010, return on equity was 19%, up from 12% in fiscal 2009.

Cash balance at the end of December 31, 2010 was $4.0 billion with a low net debt of $2.5 billion.

Cortez mine Update

The newly expanded Cortez mine exceeded expectations in its first full year of production and the company continues to advance its project pipeline, including the world-class Pueblo Viejo and Pascua-Lama projects. Pre-production capital budgets are expected to be higher than previous estimates by about 10–15% to $3.3–$3.5 billion (100% basis) and 10–20% to $3.3–$3.6 billion for Pueblo Viejo and Pascua-Lama, respectively. Despite these increases, Pueblo Viejo and Pascua-Lama continue to have very strong economics. Once at full capacity, these two mines are anticipated to contribute about 1.4 million ounces of annual production at low cash costs.

Outlook

Management expects fiscal 2011 gold production to be comparable to 2010 in the range of 7.6–8.0 million ounces at total cash costs of $450–$480 per ounce and net cash costs of $340–$380 per ounce.

Copper production for 2011 is anticipated to be about 300 million pounds at total cash costs of $1.35–$1.45 per pound. Total cash costs are expected to be higher in 2011 compared with 2010, primarily due to increased market prices for sulfuric acid and the processing of lower grades. The company has secured contracts for essentially all of its sulfuric acid supply required in 2011 at prices well below the average current market price.

Capital expenditures for 2011 are expected to be in the range of $2.1–$2.3 billion primarily related to construction activities at Pueblo Viejo and Pascua-Lama. Open pit and underground development, which includes capitalized waste stripping, is anticipated to be $750–$850 million as Goldstrike and Cortez enter a period of high waste stripping as anticipated by their mine plans. The high waste stripping phases at both mines are expected to be substantially complete by the end of 2011. Mine site expansion capital is expected to be $450–$500 million and includes expenditures on development projects at Lagunas Norte, Cortez, Turquoise Ridge, Goldstrike, Bald Mountain, Golden Sunlight and North Mara. Mine site sustaining capital expenditures are expected to be $0.90–$1.00 billion. Based on the current portfolio of development projects and mine plans, total capital expenditures are anticipated to decrease in 2012.

We maintain our Neutral recommendation on Barrick. Currently, it holds a Zacks #3 Rank (Hold) on the stock.

 
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