JOHANNESBURG (miningweekly.com) – Tanzania-focused gold miner African Barrick Gold (ABG) delivered a strong operational performance in the first half of 2013, with production tracking ahead of guidance and cash costs below the bottom of the guidance range, CEO Greg Hawkins said on Tuesday.
But the company announced an interim loss of $701.2-million as it booked an impairment charge of $727-million, after reducing the gold price at which it valued its carrying assets to $1 300/oz.
Hawkins said that ABG was taking “decisive action” at all its mines, including the reshaping of the life-of-mine at Buzwagi, to adapt to the lower gold price environment.
“The combination of asset optimisation, focused on cash flow generation and lower gold price assumptions, has contributed to a noncash, post-tax impairment charge of $727-million. Having taken these steps, we remain on track to achieve our full-year guidance," he said.
The company, a unit of Canada’s Barrick Gold, produced 311 838 oz during the six-month period at a cash cost of $903/oz sold. This compared favourably with the production guidance for the year of between 540 000 oz and 600 000 oz of gold at a cash cost of between $925/oz and $975/oz sold.
London-based consultancy Liberum Capital analyst Kate Craig said in a note to clients that ABG’s interim production result was a “decent beat” to Liberum’s forecast of 298 000 oz at $936/oz.
ABG’s ongoing operational review, initiated earlier this year, proposed potential cost savings of $185-million through operating cost reductions, capital discipline, organisational structure, corporate overhead cost reductions and mine planning deliverability.
The review project team had subsequently developed implementation plans for each of these areas, which would see the benefits predominantly achieved over the next 18 months.
“We have so far identified operating cost savings of up to $95-million [about a 15% reduction], and corporate overhead savings of $15-million [about a 30% reduction]…based off 2012 reported numbers.
“Of the operating cost savings targeted, about $55-million were attributed to Bulyanhulu, $25-million to North Mara and $15-million to Buzwagi. This is in addition to the previously announced savings of $50-million in sustaining capital and $25-million in our exploration spend from 2012,” Hawkins indicated.
ABG scaled back its exploration activities in 2013, resulting in a cost saving of $25-million when compared with 2012.
“This year, we are focusing our exploration programme on potential high-return programmes at Bulyanhulu and on two targets in the North Mara region. In Kenya, we are undertaking extensive low-cost sampling and testing of anomalies to prepare for future programmes…we are in the process of rationalising our low-priority exploration licences, which will result in additional cost savings when complete,” the company stated.
Looking ahead, Hawkins was optimistic, “We remain confident in the outlook for the remainder of the year. The drop in the gold price has necessitated changes to long-term planning, but on the basis of those changes, together with our cost reduction initiatives, we are well placed to deliver solid returns even in a lower gold price environment.”
Hawkins stated that ABG would continue to target the upper-end of the production guidance for the year.
The group reported adjusted net earnings of $39.3-million, or 9.6c apiece, after one-off adjustments of $741-million. The interim adjusted figure beats both Liberum’s projection of 7c apiece and the market consensus of 6.8c. However, cash at the period end was marginally below Liberum’s expectation of $364-million, at $321-million.
Cash generated from operating activities for the six months amounted to $99-million, which was $40.9-million below adjusted earnings before interest, taxes, depreciation and amortisation. This was mainly the result of an increase in indirect tax receivables of $41.8-million owing to the change of value-added tax relief administration measures for mining companies in Tanzania. ABG’s cash balance at the end of June was $80.5-million, down from $320.9-million in December last year.
An interim dividend for 2013 of 1c a share had been approved, which would be paid on September 23.