Barrick Gold Sees Some Sparkles

Barrick Gold Corporation (ABX) reported a flat $492 million or 56 cents per share in profits in the second quarter of the year, compared to the year ago level of $485 million or 55 cents per share. The Canadian gold miner generated revenues of $2.03 billion, 3% higher than the year ago level.

Operating cash flow rose 42% to $718 million compared to $505 million in the same prior-year period. This reflected lower income tax payments as a result of the production mix and the use of tax loss carry forwards.

The realized gold price for the quarter was $931 per ounce, which was $33 higher than the year ago level.

Gold production reached 1.87 million ounces at total cash costs of $452 per ounce due to strong operating performance in the North and South America regions. This put the company on track with a full-year production guidance of 7.2-7.6 million ounces of gold at net cash costs of $360-$385 per ounce, or total cash costs of $450-$475 per ounce.

Its North American business produced 770,000 ounces of gold at total cash costs of $484 per ounce. This was driven by the Goldstrike operation, which produced 410,000 ounces at total cash costs of $441 per ounce as higher grade ore continued to be mined in the open pit and underground.

South American business exceeded expectations with production of 440,000 ounces of gold at total cash costs of $277 per ounce. The Lagunas Norte mine in the region continued to deliver impressive results with production of 260,000 ounces at total cash costs of $134 per ounce.

The Australia Pacific business produced 490,000 ounces of gold at total cash costs of $552 per ounce. Porgera -- the region's largest operation -- produced 140,000 ounces at lower than planned total cash costs of $491 per ounce. The Kalgoorlie mine continued to access higher grade ore and benefit from improved performance of the mining fleet, resulting in better-than-planned production and total cash costs.

The African business produced 160,000 ounces of gold at total cash costs of $539 per ounce. This included production from the new Buzwagi mine which poured its first gold in May. Buzwagi is expected to produce about 200,000 ounces of gold at total cash costs of about $335 per ounce in 2009.

Barrick continues to expect its gold production to increase to 7.7-8.1 million ounces in 2010. Total cash costs are anticipated to reduce with the start-up of the Cortez Hills project.

Barrick produced 96 million pounds of copper at total cash costs of $1.25 per pound during the quarter. This was in line with full-year copper production guidance of 375-400 million pounds at total cash costs of $1.25-$1.35 per pound. The company benefited from its copper hedge position, realizing $3.18 per pound, which was $1.06 per pound higher than the average spot price.

We continue to recommend ABX as Hold with a six-month target price of $31.50.

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