Barrick Gold vows changes after losing US$3.1 billion on copper writedown including Lumwana mine

Lumwana mine

Barrick Gold Corp. lost more than US$3 billion in the fourth quarter after taking a massive writedown on its copper business in Africa, the company announced Thursday along with plans to make major changes in the way it does business.

“I’d like to acknowledge that 2012 was a difficult year for Barrick and no doubt disappointing for our shareholders (and) I can assure you that I share your disappointment,” CEO Jamie Sokalsky told analysts Thursday.

Sokalsky said the focus must be on getting better returns from its production.

“We’re still in a high gold price environment, with supportive price fundamentals,” he said.

“I think there are many reasons to feel positive about both gold and copper prices but we just can’t rely on those prices continuing to go up. We have to manage the business better.”

The company is cutting or delaying US$4 billion in previously budgeted capital spending and writing down the value of its copper business unit by $4.2 billion after taxes, including $3.8 billion for its Lumwana mine in Zambia.

Barrick says it’s using a new method for analysing the total cost of a mine throughout its entire life and that revealed Lumwana will be more expensive and less profitable than previously thought.

“It’s a new paradigm, we’ve made fundamental progress and we’ll continue to be a leader in our industry by being more disciplined in our allocation of capital,* Sokalsky said.

The Toronto-based company says it doesn’t plan to build any more new mines at this time and has put several mine expansions on hold, although it will continue to advance its gold projects in Nevada.

The state has about one-third of Barrick’s total gold reserves and contributed about 40 per cent of it’s total production last year.

It’s also looking to reduce overhead costs by more than $100 million this year, although it didn’t provide details on how it will make those cuts.

Barrick (TSX:ABX), which reports in U.S. currency, said it lost $3.06 billion, or $3.06 per share, for the period ended Dec. 31. That compared to a profit of $959 million, or 96 cents per share a year earlier. Revenues increased 11.3 per cent to $4.2 billion, from $3.76 billion.

Adjusting for $4.2 billion in writedowns, including $3.8 billion for its copper assets, Barrick earned $1.11 billion, or $1.11 per share, compared to $1.17 billion or $1.17 peer share in the prior year.

For the full year, it lost $670 million or 66 cents per share on $14.5 billion of revenues. On adjusted basis it earned $3.83 billion or $3.82 per share.

Barrick Gold was expected to earn $1.04 per share in adjusted profits on $4.2 billion of sales in the fourth quarter, and $3.86 per share on $14.2 billion of revenues for the full year, according to analysts polled by Thomson Reuters.

Sokalsky, who was Barrick’s chief financial officer, was suddenly installed a CEO last summer, replacing Aaron Regent, and Barrick founder Peter Munk, was joined as co-chairman by a former president of Goldman Sachs.

At the time, Munk made it clear that shareholders had been disappointed by the company’s stock price.

Since then the stock has continued to fall from just under C$45 on June 5 to $31.72 at the close of trading on Wednesday on the Toronto Stock Exchange.

Barrick shares closed up 72 cents or 2.27 per cent, at $32.44 on the Toronto Stock Exchange Thursday.

Sokalsky also announced Thursday that Barrick’s chief operating officer, Igor Gonzales, will retire this year but he will remain until his successor is appointed.

Gonzales joined Barrick in 1998 and has played a key role in the growth of Barrick’s South America business unit.