barrick gold (abx) earnings report: q3 2015 … · the following barrick gold conference call took...
TRANSCRIPT
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
©2014TheStreet,Inc.Al l R ightsReserved Page1of22
BarrickGold(ABX)EarningsReport:Q32015ConferenceCallTranscriptThefollowingBarrickGoldconferencecalltookplaceonOctober29,2015,09:30AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
SusanMuir;BarrickGold;VP-InvestorCommunicationsKelvinDushnisky;BarrickGold;PresidentShaunUsmar;BarrickGold;CFORichardWilliams;BarrickGold;COOAndyCole;BarrickGold;GeneralManager-GoldstrikeMattGili;BarrickGold;GeneralManager-CortezRichardWilliams;BarrickGold;COOBasieMaree;BarrickGold;CTOKelvinDushnisky;BarrickGold;PresidentRobertL.Krcmarov;BarrickGold;SVP-GlobalExplorationKevinThomson;BarrickGold;SeniorExecutiveVicePresident-StrategicMatters
OtherPart icipants
AndrewC.Quail;GoldmanSachs&Co.;AnalystGregBarnes;TDSecurities;AnalystStephenD.Walker;RBCDominionSecurities;AnalystAnitaSoni;CreditSuisseSecurities(Canada);AnalystAndrewKaip;BMOCapitalMarkets;AnalystDavidHaughton;CIBCWorldMarkets;AnalystPatrickT.J.Chidley;HSBCSecuritiesUSA;AnalystChrisTerry;DeutscheBank;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometotheBarrickGoldQ3resultsconferencecall.
(OperatorInstructions)
Asareminder,thisconferenceisbeingrecordedonOctober29,2015.
I'llnowturnthecallovertoMs.SusanMuir,VicePresidentInvestorCommunications.Please,goahead.
SusanMuir (VP-InvestorCommunications):
Thankyou.Goodmorning,everyone.
Beforewebegin,I'dliketopointoutwewillbemakingforward-lookingstatementsduringthecourseofthispresentation.
Thisslideincludesasummaryofthesignificantrisksandfactorsthatcouldaffectfutureoutcomesfor
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
©2014TheStreet,Inc.Al l R ightsReserved Page2of22
Barrick.ForacompletediscussionoftheserisksandfactorspleaserefertoourmostrecentAIAFfiling.WiththatIwouldliketoturnitovertoourPresident,KelvinDushnisky.
KelvinDushnisky(President):
Thankyou,Susan,andgoodmorningtoeveryoneonthecall.Thankyouforjoiningus.I'mheretodaywithourChiefOperatingOfficer,RichardWilliams;ourChiefFinancialOfficer,ShaunUsmar;andourChiefTechnicalOfficer,BasieMaree.
ThisisthefirstearningscallforRichardandBasieintheirnewpositions.However,bothofthemhavebeenplayingcriticalrolesattheCompanyforsometime.
Richardhasbeendrivingmanyoftheimportantorganizationalchangeswe'vemadeoverthelastyear,someofwhichhewillelaborateontoday.Basieisourseniortechnicalleaderandplaysakeyroleinadvisingandsupportingouroperationalteams.
Andaspartofourdecentralizedmodel,you'vealsoheardusspeakabouthowweareadvancingtheroleofourminegeneralmanagersandourcountryexecutivedirectorstothatoftruebusinessowners.I'mpleasedtointroduceyoutotwoofthemwhoareherewithustoday:AndyCole,GeneralManagerofGoldstrike,andMattGili,GeneralManagerofCortez.
Barrickhasalwayshadareputationforstrongtechnicalandoperatingtalent,andsotodaywewantedyoutohavetheopportunitytohearfromtwoofourbest.BeforeIgoon,IwouldliketowelcomeAngelaParrtoBarrick.
SheisournewVicePresidentofInvestorRelationsandwillworkcloselywithSusanMuir,whowasrecentlyappointedVicePresidentofInvestorCommunications.AngelahasastrongbackgroundinIRatanumberofUKandCanadian-basedminingcompanies,andwe'reexcitedtohaveheronboard.
Weknowshe'llmakeagreatcontributiontotheCompany.I'mpleasedtoreportthatwehadaverystrongthirdquarter,andwecontinuedtodeliveronourkeycommitmentsfortheyear.
Butbeforewegetintothefinancialandoperatingdetails,Iwouldliketotalkforamomentabouthowwe'redrivingvalueforourowners.Wehaveonesimpleoverridingobjective,tocreateshareholdervaluebygrowingfreecashflowpershare.
Andwe'vereallystartedtodeliver,withtwoconsecutivequartersofpositivefreecashflow.Wearealow-costproducerandwe'renotdoneyet.Youcanexpectustobuildonthecostandproductivityimprovementswe'veachievedthisyear.
Ourcapitalallocationdecisionsaregovernedbystrictdisciplineandclearrequirementsforallinvestments,includinga15%hurdlerate,andwewillnotwaveronthis.WearerunningtheCompanywithfinancialprudence.
Thismeanslivingwithinourmeansandmakingsmartfinancialdecisions,whilepreservingtheentrepreneurialspiritthathasalwaysdefinedBarrick.Ourtechnicalexpertiseissecondtonone,andyoucanseethatintheuseofgroundbreakingtechnologiesthatunlockvalueforourshareholders.
We'realsotalkingaboutbeingobsessedwithtalent.AttractingtoptalenttoBarrickanddevelopingourpeopleisabsolutelycentraltooursuccess.Ourpartnershipculturemeansthatweareownersinthebusiness,withanemphasisontrustandtransparency.
Overthepastyear,we'vereshapedandfocusedourportfolio.Wenowhaveasmaller,higherqualityportfolio,underpinnedbyassetsthatdrivefreecashflowinourcoreregionsintheAmericas;assetswith
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
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significantoptionalityfordeliveringgrowthinthecomingyears.
Andfinally,ourbalancesheetismuchstrongertodaythanwasayearago.OurultimateobjectiveistogetBarrickbackintoapositionoftruefinancialstrength,andwe'remakingsteadyprogress.It'salsobeenveryimportantforustobeclearaboutourprioritiesandtodoexactlywhatwesaidwewoulddo.
Wesetaggressivetargetsandweareseeingstrongexecutionacrossthebusinessasweworktoachievethem.I'mnotgoingtogothrougheverypointontheslide,butitshowshowwe'redeliveringonourcommitments.
Fromfreecashflowgrowthandcostreductionstoastrongerbalancesheetandamoreoptimizeportfolio,weareadvancingonourkeypriorities.Withthat,I'llaskShauntowalkyouthroughourstrongthree-quarterresults.
ShaunUsmar (CFO):
Thankyou,Kelvin,andgoodmorning,everyone.Wereportedadjustednetearningsof$131million,or$0.11pershareinthequarter.
Thenetlossof$264millionlargelyreflectstheimpactsof$476milliongoodwillimpairmentwhichwetookatZaldivar,andlowerrealizedgoldandcopperpricesaswellas$20millionmoreindepreciationcomparedtoayearago.
ThekeypointIwouldliketohighlightherewithourfinancialresultsisthatdespitethehigherdepreciationandlowerrealizedpriceof$1,125perounce,thiswas$160belowourrealizedpriceayearagoand$65lowerthan$1,190perounceinQ2.
Wegeneratedsignificantlyhigheradjustedearningsandfreecashflowcomparedtoboththosepriorperiods.ThisunderscoresthebenefitsofManagementaction,costreductions,andproductivityimprovements.
Anditreallytellsthestoryofhowwe'repositioningBarricktobecomeincreasinglycashflowgenerativeevenattheselowerprices.Withouttheseimprovements,ourpretaxadjustedearningswouldhavebeenabout$390millionlowerthanayearago,andabout$175millionlowerthanthesecondquarterbasedonthelowgoldandcopperprices.
AdjustedEBITDAof$942millionreflectsthesamefactorsimpactingthenetloss,partiallyoffsetbyanincreaseingoldsalesdespitethedivestitureofCowalandPorgerainQ3.Freecashflowof$866millionincludedthe$610millioninproceedsfromthesaleofPuebloViejosteam,whichwereceivedattheendofthequarter.
However,excludingthisamount,freecashflowimproveddramaticallyfrom$26millioninQ2to$256millionthisquarter,ornearlyninefold.Operationallyweproduced1.7millionounces,inlinewithourplan,andabetter-than-expectedall-insustainingcostof$771anounce,drivenmainlybylowercashcostsof$570perounceversus$589justayearago,andlowerminesitesustainingCapExof$342millioncomparedto$410millionayearago.
Copperproductionwas140millionpoundsatC1cashcostsof$1.53perpound,reflectingimprovedoperatingperformanceatLumwanaandtheaffectoftheweakerZambiankwacha.Inadditiontocostreductionsandproductivityimprovements,webenefitedfromlowerorepricesandfavorablecurrencymovementscomparedto2014.
Thiswasreflectedinourinitialguidancefortheyear,andwecontinuetoseeapositiveimpactflowingthroughourcosts.OurdirectminingcostsinQ3wereabout$30anouncelowerthaninthesamequarter
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
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lastyearbeforetheeffectofourcurrencyandfuelhedgepositions.
Theyalsoreflectabout$15perounceofoverheadcostswhichwerenotpreviouslyincludedincashcosts,sowhicharenowallocatedtothesites.Soonanapples-to-applesbasis,excludingtheeffectofthechangeinourG&Areporting,directminingcostswouldhavebeenabout$65anounce,or$10lower.
Theselowerdirectminingcostsreflectthebenefitoflowercurrencyandlowerratesaswellasproductivityandcostimprovements.However,wedohavesomelegacyhedgesathigherrates,andfactoringthesein,thenetdecreaseyearoveryearisabout$45anounce,or8%.
WehavenoCanadiandollarhedgesafterthisyearandonly20%hedgedontheAustraliadollarnextyearwithnothinginplacebeyond.Ourorehedgeswilldeclinesignificantlystartingin2017anddropfurtherin2018.
Turningtoourbalancesheet,we'vemadestrongprogressagainstourtargettoreducedebtby$3billionin2015,andweexpecttomeetit.Subsequenttoquarterend,weused$1.1billionofour$3.3billioncashpositiontorepurchasesomeof2016notesandtocompletethetenderforsomemedium-termdebt.
Andasoftoday,werepaidatotalofabout$1.9billionthisyear.Buildingontheserepayments,weintendtousethe$1billioninproceedsfromthesaleof50%ofZaldivarandfreecashflowtowardsdebtreduction.
Wecontinuetoexpecttheresultofourtransactiontocloseinthefourthquarter.Wereducedtotaldebtby15%sofarthisyeartojustover$11billiononcompletionofthedebttenderyesterday.Andthishasconsiderablystrengthenedourliquidityposition.
Wenowhavelessthan$250millioninmaturitiesduebefore2018andabout$5.5billionforthe2018to2023period,andonly$100millionbetween2024and2032.About$5billionofourtotaldebtisverylongdated,maturingafter2032.
Overall,theassetsalesincurredapositiveandalongwithourstrongercashflowaredrivingimprovementsinourtotaldebt-to-EBITDAratio.Overtimeourobjectiveistoreduceittoalevelwhichwouldbeconsistentwithastronginvestment-graderating,2to2.5times.
Afterrepaying$3billiontotaldebtwillhavebeenreducedby23%tojustover$10billionasyousawinthepreviousslide.Weexpectannualpretaxinterestexpensetobereducedbyabout$140million.
Our$4billioncreditfacilityremainsfullyundrawn,andourconsolidatedtangiblenetworthhasimprovedto$6billionfrom$5.7billionlastquarter.Iwouldliketoprovidetheprogressupdatesonthe$2billionincashflowimprovementswearecommittingtoachievebytheendof2016.
Thisisrelativetoouroriginalinternalplansfor2015and2016,anditexcludesthedividendreductions.Theseimprovementsarecomingfromproductivitygainsandreductionsinoperatingexpense,capitalspending,corporatecosts,andworkingcapital.
Wehavenowbooked$1.8billion,or90%ofthistargetintoourplansforthebenefitofourrevampedandmorerobustlifeofmineplans:$400millionin2015and$1.4billionin2016.Ourfocusin2016willbeoncontinuingtodriveproductivityandsustainablecashflowimprovementswhilestrikingabalancewithidentifyingvalueaccretiveinvestmentsandgrowthoptionsfortheCompany.
We'veaddedtheworkingcapitalcomponentfornextyear,aswehavegivenourGMsspecifictargetstoreducesupplyinventoryandincreaseturnrates.Andtheyarealreadystartingtodeliveragainstthosetargets.
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
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Thisworkisstrengtheningtheresilienceofourbusinessinalowergoldpriceenvironmentandpositioningustodeliversignificantlystrongermarginwhengoldpricesrecover.Hereistheproofofouractionsthisyear,andthepictureisprettycompelling.
Despitethemorethan$500dropinthegoldpricefromthreeyearsagoincludingthe$100declinejustinthelastyear,we'veturnedthecorneronfreecashflow.Tobreakevenin2012wewould'verequiredagoldpriceofmorethan$1,800perounce,morethan$1,500in2013,andnearly$1,300perouncefor2014.
Butwe'renowgeneratingfreecashflowat$1,100perounceandarefocusedonimprovingourbreakevenpricefurther.Atthesametime,ourall-insustainingcosthascomedownby16%overthisperiod.
I'dliketoacknowledgethetrulyexceptionaleffortsfromouroperating,finance,technicalsupport,andourlicensetooperateteamstomakethesenumbersareality,andtoreturnBarricktoamoreflexiblepositionthatsupportsourkeyobjectiveofgrowingfreecashflowpershare.Turningnowtoour2015guidance,wetightenedourproductionguidanceto6.1millionto6.3millionouncestoreflectlowerexpectedproductionfromAcacia.
AlthoughwehadabriefshutdownatthemomentatPorgeraduetolowwaterlevels,operationsareresumedandthiswillnotimpactourguidance.Wereducedourall-insustainingcostguidanceto$830to$870perouncefrom$840to$880andbroughtdownthetopendofourcashcostrangeto$625from$640perounce.
Ourcopperproductionguidanceisunchangedat480millionto520millionpounds,andC1costshavebeenreducedto$1.60to$1.85perpoundtoreflectcurrencybenefitsandimprovedcostsatLumwana.Aspartofourimprovedall-insustainingcostguidance,wehavenarrowedourminesitesustainingandoverallcapitalexpenditureguidancefortheyear,andnowexpecttotalCapExofabout$1.7billionversusouroriginalguidanceof$1.9billionto$2.2billion.
Weexpectabout30%higherdepreciationinthefourthquartercomparedtothethirdquarterprimarilyrelatedtoadrawdownininventorystockpilesatCortez,LagunasNorte,andGoldstrike,andhighexpectedsalesvolumesatPuebloViejo.Thiswasanticipatedandwillbringthefull-yeartotalinlinewithouroriginalguidancerangeof$240to$260perounce.Tocoverouroperatingresults,IwillturnitovertoRichard,ourChiefOperatingOfficer.
RichardWilliams (COO):
Thanks,Shaun.Goodmorning,everybody.Beforewegotooperatingresults,I'mjustgoingtotakeaminutetotellyouabouthowwearenowoperatingasacompanyandhowwe'redevelopingouroperations.Thedecentralizedmodelthatyou'veheardaboutiskeytoourimprovedperformancethisyear,butnotjustasacost-cuttingtool.
It'sakeypartoftransformingthelongway--thelong-termwayinwhichwe'reoperating.Whatyouseeontheleftontheslideinfrontofyouistheoldhierarchicalcommandandcontrolmodel,withoperationsrunbyregionalbusinessunitsreportingtoacentralchiefoperationalofficer.
Inthismodel,thisoldmodel,operationaldecisions,includedbusinessplans,happenedinofficesawayfromthemines.Informationandideaswerecontainedwithinfunctionaloroperationstovepipes,andtherewaslimitedsharingofideasbetweenthoseminesitesandthoseoperationalleaders.
Adaptabilitywassacrificedfororder,andtheabilitytodealwithvolatilityandchangewashighlyrestricted.Oneofthemajordrawbacksofthismodelisthatbadnewstooktolongtoarriveatthehead
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
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office,bywhichtimethingshadbecomeworseorbecomedifficulttofix.
AnotheristhatresponsibilityforcreatingsolutionsrestedwithonlyafewpeopleatthetopoftheorganizationasopposedtousingthewholenetworkoftalentoftheCompany.Soinournewmodelweremovedtheregionalcorporatelayersofcommand,pusheddecision-makingandtechnicalexpertisedowntothesiteleaderswhereitisasclosetothesourceoftheproblemaspossible.
Theroleoftheheadofficeisreducedtofocusingonsettingstrategyandallocatingcapital,humanandfinancial,inwaysthatmaximizereturns.Butthistypicalofdecentralization,orwhatotherscallthedevolvedmodeleverywhere,isonlyhalfthestoryforwe'vedonemorethanthat.
We'vedonetwoothercriticalthingstoimproveouradaptabilityandoureffectiveness.Firstly,we'veimprovedthewaysthattheoperationsareled.
Idon'tmeanjustbyupgradingtalent,whichisobviouslywhatwe'relookingat,butbuildingoperationalleadershipteamsateachofthesitescomprisedoftheminegeneralmanagers,twoofwhomyouaregoingtohearoffromhere,executiveorinothercompaniesiscalledcountrydirectors,andfinanceleadersallworkingtogethertoensurethatdecisionsaremadetotakedueaccountoflicensedtooperateminingandfinancestraightcommercialneeds.Theyoperateasindependentbusinessleaders,withtheauthoritythatcomeswiththatandtheresponsibilitytoo.
Secondlyandcritically,we'vereplacetheoldhierarchywithatechnology-enablednetworktherebycreatingoneteamacrosstheCompany.Information,suchasprogressagainstplan,problemdescription,andsoonplusideasaresharedbyandwitheveryleadershipteamintheCompanyviatheweeklybusinessplanreview.
AvideoconferencethatlinkseveryoneintheCompanyandallthoseleadershipteamstogetherintoasingleinterconnectedmind,improvingideaflowacrosstheCompanyinwaysthatfaroutmatchtheoldsystem.Intermsofaccesstodebtswenowknowmorebyaccessingthewholeteam.
500brainsifyoulikearebetterthan10.Andspeed,wesolveproblemsandinnovatefaster;nobureaucracy.
Inthismodel,andjustasaslightreferencetomyself,I'mtheneighborofthatsystem,policinganddevelopingthecriticalprocessesandthebehaviorsthatensureinformationandresourcesareplacedwiththosethatneedthemostintherighttimeframe,ensuringthatweavoidthesilosorthebureaucracythatkillsefficiencyandadaptability,andjustasimportantly,ensuresthatwehavetherighttalenttomeetourstandardsoftransparency,collaboration,anddetermination.
Supportingthisprocessandmewithitaretwocriticaladvisoryteams,andtheybothreporttome.OneledbyBasieastheChiefTechnicalOfficer,describedwellbyKelvinearlier,andtheothernothere,PeterSinclair,istheChiefSustainabilityOfficeronthelicenseoperateside.
Bothprovidecriticaldecision-makingsupporttotheExecutiveswithcapitalallocationandtalentdecisions,andtotheoperationswiththeirproblem-solvingandplanningissuesattheirlevel.Alloftheseteams,includingthefinanceteamsclearlywithShaunandallofthoseinvolvedthere,operational,advisory,andexecutive,worktogethertomaximizethecommercialreturnsfromtheCompany'sportfolioofassetsinachangingandhighlyvolatilemarket.
Mining,licensetooperate,finance,operations,headoffice,andadvisorsalloperatingasoneteamwithonepurpose,growingfreecashflow.Wellthat'sthemodel,let'sturntooperations.
WeexpectourcoreminesintheAmericastocontribute60%to65%ofour2015productionand75%oftheoverallminesitefreecashflowfromourportfolio.Theaverage2015all-insustainingcostshavebeen
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
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reducedfrom$700to$725perounce,downfrom$725to$775atthestartoftheyearbasedonallthatthatShaunhasjustdescribed.
It'smygreatpleasuretohandovernowtooneofourbusinessleadersupfromthegroundAndyCole,theGeneralManagerofourGoldstrikeminetogiveyouanupdateonhisoperationandtherampupoftheTCMprocess.
AndyCole (GeneralManager-Goldstrike):
Thanks,Richard.Ourthird-quarterproductionwasinlinewithplanatbetterAISConlowercashcostandsustainingcapital.Asaresultwe'veloweredour2015cashcostandall-insustainingcostsguidance.
Fourth-quarterproductionisexpectedtobesimilartothethirdquarteratslightlyhighercosts.IampleasedtoreportthatournewTCMcircuitreachedcommercialproductioninthethirdquarter.
Weexpectthecompleterampupinthefirsthalfof2016.TheTCMcircuitprovidesincredibleprocessingflexibilityforourNevadaoperations.
Forexample,we'vehadgreatcoordinationwithCortezandGoldstrikeinoptimizingoreroutingsfromavalueperspective.NowforBarrickratherthanjustGoldstrikeweareseeingthebenefitstocashflowbyprocessingmoreCortexorethroughtheroaster.
TheremaybeopportunitiestoexpandthisinthefuturetootheroperationssuchasTurquoiseRidge.Theprojectcameinatacapitalcostof$610millioncomparedtoourlatestguidanceof$620million.Andwearenowreportingonacostofsalesbasis.
Throughputhasaveragedover9,000tonsperdaysinceJuly,approximately75%ofthedesignedcapacityof12,000tonsperday,andthroughputistrendingupward.Ourrecoveryrateshavebeenabitmorechallenging,andthisiswhereourfocusisrightnow.
Recoveriesaremorevariablethananticipated,primarilyduetohighercarbonfromsomeoretypeswhichmaybebettersuitedforroasting.Weareworkingtobettercharacterizeouroresources.Aswellwearemodifyingtheresintoimproveoverallrecoveryrates.
Weexpectrecoveriestoaveragearoundthehigh60%sdependingupongrade.Thisisnotunusualwiththeintroductionofanewtechnology,andwillnotaffectour2015guidance.
I'mextremelyproudoftheteamforthisachievementinlightofthefactit'sabrand-new,Barrick-developedtechnologyandit'stheonlycommercialuseofthisinnovativecyanide-freeprocessingtechniqueintheworld.IwillturnitovertomycolleagueMattGilitotalkaboutCortez.
MattGili(GeneralManager-Cortez):
Thanks,Andy.Cortezhadstrongproductioninthethirdquarterlargelyduetobetterthanexpectedoretonnagesfromtheopenpitoperations.Ourall-insustainingcostsof$501perouncealsoreflectedimprovedundergroundproductivityfollowingtheimplementationofshortintegralcontrols,aninitiativeidentifiedaspartofourvaluerealizationreview.
2015productionguidancehasbeenimprovedto900,000to950,000ouncesatlowerall-insustainingcostsof$675to$725perounce.Wepassedaverysignificantmilestonethismonthwhenwepouredour20millionthounce,andthisishalfofwhatGoldstrikehasproduced,butweareayoungerminewithalotofpotentialaheadofus.
Thepre-feasibilitystudyfortheCortezHillsDeepSouthundergroundexpansionisontrackforcompletionbyyearend.Herewearelookingatthepotentialtodevelopapproximately2millionounces
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
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inlargelyoxideresourcesbelowthe3,800footlevel.
Thisispendingreceiptoftherequiredpermits.Thiszoneaveragesahighergoldgradethanthesulfitereservesabove,andtherearedeepertargetsalongthetrendthathavenotyetbeendrilled.
Wewillaccesstheseresourcesbytwindeclines,whichhavejustreceivedpermittingapproval.Developmentonthesedeclinesisexpectedtostartinthefirstquarterof2016.
Inaddition,thereisverygoodexplorationpotentialforthefuturewithinour382squaremilelandpackage.Sooverall,Cortezremainsaveryprospectivedistrictforus.Andwiththat,IwillturnitbackovertoRichard.
RichardWilliams (COO):
Thanks,Matt.Obviouslywecan'thaveeverybodyheretodayandI'mspeakingonbehalfofEttieneSmutsandhisteamdownatPV.OkaythePVthirdquarterproductionwasslightlybelowplanastheirmineprocessedalargerportionofcombinationore.
All-insustainingcostswereimpactedbylowersilverrecoveriesassociatedwithautoclavemaintenanceandlimeboillimitations.TheadvisoryteamsandtheteamsonthegroundareaddingtwolimeoiltankswhichwillbeoperationalinNovember.
Andthisisexpectedtoimproverecoveriesatthetargeted80%levelthataround60%current.Wecontinuethereforetoforecastattributableproductionof625,000to675,000ouncesatanall-insustainingcostof$540to$590perouncein2015.
Productionisexpectedtobehigherandcostslowerinthefourthquarteronhighergrades,improvedrecoveries,andbetterautoclaveavailability.Wehighlightedlastquarterthepotentialtoconvertasignificantportionofthe6millionouncesofthoseresourcestoreservesbyremovingtailingstorageconstraints,andweintendtocommissionapre-feasibilitystudyinthesecondhalfof2016toconfirmthis.
NowontoLagunasNorteandJimWhittaker'soperationdownthere,whichproduced108,000ouncesatall-insustainingcostsof$581perounceinthethirdquarter,whichwasinlinewithexpectations.Productionin2015isnowanticipatedtobe550,000to590,000ouncesatalowerall-insustainingcostof$550to$600perounce,withstrongerproductionexpectedinthefourthquarterdrivenbyimprovedperformanceatthePhase5leachpad.
ThelowerproductionguidancereflectslowerrecoverieswithsomeleachpadirrigationissueswhichareintheprocessofbeingresolvedbyJimandhisteam.Fourth-quarterall-insustainingcostsareexpectedtobehigherthanthethirdquarterontheexpectedsaleofhighercostinventoryaswellasincreasedsustainingcapitalforPhase6leachpadconstruction.
Apre-feasibilitystudyonaplantoextendtheminelifebyupto12yearsbyminingnearly2millionouncesofsulfideorebelowtheexistingopenpitisonscheduleforcompletionin2015.AndnowontoVeladero.
Veladeroproductioninthequarterwasbelowplanduetolowergradesandadverseweather,whichimpactedleachoperations.All-insustainingcostswerehigherthanplannedonlowerouncessold,timingofsustainingcapital,andlowersilvercredits.
Productionguidancefor2015isunchanged,andall-insustainingcostguidancehasbeennarrowedto$950to$1,000anounce,andcashflowguidancehasbeenloweredto$550to$600perouncefrom$580to$630.Fourth-quarterproductionisexpectedtobehigherthanQ3atlowerall-insustainingcosts.
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.79BPriceasofEventDate:7.82
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TheVeladeroleadershipteamhasoptimizedpitdesignthisyeartofocusonhighergradematerial,whichisexpectedtomorethandoubletheannualcashflowoverthenextfouryearswhileretainingtheoptiontoexpandthepitinthefuture.Justashortupdateontherecentandunfortunateenvironmentalinstancewhichledtoadischargeofprocessingsolutiontotheenvironmentfollowingavalvefailureandadiversiongatethatwasopenatthattime.
Thirdpartywatermonitoring,includedthatbytheUnitedNations,hasconfirmedtherearenoriskstodownstreamcommunities.Restrictiononleachingactivitieswereliftedfollowingtheimplementationofadditionalmonitoringandcorrectiveactions,andthereisnoimpacttoourguidance.Withthat,itwillbeapleasuretohanditoverBasietotalkabouttheoptionalitywithinourportfolio.
BasieMaree (CTO):
Thanks,Richard,andgoodmorningtoall.Attheendof2014wehad93millionouncesofprovenandprobablegoldreserves.Thesearehighqualityreserves.
At1.37gramsperton,ourreservegradeismorethan50%higherthantheseniorpeeraverage,andthegradeofouroperatingminesisevenhigherat2gramsperton,whichismorethandoubletheindustryaverage.Wehaveastrongpotentialinourportfoliotoconvertthe19.4millionouncesofmeasuredauthenticatedgoldresourcesintoreservesatthevarioussites,projects,andearlysiteopportunitiesyouseelistedhere,andtoaddnewreservesandresourcesintothepipeline.
AfeasibilitystudyatTurquoiseRidgeandpre-feasibilitystudiesatCortezDeepSouth,Goldrush,andLagunasNorteSulfidesareallontrackforcompletionbytheendofthisyear.Togiveyouabitmorecontextfortheopportunityofourassets,wehavemaintainedaminelifeof10to20yearsformorethan20yearsthroughastrongtrackrecordofaddingreservestoourexistingoperations,andbydiscoveringandbringingnewprojectsintoproduction.
Wehaveanunparalleledtrackrecordinexploration,havingfound150millionouncesofgoldinthelast25yearsattheverylowaveragefindingcostof$25perounce,whichisroughlyhalftheindustryaverage.Thetotalattributablevalueofthe10majordiscoveriesmadeoverthisperiodisabout$107billionaccordingtotheSNLFinancial,andthisexcludestherecentGoldrushandAlturasdiscoveries.
WhatalsodistinguishesBarrickisthevalueaddnotjustfromneworganicdiscoveries,butofadditionalounceswefoundpostacquisition.Minelifeandproductionatthemajorityofouroperationshasfarsurpassedinitialestimates,onenotableexamplebeingGoldstrike.
Theoriginalmineplanexpectedproductiontoendintheyear2000,andcurrentlyextendswellintothenextdecade.Ourexplorationbudgetistwo-thirdsweightedtomineexandopportunitiesaroundourexistingoperations,andwecontinuetoidentifyexcellentpotentialforresourceconversionatmanyoftheoperations.
TurninginfeasibilitystudytoconvertresourcestoreservesoverthenextfiveyearsatCortez,Goldstrike,LagunasNorte,PV,andTurquoiseRidgeisprogressingwell.Inaddition,weexpecttoconvertpartofthe16millionouncesofresourcesatourGoldrushprojectinNevadaoncewehavefermentedanddevelopedtheundergroundexpirationdiglinesasthereisadditionalundergroundaccessandcompletedfulldrilling.
TurningtomorefullydefinethelimitsofmineralizationattheAlturasprojectinChile,isexpectedtoresumeshortlyfollowingaharshSouthAmericanwinter.AgoodillustrationoftheoptionalityinourportfolioisthenewdrillingprogramatHemlo.
InthefirstquarterofthisyearwecompletedtheacquisitionofsomegroundadjacenttoHemlofroma
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subsidiaryofNewmont,whichincludedanareaofgeologicalpotentialadjacenttoourexistingundergroundworkings.Wearecurrentlyconductingundergrounddiamonddrillinginthisareatoevaluateitspotential.
Drillinghasencounteredseveralhigh-gradeintercepts,whichdemonstratetheongoingpotentialofprolificmineraldistricts,suchastheHemlocamp,evenastheybecomemoremature.TurningtoourPascua-LamaProject.
AtemporarysuspensionplanhasbeenapprovedbytheminingauthorityinChile.Thiswillenableustofullycompletethetransitiontocareandmaintenanceandshouldallowustosignificantlyreducecostattheprojectin2016from$170millionto$190millionestimatedspendthisyear.
TheteamatPascua-Lamawillbefocusedondevelopinganoptimizedplanfor2016,andwe'llassessthisplanwhenitiscomplete.Butwe'vebeenclearthattheprojectmustultimatelymeetourminimum15%ROIChurdleratebeforeweconsiderrestartingit.IwillnowturnitbackovertoKelvinwithhisconcludingremarks.
KelvinDushnisky(President):
Thanks,Basie.Sotofinishoffwherewestarted,we'vemadegreatstridesthisyeartoreshapeBarrickintoaleaner,morenimblecompany.We'vegrownfreecashflowfortwoconsecutivequarters,ourbalancesheetisstrongerandsteadilyimproving,we'realreadyinaverycompetitivecostposition,andweintendtodrivedowncostsevenfurtherthroughimprovedproductivityandefficiency.
Wewillmaintainstrictcapitaldiscipline.Regardlessofwhetherthegoldpriceis$1,100ormuchhigher,allinvestmentsmustmeetourminimuminvestmenthurdleof15%.Wehaveafantasticlow-costasset-basethatincludeshighqualityreservesandresources,withsignificantoptionalityforgrowthatourexistingoperationsandatourprojects,whichincludesomeofthelargestundevelopedgolddepositsintheworld.
Andyoucancountonustostaysharplyfocusedondeliveringresultsaswefinishtheyearandmoveinto2016.Thatconcludesourpresentation,we'dnowbehappytotakeanyquestions.Thankyou.
QUESTIONS&ANSWERS
Operator :
Thankyou.Wewillnowtakequestionsfromthetelephonelines.ThefirstquestionisfromAndrewQuailfromGoldmanSachs.Pleasegoahead.
AndrewC.Quail(Analyst-GoldmanSachs&Co.):
Goodmorning,KelvinandTim.Congratulationsonaverystrongquarter,veryencouraging.Justacouplequestions.Justontheflaggedassetsalesthatyouguyshavementioned.Canyoujustgiveusabriefupdateonwhereweareinthatprocess?
KelvinDushnisky(President):
Thanks,Andrew.Iappreciateyourcomment.Processismovingreallywell.Look,I'vegotKevinThomsonherewho'sactuallyrunningtheprocess.Kevindoyouwanttogivealittlemorebackground?
KevinT homson (SeniorExecutiveVicePresident-StrategicMatters):
Wehavejuststartedroundtwoofthatprocess.Theseassetsarehighlysoughtafterat,say,verycompetitiverobustprocess,andourexpectationistosignoneormorebindingagreementsbeforethe
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
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endoftheyear.
AndrewC.Quail(Analyst-GoldmanSachs&Co.):
Great.Secondquestionis,actuallyonCortez,obviously,agreatquarter.Matt,you'reobviouslyintheroom.Gradealsowentup,andyou'vegivensomesortofguidancethatwe'rehavinggoodproduction,butdoyouthinkthatasweheadintosortof2016,andwesortofkindcomebacktosortofamoreofaQ2sortofgradeof1.7?
MattGili(GeneralManager-Cortez):
Well,Andrew.Imean,wehaven'tyetproducedguidancefor2016.AndsoIwillhesitatetotalkabout2016,butIwillsay,Andrew,aswe'vediscussedearlier,thefirsttwoquarterswereshowingaswewerecomingdownonthatorebodygoingthroughwhatwaslargelystripping.Inthethirdquarter,wehitsolidoreontheCortezhillsopenpit,andthatorewillcontinueforthenextseveralyears.
AndrewC.Quail(Analyst-GoldmanSachs&Co.):
Great.Andthroughput,ImeansomethingÐobviously,thatwentuptoo,soit'sagreatquarter.Isthatsomethingyouguysareaimingtosortofmaintain?
MattGili(GeneralManager-Cortez):
Yeah.Thegreatquarterortheimprovementoverthegreatquarter,wasreallyattributabletotwothings.OnewasweweregettingaslightlypositiveouncereconciliationontheCortezHillsdepositandthesecondhalfofthatwasreallyduetoincreasedundergroundproduction,justnotagradereconciliation,butjustmoretonnesbeingproducedbythesameteams.
AndrewC.Quail(Analyst-GoldmanSachs&Co.):
Andlastquestion,justquickly.IthinkIjustmissedabit.You'retalkingaboutPascua-Lamaand,obviously,theholdingcostiscomingdown.Canyoujustgiveuswhatyouexpectittobesortoffrom2016onwardswithcareandmaintenance?
KelvinDushnisky(President):
It'sKelvin,Andrew.We'llgivethatguidanceattheendoftheyear,morespecifically.Look,we'reworkinghard.Nowthatwehavethetemporarysuspensionplanapproved,itallowsustoreallyratchetdowncostsonagoingforwardbasis.Sowe'llgiveyoualittlemoredetailonthatattheendoftheyear,ifyoudon'tmind.
AndrewC.Quail(Analyst-GoldmanSachs&Co.):
Great.Thanksverymuch,guys.
KelvinDushnisky(President):
Thanks,Andrew.
Operator :
Thankyou.ThenextquestionisfromGregBarnesfromTDSecurities.Pleasegoahead.
GregBarnes (Analyst-TDSecurities):
Thankyou,operator.Kelvin,you'vegotthebalancesheetinmuchbettershapeandyou'vebeen
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playingdefenseforthelastthreeyearsorfouryears.AreyounowstartingtothinkaboutgettingabitÐlittlemoreontheoffensivesideofthings,todothingstoimproveyourproductionprofile,longerterm,andmovesomeoftheseprojectsforwardmorequickly?
KelvinDushnisky(President):
Thanks,Greg.Look,we'restayingverysharplyfocusedonourcommitmentsandprioritiesfortheyear.Asweindicatedearlier,the$3billioncommitmentforthisyear,we'repleasedwithitandÐbutthatwasfirststep.
We'regoingtocontinuetostrengthenthebalancesheet.We'llweighotheropportunitiesonagoingforwardbasis.Wealwaysevaluatethelandscape.Ifthereareopportunitiestomakereallygoodsenseandwouldgeneratevalue,thenobviouslywe'llconsiderthat,butatthispoint,we'restayingprettysharplyfocusedonwhatwesetouttodo.
GregBarnes (Analyst-TDSecurities):
So,whataregoingtobeyourprincipalprioritiesfor2016?
KelvinDushnisky(President):
Well,we'llalignthosewithourÐattheendoftheyear,Greg.Butwe'regoingtocontinueÐonethingisforsure,thefocusongeneratingfreecashflowpershareisreallydrivingthebusinessandyou'rehearingthatthrougheverythingwepresentedthismorning.Sowhenwecomebacktoyouandoutlinenextyearaswedidthisyear,whatourobjectivesare,youcancountonthatasbeingtheÐwhat'sunderpinningeverything.
GregBarnes (Analyst-TDSecurities):
Okay.Thanks.
KelvinDushnisky(President):
ThanksGreg.
Operator :
Thankyou.ThenextquestionisfromStephenWalkerfromRBCCapitalMarkets.Pleasegoahead.
StephenD.Walker (Analyst-RBCDominionSecurities):
Thankyou.Justacoupleofquestions,justwiththefocusthatyouhaveonconvertingresourcestoreservesandgrowingreserves.Iguessitbegsthequestionwhetherwe'regoingtoseePascua-LamaandCerroCasale,they'llbeCortezreservesatyear-end,canyoucommentonthat?
AndalsocommentIguessonthecarryingvalueoftheassets,thegoldassets,inparticular,you'veobviouslyadjustedthecarryingvalueofthecopperassets,butwhetherit'sgoldorcopperassets,whatassumptionsaregoingtobemadeatyear-endasfarasthosecarryingvaluesandwhatwecouldexpectorwhatweshouldstartthinkingaboutascarryingvalueforassetsgoinginto2016?
KelvinDushnisky(President):
Thanks,Stephen.LookI'lltouchonPascua-LamaandCerroCasaleand[inaudible]andperhapsRichardtocommentontheotheraspect.PascuaandCerroCasaleboth,we'llgiveourreserveestimateattheendoftheyear.
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BothprojectsatthispointqualifyandeventhoughtheeconomicsofbothCerroCasaleandPascua-Lamaaren'tsuchthatwegoforthasprojectstoday,wecertainlybelievethere'sÐtherewillbeapointintimeinthefuturewhenwewould.Butasfarasmakingthedecision,we'lldothatwiththeyear-endreservecalculationandreportbackthen.Intermsoftheotheraspect,Basie,doyouwanttostart??
RichardWilliams (COO):
Apologies,Kelvin.Stephencanyourepeatit,itwasverydifficulttohearwhatyousaid,you'reveryfaint,thesecondpartofyourquestion?
StephenD.Walker (Analyst-RBCDominionSecurities):
Sure.Justtheassumptionsthatyouwouldlikelybeusingforthecarryingvalueofthegoldandcopperassets,aretheygoingtochangesignificantlyyear-over-year?Atthisstage,Iknowit'searlyintheprocess,butgiveusasenseonwhatwecouldexpectasfarascarryingvaluesforthegoodwillandthebookvaluesforthegoldassetsinparticular,butalsothecopperassets?
ShaunUsmar (CFO):
Yeah.Steven,it'sShaunhere.Look,weare,asyousay,goingthroughthataswegointoQ4,whichisthenormforus.I'dsay,we'rewelladvancedinnotjustwerevampedourlifeofmineplanningprocess,butwe'refeedingthatthroughintoourmodels.
Andwe'vetalkedonpriorcalls,asyoumayrecall,abouttheworkthatwasdoneaspartoftheassetsalesprices,aroundvaluerealization.We'refactoringthoseintothemodelsaswell.Andso,ontheonehand,wemayseesomechangesinmacroassumptions,butIthinkwewillseesomeoffsetsintheworkthat'sbeendonethisyear.
StephenD.Walker (Analyst-RBCDominionSecurities):
Okay.Thanks,Shaun.Thankyou,Kelvin.
KelvinDushnisky(President):
Thanks,Stephen.
Operator :
Thankyou.ThenextquestionisfromAnitaSonifromCreditSuisse.Pleasegoahead.
AnitaSoni(Analyst-CreditSuisseSecurities(Canada)):
Hi,goodmorning,guys.MyquestioniswithregardstothereductionatVeladero.Couldyouprovidealittlebitmorecoloronhowyouseethattranspiringoverthecourseoftheyearandperhapsintonext?
KelvinDushnisky(President):
Sure.
AnitaSoni(Analyst-CreditSuisseSecurities(Canada)):
Sorry,[inaudible]IthoughtitwasLagunasNorte,sorry.
KelvinDushnisky(President):
Sorry.Matt.
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RichardWilliams (COO):
Forgiveme,Kelvin.IthinkwithrespecttoLagunasNorte,Basie,whydon'tyouhaveaviewonLagunasNortegoingforward?
BasieMaree (CTO):
So,asweknow,LagunasNorteisnearingtheendofitslifeonthecurrentorebody.Hence,theproject,pre-feasibilitystudytolookatthedeepersulfideorebodythere.
Theguysaremovingintoabitofatransitionzonetherebetweentheoxidesandthesulfidesandwe'reforecastingforthenextquartertohavealittlebitmorerefractoryorescanningintotheoperations.TheguysclassifiedwhattheycallM1toM3typematerial.We'reseeingalittlebitmoreoftherefractoryM3scominginwhichlowertherecoveries.
Theyarelookingatoptionalityinthemineplanandthedesigntoseeiftheycanbringabitmoreoxidesforward.Butit'sgoingtobecomedifficultbetweennowandthetransitiontothenewprojectbecauseoftheÐtheorebodyisnearingitsendofitslife.
AnitaSoni(Analyst-CreditSuisseSecurities(Canada)):
Okay.Andjustafollow-upquestionwithregardstocapital.IthinkIcalculatedthatthetotalCapExfromthe$1.7billionfromwhatyouhavepresentedtodatewouldrequireabout$400millioninthefourthquarter.Isthatcorrect?
ShaunUsmar (CFO):
Itsounds,yeah.Yes,it'sslightlymorethanthat.We'vedonealottosortofpreventanybellwethercapitalinthisbusiness,andwithourrevamp[inaudible]planning,we'reseeingthatactuallyabigimprovementthroughthefiveyears.So,we'reprettycomfortablewiththatbutyes,justover$400million,andthat'sbeingconsistentwithourrunrateoverthelastcoupleofquarters.
AnitaSoni(Analyst-CreditSuisseSecurities(Canada)):
Sorry.Isthereanyspecificprojectsorminesthatwillseealittlebitmorespendingthantherestinthefourthquarter?
ShaunUsmar (CFO):
Notreally.We'rejustfinishingoffthestudiesthatwe'vetalkedaboutinthepresentationandmuchofthisissustaininganddevelopmentcapitalinourproforma.
AnitaSoni(Analyst-CreditSuisseSecurities(Canada)):
Allright.Andthenlast,couldyoujusttalkaboutsomeoftheimprovementsthatyou'veseenatLaMona?
KelvinDushnisky(President):
Well,Iguessacouplethings,firstofall,theteam'sworkedveryhardtodrivedowncostsasyoucanseefromthenumbers.It'sbenefitedfromthekwachadevaluationcertainly.Ithinkthekwacha'sdown50%roughlyfortheyear.Andthatrepresentsabout30%ofourcostsatLaMona.So,webenefitedfromthat.Buttheteam'sbeenconsistentacrosstheoperationindrivingdownminingcostsandthey'vedoneaverygoodjobfromyear-over-year.
AnitaSoni(Analyst-CreditSuisseSecurities(Canada)):
CompanyName:BarrickGoldCorpCompanyTicker:ABXSector:BasicMaterialsIndustry:Metals&Mining
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Allright.Thankyouverymuch.
KelvinDushnisky(President):
Thankyou.
Operator :
Thankyou.ThenextquestionisfromDavidHaughtonfromCIBC.Pleasegoahead.
DavidHaughton (Analyst-CIBCWorldMarkets):
Goodmorning,Kelvinandteam.Thankyoufortakingourquestions.Well,thefirstoneI'vegotis,tryingtounderstandalittlebitofaconflictifyoulikebetweenShaun'sslidenineandBasie'sslide20.So,fromShaun'sdiscussionofcostsavingorcashflowsaving,aboutone-thirdofthat'scomingoutofcapital.
AndIthenhavealookatBasie'sslide20,andyou'vegotalotofreallyinterestingopportunitiesthere.SoI'mjustwondering,wherearethoseCapExsavingscomingfrom,andtowhatextentdotheprojectsthatBasie'sbeentalkingaboutgetsacrificedasaconsequence?
KelvinDushnisky(President):
Shaun,doyouwant?
ShaunUsmar (CFO):
David,hi.Look,actuallyaswe'vegonethroughfirstlyrevampingourcapitalallocation,whatwe'vefocusedonthereisnotjusttherobustnessoftheplans,butreallythesequencingofsomeofthesebecausewe'vegotanumberofprojects,whichclearlyexceedourhurdlerateandreallyrepresentlowriskandthosearetheonesthatwe'reprioritizing.
Andyou'llseeinthepresentationtherewasabigemphasisonthe94millionouncesofresourceshere,whichrepresentthebestnear-termgrowthoptionsgiventheskillsetsandwhatwehave.
So,withourlife-of-mineplanning,you'llseethiscomeupintheguidancenextquarter,abigfocusonupgradingthecapabilityandthebenefitsoverareasonableperiodoftime.Andthenthesequencingofthehighreturn,betterÐnear-termandbetterreturnprojectsthatwe'vegot.
I'llmakeonelastpointtothisthough,I'dsaythattherewasalotofparallelspendthatwefoundwhenwestartedimprovingourcapitalallocation.Wereducedtheburnintheareasthatyouwouldexpect,whicharethingsthatwillcomeoffinadifferentpriceenvironmentwillneedwork,butwe'vegotaverystrongfocusonimprovingnotjustourbalancesheetbutobviouslytryingtoreplacethereservesthatwe'redepletingwithmining.SostaytunedforQ4.
DavidHaughton (Analyst-CIBCWorldMarkets):
Okay.It'squiteabalancingact,Icanseethat.
ShaunUsmar (CFO):
Itis.
DavidHaughton (Analyst-CIBCWorldMarkets):
Andbasedonyourcommentsthere,I'mjustwonderingtowhatextentwouldthosecapitalreductionsthrough2016besimplydeferralofexpenditureforprojectsthatdolookpromising?
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ShaunUsmar (CFO):
We'vegotsomedeferrals,butwhatI'mseeinginourlatestrevisedorimprovedlife-of-mineplansisactuallyreimaginingofsomeoftheprojectsthatwe'vegottheretobelesscapitalintenseandhigherreturn.Sothisisn'taboutjustmovingthingsdowntheroad.
Imean,wearehavingtotryandbalancethosealternativesofcontinuingtoimprovethebalancesheet,butobviouslyfocusingongrowthandagain,we'llgivemoreguidanceonthatinQ4.Butweareseeingagoodeffortfromnotjusttheguysattheminesites,buttheprojectteamstoembracethedifferentapproachwe'vegotnow.
DavidHaughton (Analyst-CIBCWorldMarkets):
Okay.ThankyouforinvitingAndyandMattonthecall.IdohaveaquestionforAndy.I'lljuststaywithone,givenwe'vegottimeissues.LookingattheTCMproject,you'dspoken,Andy,abouttheramp-upofboththethroughputandalsotherecoveries.Canyougiveusanideawhatkindoftimelineyou'vegottogetultimatelytothe12,000tonneperdaykindoflimitandwhatyourgoalswouldbeofthoserecoveriesthroughtime?
AndyCole (GeneralManager-Goldstrike):
Thequestionasfarasthroughput,wehopetobenear12,000tonnesperdayveryshortly.AsImentioned,wearecontinuingtoseeimprovedthroughputeverymonth,sohopefully,bytheendoftheyear.
Asfarasrecoveries,David,there'safewsurprisesrelatedtosomeoftheworkcharacteristicsthatwe'reworkingthrough.So,asImentioned,wewillcontinuetoworkonthoseandhopefullyhavethemworkedoutbytheendofthefirsthalf.
DavidHaughton (Analyst-CIBCWorldMarkets):
Myrecollectionwastherewasagoalforittobeinthe80%kindoflevel.Isthatstillatarget?
AndyCole (GeneralManager-Goldstrike):
Yeahandthat'sfair.It'sreallydependentuponthegradefeedingtheplant.Atthispointintime,asImentioned,wehavewiththeflexibilityofhavingtheautoclavesasaviableoptionforprocessing,we'reabletooptimizeourrouting.
So,rightnow,thehighergradeisgoingthroughtheroaster,thelowergradeisgoingthroughtheautoclavefacility.So,wehavethegradeversusrecoverycurves,andsothatthelowergrades,it'sgoingthroughthere.Rightnow,we'reinthe60%s.Ideally,we'dliketoseeitcomeupabithigherthanthat.
DavidHaughton (Analyst-CIBCWorldMarkets):
Andwe'retalkinghereaboutideallyplus3gramkindofmaterial,Ipresume.
AndyCole (GeneralManager-Goldstrike):
Rightnow,we'rerunningintheneighborhoodof1.5grams,somewhereinthatneighborhood.
DavidHaughton (Analyst-CIBCWorldMarkets):
Okay.Allright.Andjustlastquestion.Didyourecordanythroughputinthethirdquarter?Orwasitconsideredpre-commercialthen?
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AndyCole (GeneralManager-Goldstrike):
No,itwas...yeah.
ShaunUsmar (CFO):
David,wedid.Wetransitionedfrompre-commercialtocommercialIthinkitwasinJuly.
DavidHaughton (Analyst-CIBCWorldMarkets):
Okay.Allright.Thankyouverymuchforyourhelp,guys.
AndyCole (GeneralManager-Goldstrike):
Thanks,David.
Operator :
Thankyou.ThenextquestionisfromAndrewKaipfromBMOCapitalMarkets.Pleasegoahead.
AndrewKaip(Analyst-BMOCapitalMarkets):
Hi,goodmorning.Look,I'vegotjustafollow-upquestionwithAndyandtheTCMcircuit.Youindicatedthatproductionforthefourthquarterisgoingtobecomparabletothethirdquarterbutthatcostsweregoingtobeslightlyhigher.
Canyouprovideanyadditionalinformationonwhycostswillescalateslightlyinthefourthquarter?Andthenwilltheslightlyhighercostsbesomethingthatweshouldbelookingatfor2016?
AndyCole (GeneralManager-Goldstrike):
TheslightlyhighercostsareprimarilyrelatedtothefactthatwearebringingTCMonlinefully,andsowe'rereportingonacostofsalesbasis,Andrew.So,thecostsareslightlyhigheratthispointintime.Oncewegettonnagefullyrampedup,we'llexpectthecoststocomebackmoreinline.
AndrewKaip(Analyst-BMOCapitalMarkets):
Okay.No,that'suseful.AndthenjustregardingVeladeroandtheoptimizedpitdesign.You'veoptimizedforgradeoverthenextfouryears.I'mjustwondering,ifwelookoutbeyondthatfour-yeartimeframe.Areweexpectingtheretobeanincreasedstrippingrequirementtogetbackintohighergradesoveraperiodoftime?CanyougiveussomemoreinsightonhowVeladerowilllookbeyondthatfour-yeartimeframe?
AndyCole (GeneralManager-Goldstrike):
Thanks,Andrew.BasiehasbeenaspendingalotoftimewithVeladero.Basie?
BasieMaree (CTO):
Yes,Andrew.Welookattwomineblendshere,whatwecallPit20andPit24.ThemostoptimizedpitdesignforusatthisstageistogowiththereducedlifeofmineforVeladeroattheoptimizedpit,whichmeansthelifeoftheminemightbeshortenedwhenthefinalplanscomeout.Ihavecashflowgoingforwardinthenearterm.
Thereistheopportunitystillforusinthenextplanningcycle,andtheguysarealreadystartingtoworkonthattolookatwhatneedstobedonetogetthatpitstraightbackintoplaceagain.Itwillrequire
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additionalcapitalspendinlateryears,andthat'sthetrade-offstudiestheguysneedtodobetweennowandthenextplanningcycle.
AndrewKaip(Analyst-BMOCapitalMarkets):
Canyougiveusasenseofhowmuchtheminelifeispotentiallyshortened?
BasieMaree (CTO):
Yeah,thosearethestudiestheguysaredoingthetrade-offsonatthemoment.
AndrewKaip(Analyst-BMOCapitalMarkets):
Okay.
BasieMaree (CTO):
Butitwillbetwoorsoyears.
AndrewKaip(Analyst-BMOCapitalMarkets):
Allright.So,thisissomethingthatwe'llexpecttogetmoreinformationfromatyear-end.
BasieMaree (CTO):
Yeah,absolutely.
AndrewKaip(Analyst-BMOCapitalMarkets):
Allright.Thankyouverymuch.
AndyCole (GeneralManager-Goldstrike):
Thanks,Andrew.
Operator :
Thankyou.ThenextquestionisfromJorgeBeristainfromDeutscheBank.Pleasegoahead.
ChrisT erry(Analyst-DeutscheBank):
Hi,guys.It'sactuallyChrisTerryhere.Ihadacoupleofquestions,justrelatingtoslidenineonthecostouttarget.Thanksforgivingsomemoreclarityonthebreakdownofthepiethere.Justwantedtocheckthatthelike-for-likeisdoneposttheassetsalesthatyoucompletedin2015.Imeanobviouslycorporatecostshavecomedownfromsomeofficerestructuresprobablyrelatedtothosedeals,buteverythingelseisdonenowlike-for-like.
Andthen,justfollowingonfromthat,intermsofthegreatjobyou'vedoneatreducingthedebtandnearingthetargetfortheyear,nowthatyouaregeneratingfreecashflow,isitfairtosaythatinto2016wewouldn'texpectanotheraggressivetarget?
You'reprettymuchatalevelwhereyou'renowcomfortablethattheoperationswilldomostofthedeleveragingofthebalancesheetforyou?
KelvinDushnisky(President):
Shaun.
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ShaunUsmar (CFO):
Chris,look,IthinkI'llstartwiththesecondofyourquestions.Andtheshortansweristhat,we'vebeenabletoidentifyimprovementsingeneratingcashnotjustattheoperatinglevelbutobviouslyatthecorporatelevel,andwe'vetriedtocapturethatjustinthesummary.We'veactuallygotinternalplans,whichwe'reat[inaudible]focusingmoreintenselyaswegoforwardonproductivityandefficiency.
AndIexpectfrom2016andbeyond,you'regoingtoseethesesortofverydata-drivenimprovementsatthesitelevelstartingtoseepthrough.RichardandBasiearealreadyspearheadingthisandthatwillbethenextincarnationbecausethereisopportunity.You'veseenthesectorasawhole,Ithinkweseethedeterioratingproductivitiesinafairlylongperiodoftimeandthat'sthenextfrontierwe'dseektoaddress.
Onthefirstquestion,theanswerisyes.We'relookingatthisonalike-for-likebasis.Andultimatelyjustbecauseyou'resellingasset,you'resellingthecashflowwiththataswell.We'refocusingongeneratingcashtocovertheoverheadsinthecoststhatthisbusinesscarries.Sowe'renottryingtogainitbysellinganassetandsellingthecostwiththis.Thisisawindowintotheimprovementsthatwearedrivingwithinthisbusiness.
ChrisT erry(Analyst-DeutscheBank):
Thanksverymuch.
Operator :
Thankyou.ThenextquestionisfromPatrickChidleyfromHSBC.Pleasegoahead.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
Yeah.Goodmorning,everybody.Justacoupleofquestions.First,abitofanexplorationquestionjustonHemlo.You'vepointedoutthatthisisabitofadrillingsuccessstoryamongstÐacrossthewholeportfolio.Canyougiveussomemoredetailonwhat'sbeinggoingonthere,andistheÐwhatkindofintersectionsareyoutalkingabout,andhowclosearetheytothecurrentoperations?
KelvinDushnisky(President):
Patrick,Kelvin.I'mgoingtoaskRobKrcmaroviswithustocommentonthat.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
Thanks.
RobertL.Krcmarov(SVP-GlobalExploration):
Thanks.Hi,Patrick.Asyouknow,wecompletedtheacquisitionofsurfaceandmineralrightsnexttoHemlo,andthatextendsforabout4kilometerstothewestoftheproperty.
AtHemlo,intheDavid-Williamsarea,undergrounddevelopment,stopeminingandvisiblegoldmineralization.TheyextendrightuptotheformerpropertylimitsinwhatwecalltheCzone.Andsowehaveahighlevelofconfidencethatcontinuityandextendingthemineralizationbeyondthepropertyboundarieswasgoingtobethere.
Andmorerecently,we'vereviewedthecoreonthedatathatwe'veacquiredwiththepropertyanditconcernsthepotential.Andreallymostoftheexistingviscosity[inaudible]spacedrillingonthepropertyisbroadlyconsistentwiththosethatwe'veencounteredinareasthatwe'vebeenminingattheWilliams
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portionoftheHemlomine.
Andsoourinitialdrillinghasbeenveryencouraging.AndIthinkthekeypointisthatthemineralizationisveryclosetothedevelopment,anditcanbeminedfairlyshortly.SoIthinkwe'llcontinuetoaddreservesthereformanyyearstocome.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
Right.Soit'ssortofastrikeextensionontoaneighboringproperty.
RobertL.Krcmarov(SVP-GlobalExploration):
That'sright.Andthere'saboutsixotherareaswhereweexpecttoseeextensionsbothunderneaththeBzone,underneaththeCzone,upclosertothesurfaceplentyofpotentialthere.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
Okay.Thanks.Andanywhereelseintheportfoliothatyou'rehighlightingforgeologicalincreasesinreservesite[inaudible]notjusteconomicallydefined,butgeologicallydefined?
RobertL.Krcmarov(SVP-GlobalExploration):
Yep.Sosomeofourkeyexplorationprojects,forexample,startinguparoundthemines.Ithinkmanyofthemreallystillhavegoodpotentialforminingreservesandresourceadditions.
ButifIhadtohighlightsome,intermsoforganicgrowth,we'vegotoptionstoincreasetheproductionfromtheTRshaftandCortezundergroundexpansion.LagunasNortesulfidesthatcouldextendtheminelifebyabout12yearsalbeitatalowerlevelthantoday.We'vealsogotgoodpotentialtoconvertresourcestoreservesinthenextfiveyearsinmanyofouroperatingsites.
Butlookingfurtheraheadandfartherafieldinwhatwecallglobalexploration,Ithinkthere'sstilltremendousupsideelsewhereontheCortezproperty.AndthatincludestheextensionsofhighgrademineralizationandGoldrushandthe[inaudible]projectandthat'sroughlyabout1kilometerto3kilometersfurthernorthofGoldrush.
That'sinageologicalpositionthat'ssomewhatanalogoustothehighgradeDeepPostandDeepStardeposits,whicharenearGoldstrike.Andalso,likeatGoldstrike,adjacenttoanintrusion,someveryrecentwidespaceddrillingintersectedmineralizationwellaboveGoldrush'saverageM&Iresourcegrade.
AndtheninChile,whiledrillingwillresumeanydaynowatAlturasafterthespringthaw.We'velearnedalotatAlturasandwe'llbeapplyingthattoongoingexplorationonbothsidesoftheborder.Ithinkthekeypointtohighlightisthatournon-mineexplorationisreallyseekingtofindbetterdepositsfrombothinourexistingandalreadystrongprojectportfolio.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
Great.Thanks.WellthenthatextensionatGoldrush,isthatclosetotheareawhereyou'replanningtostartthatdecline?
RobertL.Krcmarov(SVP-GlobalExploration):
Itis.Itwouldbeclosertowhat'scurrentlyplannedasthedeclineborder.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
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Okay.So,you'vefoundsimilarmineralizationuptherereally?
RobertL.Krcmarov(SVP-GlobalExploration):
It'sactuallyhighergradethanwhatwe'veencounteredintheaverageM&Igrade.Wedon'treallyknowthisÐifyoupredictdirectlyalongStrikefromGoldrush,itlookslikeitmaybeturningalittlebit.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
Right.Okay.Andthatwasasurpriseorwasthatwassomethingthatyoukindofknewaboutfrompreviousexploration?
RobertL.Krcmarov(SVP-GlobalExploration):
No,itwasasurprise.Thiswasverywidespaceddrilling.Thisisasignificantextension,wellnorthofGoldrushandthedrillingwasspaced200metersapart.So,verywidelyspaced.
PatrickT .J.Chidley(Analyst-HSBCSecuritiesUSA):
Great.Excellent.Thanks,Rob.JustonemorequestionifImayjustonÐtoShaunmaybe.Intermsofyourinventory,obviouslydecreasingyourinventory,canweexpectthattrendtocontinueatsimilarratesorwasthisquarterspecial?
ShaunUsmar (CFO):
I'mreallyhopingwe'llcontinuetoseeimprovementsthroughnextyear,ifnotatsimilarrates,perhapseveninbetter.We'relookingatopportunitiesnotjustatthesitelevel,butImeanthroughout.So,theshortanswerisyes,we'retargetingthisandthereareareasformoreopportunity.
Operator :
Thankyou.Therearenofurtherquestionsatthistime.IwouldliketoturnitbackovertoMr.Dushnisky.
KelvinDushnisky(President):
Thankyou,Patrick,bringingustotheendofthecall.Iwouldliketothankeverybodyforjoiningustoday,andwelookforwardtospeakingtoyouagainwhenwereportouryear-endresults.Thankyouverymuch.
Operator :
Thankyou.Theconferencecallhasnowended.
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