Letter from the President
More than two years ago, we began laying the foundation
to return Barrick to a high-performance, partnership culture, characterized by disciplined capital allocation, operational excellence, and continual self-improvement.
We are driving to become a leading twenty-first-century company, continuously infusing Best-in-Class practices across the business, using data to drive innovation, and scouring the globe for the best and brightest talent.
While the journey is ongoing, we are beginning to see positive results. In 2016, our total shareholder return was 117 percent. We outperformed key gold benchmarks, including the Philadelphia Stock Exchange Gold and Silver Index, and the NYSE Arca Exchange Gold BUGS Index.
Our overriding objective is to grow free
cash flow per share—and that is exactly what
we did in 2016. Our goal last year was to generate free cash flow at a gold price of $1,000 per ounce. Not only did we achieve this objective,
we reported the highest annual free cash flow1 in our history. In 2016, our mines generated operating cash flow of $2.64 billion and free
cash flow1 of $1.51 billion. To put that in perspective, in a year that saw an eight percent increase in the gold price, we grew our free
cash flow by 221 percent.
Our focus on operational excellence
helped drive this performance. We continued
to implement our Best-in-Class approach across the portfolio, reducing our cost of sales to
$798 per ounce and our all-in sustaining costs1 by 12 percent to $730 per ounce in 2016. We will continue our push to reduce costs even further as we incorporate new technology and innovation.
Since the start of 2015, we have reduced
our total debt by 39 percent. This includes
$2.04 billion in 2016, in line with our target for the year. We ended the year with approximately $2.4 billion in cash2, and an additional $4.0 billion available on our fully undrawn credit facility. At the end of 2016, our total debt was $7.9 billion, with a modest repayment schedule of less than $200 million2 due before 2019, and about
$5 billion maturing after 2032.
Strengthening our balance sheet will remain a priority. We intend to reduce our debt by an additional $2.9 billion, to $5 billion, by the end of 2018—half of which we are targeting in 2017. We will achieve this by using cash flow from operations, potential asset sales, and creating new joint ventures and partnerships.
As our balance sheet improves, so too does our capacity to take advantage of opportunities to grow our free cash flow per share. As always, we will adhere to our strict capital allocation requirements by pursuing new investments that meet our 15 percent hurdle rate at a gold price
of $1,200 per ounce.
Our portfolio is comprised primarily of long-life, high-quality assets in the Americas, underpinned by our five core mines—Cortez, Goldstrike, Lagunas Norte, Pueblo Viejo, and Veladero. We have begun a process to unify Goldstrike and Cortez into a single operating business known as Barrick Nevada. The integration will be conducted in phases, and will eventually include the Turquoise Ridge mine. This will allow us to fast-track efficiency improvements, accelerate our digital transformation, and
optimize capital spending.
We produced 5.52 million ounces of gold last year, and anticipate production will increase to 5.60–5.90 million ounces4 in 2017. Our five core mines, which are expected to account for approximately 70 percent of 2017 production4, have an average reserve grade of 1.84 grams per tonne5—more than double our peer group average.
In addition to our gold portfolio, we produced 415 million pounds of copper in 2016. In 2017, we are forecasting copper production of 400–450 million pounds4.
At the end of 2016, we had proven and probable gold reserves of 85.9 million ounces5 compared to 91.9 million ounces5 at the end of 2015. This is the largest reserve base in the gold mining industry, comprising a deep project pipeline that offers significant development optionality, gold price leverage and value.
Our exploration work continues to unearth high-grade ounces at our existing operations. At Turquoise Ridge, for example, recent drilling revealed mineralization that exceeds the already exceptionally high-grade mineralization in the site’s existing reserves. We also believe there is strong potential to further expand resources at Goldstrike, and at our Hemlo operation in northern Ontario.
In the medium term, we have a series of projects with the potential to contribute free
cash flow through new, high-quality production. These include the expansion of the Cortez underground, a project known as Deep South, the expansion of Turquoise Ridge, the Lagunas Norte Mine Life Extension project in Peru, and
our Goldrush project in Nevada.
Goldrush continues to advance according to schedule. Located just four miles from Cortez, it contains 9.6 million ounces of measured and indicated gold resources, and 1.9 million ounces of inferred resources5. The deposit, which has the potential to begin first production as early as 2021, is not yet fully defined, and we believe it will continue to grow.
At Lagunas Norte, we are evaluating a sequenced approach to extend the life of the mine by about 10 years by first optimizing the recovery of carbonaceous oxide ore from existing stockpiles, followed by extraction and processing of refractory ores.
We have initiated a prefeasibility study to evaluate an underground mine at Lama on the Argentinean side of the bi-national Pascua-Lama project. The evaluation is being led by George Bee, Senior Vice President, Frontera District. George has more than 30 years of mining experience, including eight years with Barrick in Latin America. He also played a lead role on the team that oversaw the phased development of the Goldstrike mine. We believe that a phased approach, which over time would incorporate ore from the Chilean side of the project, may be the best option to realize the potential of this world-class deposit. Efforts in Chile this year will focus on advancing project concepts in parallel with the Lama study, with the intention of moving to a prefeasibility study in 2018.
Beyond Pascua-Lama, we are evaluating an integrated development strategy for the highly prospective Frontera District, which includes our most recent discovery, Alturas. We added 1.1 million ounces of inferred gold resources5 to the Alturas project last year, bringing the total inferred resource to 6.8 million ounces5. We expect to complete a scoping study for the project in 2017.
Our portfolio also includes 50 percent of the Donlin Gold project in Alaska, one of the largest undeveloped gold deposits in the world. Donlin is now advancing through the permitting process, and we are working with our joint venture partner on strategies to further optimize the project. This includes evaluating alternative development scenarios with the potential to lower capital intensity, as well as incorporating innovation, automation, and other Best-in-Class initiatives to improve overall economics.
At the heart of Barrick’s ongoing evolution
is the renewal of the partnership culture that drove our early success. The values of partnership—trust, transparency, shared responsibility and accountability, and mutual respect—are taking deep root. This cultural shift has allowed us to restore our decentralized operating model, which is functioning just as we hoped it would. It has improved collaboration and communication between head office and our mines, and between the mines themselves, helping us to identify and resolve problems faster, and make better decisions.
We also continue to strengthen our relationships with external partners such as Zijin Mining, Antofagasta Plc, and Ma’aden—our joint venture partners at the Porgera, Zaldívar and Jabal Sayid mines. And we are working to develop new partnerships with the potential to unlock value across the Company.
Last year, we announced a seminal partnership with Cisco to drive the digital transformation of our business. Through this collaboration, we are harnessing digital technology to unlock value, reduce costs, and identify new ways to grow free cash flow per share. This multi-year initiative is being rolled out initially at our Cortez mine in Nevada, and will ultimately encompass all of our operations, as well as our head office.
The first wave of digital projects is well underway. At the Cortez processing plant, for example, we have implemented an advanced process control system to optimize crushing, grinding, and carbon leaching, which will increase gold recoveries and lower operating costs. We are also implementing short-interval control systems in the mine’s underground, deploying sensors and software and improving Internet connectivity to obtain real-time feedback.
Integrating digital technology will also improve our environmental performance. At our Pascua-Lama project, we now publicly share real-time water monitoring data from Chile’s Estrecho River, making us even more transparent and accountable to our host community and government partners. We also recently installed a series of high-definition cameras at our Veladero mine in Argentina to monitor the mine’s heap leach pad and other areas of the operation.
These cameras provide a live feed for the general public on a continual basis.
The next step in this process is to integrate additional digital environmental monitoring and sensing technology at Veladero. These steps come following a challenging period at the mine, including a 2015 release of processing solution from the leach pad, and a two-week suspension in 2016 during which the Company carried out additional remedial work at the leach pad. While we believe we are again beginning to show leadership in this important area, we also recognize that we can and must continue to improve. Everyone at the Company, from the Board and the Executive Committee to our operations, is committed to responsible environmental stewardship. In this regard, we
are making progress. Over the past three years,
we have reduced reportable environmental incidents by more than 75 percent.
In 2017, our operations will be focused on adapting the International Council on Mining and Metals Critical Control Management guidance to our environmental operations. By doing so, we expect to further reduce the environmental impact of our operations.
Nothing is more important than the safety, health and well-being of our employees and their families. In 2016, we met our target for a total recordable injury frequency rate (TRIFR)6 of 0.4 at our mines—the lowest TRIFR in our history. However, this was overshadowed by the death of Meckson Kakompe, a haul truck driver at our Lumwana mine in Zambia. Meckson was killed in a truck fire. He was just 32 and is survived by a wife and five children. Our goal is to send all of our people home safe and healthy every day. That is an expectation, not a target. That we did not meet this goal in 2016 is unacceptable.
Our people are our greatest and most valued asset. They work tirelessly to execute our strategy and realize our vision to generate wealth through responsible mining for the countries and communities where we operate, and for you, our fellow owners. Indeed, last year we created a program to make every Barrick employee—from the millwright to the mine clerk—a Barrick shareholder, with an initial allocation of
25 common shares per person. We expect this to grow over time, in line with the Company’s performance. Hence, our interests are not
only aligned with your interests, they are one
and the same.
On behalf of the Executive Committee, we would like to express our sincere thanks to our people around the globe for their unflagging commitment and dedication. Finally, we would like to thank you, our investors and fellow owners, for your support, confidence, and invaluable feedback.