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2018 Annual Report
Mark Bristow
Mark Bristow

Message from the President and Chief Executive Officer

Mark Bristow

In recent history, the gold mining industry has underperformed the gold price because its focus has been on short-term exploitation rather than long-term value creation.

The merger between Barrick and Randgold was conceived to create an industry leader with the means and mindset to counter this trend. My first priority has therefore been to see that we have the people and the structures that are fit for our purpose of creating the world’s most valued gold business — dynamic managers thriving in an enabling environment, equipped with the tools and techniques that will enable them to respond quickly and effectively to opportunities as well as challenges.

Within the first month of the merger, as John Thornton noted in his message, we established strong regional executive teams in each of our three geographical zones: North America, Latin America and Australia Pacific, and Africa and the Middle East. Supporting them is a new corporate team with a mix of skills and experience which I believe is unequalled in this industry. The corporate office and its satellites are being restructured to move people and functions out of the backrooms and into the operations where they belong.

Operationally, mining plans are being shifted from a primarily cash flow-optimization base to a model focused on optimizing the orebody and the margins. To this end, there are now mineral resource management teams at each of the mines. At the same time, all our systems are being upgraded to give managers access to consistent real-time data to facilitate speedy and accurate decision-making.

All in all, at the time of this writing, Barrick is already beginning to take a shape that is in line with my vision of what a modern mining company should look like.

A strong performance, exciting prospects

Turning now to the past year, Barrick delivered its gold production and cost guidance with zero fatalities and reduced injury and environmental incident rates — a significant achievement in a business of its size and in an industry where recent events have highlighted the critical importance of effective safety and environmental management. The annual dividend was increased by 33% on the back of strong cash flows, and total debt was reduced, leaving Barrick with a healthy balance sheet at year-end. Barrick’s debt repayments over the past five years now total $10 billion.

On the new business front, exploration and project development in Nevada and the Dominican Republic produced some really exciting results. Nevada in particular is a gold district with enormous upside through brownfields extensions, new discoveries and synergistic opportunities with other operators in the area.

On March 11, we announced that we had reached an agreement with Newmont Mining Corporation to combine our assets and operations in Nevada in a joint venture which will be 61.5% owned by Barrick and which we will operate.

The agreement represents an historic accord between our two companies that will allow us to unlock the enormous geological potential of the Nevada goldfields. It is expected to deliver an estimated $500 million in average annual pre-tax synergies in the first five full years of the combination, representing a projected total of $4.7 billion in pre-tax net present value over a 20-year period. By operating Nevada as one orebody, we will deliver its full value to both sets of shareholders as well as our stakeholders in the state.

The Nevada joint venture will be operated as a single complex under a new executive general manager, with dedicated managers on-site at each mine and project. Within this complex, Cortez is transitioning from an open pit to an underground operation and from processing predominantly oxide ore to more refractory material from underground. The higher grade, low cost Cortez Hills open pit is scheduled for completion during the current year. Within the Cortez complex, Goldrush and the nearby Fourmile discovery have been combined into a single project under a new management team. The final feasibility study is due next year, but it is already clear that Goldrush-Fourmile is a genuine world-class project with the potential to become Barrick’s next Tier One mine. Still in Nevada, Turquoise Ridge is continuing its production ramp-up and exploration is identifying significant opportunities to drive the cut-off grade down and reduce the cost profile.

Opportunities and Issues

In the Dominican Republic, the Tier One Pueblo Viejo open pit mine is already one of the largest of its kind in the world and still offers a lot of upside. A scoping study and pilot plant have confirmed its expansion prospects and a feasibility study is underway on plans to keep up the current production rate and extend the life of the mine beyond 2035.

In Argentina, Veladero is struggling with internal and external challenges including the currency devaluation and fiscal changes. This has resulted in an impairment of some $300 million. To restore Veladero to its former Tier One status, we have to reinvent the way it has been operated and a team is on-site to get a grip on the situation and find the best way forward. There are some significant potential resources that currently fall outside the current pit which need evaluating and that is the focus of the team.

We are also looking at a new plan for Lagunas Norte, our Peruvian operation, following the suspension of the plan to sell all of Barrick’s assets in that country. This will enable us to decide the future of this business.

Generally speaking, we intend to strengthen our presence in Latin America. As a first step, we have revitalized our exploration programs there and are actively pursuing brownfields and greenfields opportunities across the region. We have also established ourselves in the highly prospective and underexplored Guiana Shield through an increased investment and strategic alliance with Reunion.

The African Endowment

In the merger, Barrick acquired two Tier One assets in Africa: the Loulo-Gounkoto complex in Mali and the Kibali mine in the Democratic Republic of Congo. Both are consistently strong performers, with Kibali last year exceeding its production guidance by a substantial margin. Kibali is the most mechanized mine in the Barrick stable, with a mission control system that manages the underground ore handling logistics without human involvement. The experience we gained there will help drive the development of automated mining across Barrick’s operations.

Brownfields exploration at both operations continues to identify numerous reserve replacement opportunities, while greenfields programs are hunting for another world-class discovery in the extensive and highly prospective landholdings acquired from Randgold.

In Tanzania, Barrick and the government have agreed on a proposal to settle the protracted disputes concerning Acacia Mining’s operations in that country. (Barrick holds a 63.9% interest in the London-listed Acacia but it is independently operated.) The proposal, which is in line with the agreement reached by John Thornton and the Tanzanian president in 2017, must still be approved by Acacia shareholders and the government. Significant amounts of real value have been destroyed by this dispute and once the proposal is accepted, it will allow Acacia to rebuild its mining operations in partnership with its stakeholders.

The Year Ahead

Barrick’s production guidance for 2019 is between 5.1 and 5.6 million ounces of gold and between 375 and 430 million pounds of copper. The higher cost of sales guidance for gold of $880 to $940 per ounce and the all-in sustaining costs guidance of $870 to $920 per ounce is mainly due to the completion of the Cortez Hills open pit. Lower anticipated costs at Turquoise Ridge as well as the contribution of lower-cost production from Loulo-Gounkoto and Kibali partially offset this impact in the 2019 guidance. Higher grades, improved efficiencies and tight cost discipline are expected to reverse the trend within the next two to three years.

Our strategic priorities for 2019 are:

  • Right-size the corporate office and settle the organizational structure.
  • Develop our orebody knowledge, find new opportunities and review existing assets for optimization or disposal.
  • Break down operational silos and simplify processes and systems.
  • Introduce real-time management systems and reporting alignment.
  • Strengthen our social license.
  • Review all JV board structures and agreements.
  • Above all, focus on delivering value for all our stakeholders in everything we do.

Over the next few months I’ll be conducting strategy reviews and team effectiveness exercises at all our operations to ensure that these initiatives are fully implemented. I’m confident that by the end of this year we’ll be able to report that we’ve kept our key promises, and I’m excited by the prospect of putting the Barrick brand back where it belongs — at the head of the gold mining industry.

Mark Bristow
President and Chief Executive Officer

 
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