Barrick looks to cut high-cost mines – by Tim Kiladze (Globe and Mail – August 2, 2013)

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After its second major writedown in just six months, Barrick Gold Corp. is trying to wooing back shaken investors by focusing on assets closer to home.

The world’s largest gold miner announced a hefty $8.7-billion (U.S.) after-tax impairment charge, leaving the company with a second-quarter loss of $8.6-billion.

Barrick also slashed its dividend by 75 per cent as part of its second quarter earnings. In response to the losses, the Toronto-based company plans to shed, suspend or shut high-cost mines and continue to cut costs.

Chief executive officer Jamie Sokalsky said he is considering changes to his lineup of high-cost mines, most of which are in Africa and Australia. On a conference call Thursday, he said is already “well-advanced in a process to sell certain Australian assets.”

The miner will also continue to slash expenses where possible, having already cut or deferred $4-billion in capital spending over the past year, half of which came in the first six months of 2013.

Barrick announced it will now also defer as much as $1.8-billion of capital spending at its Pascua-Lama project in South America, a mountaintop mine in the Andes that straddles Chile and Argentina.

Regaining investors’ trust in any gold plays will not be easy, however.

Mining companies have announced massive writedowns as growth in the United States has diverted gold investors to stocks and other instruments driven by a stronger U.S. economy.

Early on, the writedowns largely stemmed from troubled acquisitions completed two or three years ago. Kinross acquired Red Back Mining for $7.1-billion in 2010 and Barrick bought Equinox Minerals Ltd. for $7.3-billion in 2011. The latest round of writeoffs, however, are largely attributable to a falling gold price.

Bullion is now worth $1,311 per ounce, down from its high of $1,900. At this level, miners must to adjust their cash flow projections and write off profits they expected to cash in over the next few years.

Bracing for another slump, Barrick said it is re-evaluating all of its assets by assuming that gold drops to $1,100 per ounce.

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