Barrick in the Australia Pacific: Why gold production is down

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Assets

Barrick Gold Corporation’s (ABX) Australia Pacific unit includes its 95% interest in the Porgera mine, its Cowal mine, and its 50% interest in the Kalgoorlie mine. In its ongoing portfolio optimization efforts, Barrick sold off its other two interests in the Australia Pacific—Yilgarn South and Plutonic—and divested its interest in Kanowna mine.

Australia pacific table

Each mine described

  • Porgera mine – Located in Papua New Guinea, it is a 95%-5% joint venture with the Papua New Guinean government. Barrick’s share of gold production in 2013 was 482,000 ounces at AISC (or all-in sustaining costs) of $1,294 per ounce. As part of the company’s portfolio optimization efforts, the mine plan for Porgera was revised to focus on higher-grade underground areas.
  • Cowal mine – Located in Central New South Wales, Australia, it is an open-pit operation. Cowal produced 297,000 ounces of gold at $746 per ounce in 2013.
  • Kalgoorlie mine – Located in the town of Kalgoorlie, Western Australia, interests in the mine are split 50-50 between Barrick and Newmont Mining Corp (NEM).

Why is production declining?

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The Australia Pacific unit contributed 25% of the company’s production in 2013, or 6890 thousand ounces. That percentage will fall to 18% in 2014. Following asset sales from this division, further decline is expected. Plus, Barrick expects this division’s operational costs will increase from $994 per ounce in 2013 to $1050 per ounce in 2014. The reasons? Increased mining costs at Kalgoorlie and Porgera, due to a mine-plan change—high-grading.

Barrick’s peers, including Newmont Mining Corp (NEM), Freeport-McMoRan Inc (FCX), and Randgold Resources Ltd (GOLD), are also facing increasing costs. As a result, mine-plan changes have been initiated at these companies as well.

The VanEck Vectors Gold Miners ETF (GDX) invests in big gold producers, while the SPDR Gold Trust ETF (GLD) provides exposure to the spot gold prices.

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