UPDATE: Barrick Gold Down 2% on TSX After Posting Q2; May Reflect Higher Capital Costs

Barrick Gold Corp. (ABX.TO) is down more than 1% on the TSX despite what appears to be a strong Q2. The decline may reflect higher capital costs for certain projects.

Barrick said reported net earnings for Q2 rose 35% to US$1.2 billion (US$1.16 per share) from US$859 million in the prior year period. Q2 adjusted net earnings increased 36% to a record US$1.1 billion (US$1.12 per share) from US$824 million ($0.84 per share) in Q2 2010, reflecting higher realized gold and copper prices and higher gold sales volumes, resulting in an annualized return on equity of about 21%.

Q2 gold production was 1.98 million ounces at total cash costs of US$445 per ounce and net cash costs of $US338 per ounce. The company said it is on track to meet its 2011 operating guidance of 7.6-8.0 million ounces at total cash costs of US$450 to US$480 per ounce and lower expected net cash costs of US$290 to US$320 per ounce compared to previous guidance of US$340 to US$380 per ounce. Including Lumwana, Barrick expects to produce 455-475 million pounds of copper in 2011 at total cash costs of US$1.55 to US$1.70 per pound.

But Barrick also said at Pueblo Viejo, a major rainfall event that occurred in May requires remediation of the starter tailings dam and new permits for this facility. Primarily as a result of the unanticipated remediation work and impact to the schedule, mine construction capital for the project has increased to US$3.6-$3.8 billion (100% basis) or US$2.2-$2.3 billion (Barrick's 60% share) and first production is now expected to occur in mid-2012 subject to the receipt of these permits. As part of a longer term, optimized power solution for Pueblo Viejo, the company is advancing a plan to build a dual-fueled power plant at an estimated incremental capital cost of about US$0.3 billion (100% basis). The new plant is expected to provide lower cost, long term power to the project.

It added capital costs for Pascua-Lama have been impacted by continued inflationary effects on costs for key consumable inputs and labor, re- estimations of materials such as steel, cement, fuel and equipment and increased expenditures to essentially maintain the schedule to deliver first production in mid-2013. As a result, pre-production capital is now estimated at US$4.7-$5.0 billion.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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