Barrick Gold Corporation

Barrick Gold Corporation - Financial and Strategic Analysis Review

Publication Date: 27-Sep-2011 Reference Code: GDMM27693FSA

Company Snapshot
Key Information
Barrick Gold Corporation, Key Information Web Address www.barrick.com Financial year-end December Number of Employees 16,000 TSE ABX
Source : GlobalData

Company Overview
Barrick Gold Corporation (Barrick) is an international gold mining company. It is engaged in the manufacturing and sale of gold, as well as related activities which includes exploration and mine development. In addition to this, the company also produces a substantial amount of copper, from the Zaldivar mine and holds interests in a nickel development project located in Africa, a copper-gold project in Pakistan and oil and gas properties located in Canada. The company has geographical presence in the North America, South America, Africa and Australia Pacific.

Key Ratios
Barrick Gold Corporation, Key Ratios P/E EV/EBITDA Return on Equity (%) Debt/Equity Operating profit margin (%) Dividend Yield
Note: Above ratios are based on share price as of 27-Oct-2011 Source : GlobalData

13.96.00 12.14 18.64 34.09 46.10 0.01

SWOT Analysis
Barrick Gold Corporation, SWOT Analysis Strengths Weaknesses Improved Financial Performance Strategic Divestiture Strong Reputation Litigations

Share Data
Barrick Gold Corporation, Share Data Price (CAD) as on 27-Oct-2011 EPS (USD) Book value per share (USD) Shares Outstanding (in million)
Source : GlobalData

Opportunities Rising Demand for Gold and Copper Exploration and Drilling Program Strategic Acquisitions

Threats Stringent Environmental Regulations Highly Competitive Market

48.61 3.52 19.50 997

Source : GlobalData

Performance Chart
Barrick Gold Corporation, Performance Chart (2006 2010)

Financial Performance
The company reported revenues of (U.S. Dollars) USD 11,001.00 million during the fiscal year ended December 2010, an increase of 35.21% over 2009. The operating profit of the company was USD 5,072.00 million during the fiscal year 2010, whereas the company reported an operating loss of USD 3,623.00 million during 2009. The net profit of the company was USD 3,630.00 million during the fiscal year 2010, whereas the company reported a net loss of USD 4,274.00 million during 2009.

Source : GlobalData

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Barrick Gold Corporation Barrick Gold Corporation - SWOT Analysis

SWOT Analysis - Overview Barrick Gold Corporation (Barrick) is one of the leading player in the gold industry. It has diversified global operations, strong reserves base and sound reputation, During 2010, it made strategic divestitures and enjoyed improved financial performance. Through its new projects, strategic acquisitions, and ambitious exploration program, it is expected to enjoy the rising demand of gold and copper during 2011. However, its involvement in various litigations could accentuate its exposure to risks involved by its competition and stringent regulations, present in the markets it operates in. Barrick Gold Corporation - Strengths Strength - Improved Financial Performance During 2010, Barrick enjoyed significant improvements in its financial performance over the previous fiscal year. For the year ended 2010, the total revenues rose by 35.21%, from $8,136m in 2009 to $11,001m in 2010, due to rising gold prices and volumes of sales. This led to the growth in operating and net margins to 46.11% and 33% in 2010, from -44.53% and -52.53% in 2009. The operating costs as a % of sales significantly fell from 144.53% in 2009 to 53.90% in 2010. The company enjoyed cash inflows from operating activities amounting to $4,127m, as against the cash used in operating activities at $2,322m in 2009. The company's strong financials indicate its ability to rise to the occasion after a disappointing 2009 performance. This will ensure investors' confidence in the company, and provide a strong foundation for further growth of the company. Strength - Strategic Divestiture Over the past two years 2009-11, Barrick has been involved in the divestiture of certain non-core assets. During 2010, it completed the divestiture of its Osborne copper mine. In February 2011, it agreed to the sale of its 10% interests in the Sedibelo platinum project, to the Bakgatla-Ba-Kgafela Tribe. It is also involved in the sale of long lead items to the Sedibelo to Newshelf 1101 (Proprietary) Limited. It is expected to gain an aggregate value of $65m from these transactions. These divestitures enable the company to focus on its core businesses, and consolidate its interests in the market. Strength - Strong Reputation Barrick is one of the leading players in the gold industry. Through its widespread global operations, it has enjoyed good reputation in the market. It is the only company in the gold industry with 'A' rated balance sheet. During the year 2010, it was added to the Dow Jones Sustainability Index World for the third consecutive year. It was also added to the NASDAQ Global Sustainability Index. It was the first Canadian mining company to join Voluntary Principles on Security and Human Rights in November 2010. A sound reputation enables it to secure external financing, and instil confidence in its investors. Strength - Diversified Geographical Operations Barrick has been focussed on the geographic diversification of its operations since its inception. It has over 26 operating mines and exploration and development projects across five continents. Prior to 1994, it was focussed on the consolidation of gold operating mines across North America. After 1994, it expanded its operations to Tanzania, Chile, Argentina, Pakistan, Peru, Papua New Guinea, Australia, and the Dominican Republic. During 2010, it successfully completed the construction of Cortez Hills mine in Nevada. This led to the addition of 1.1m oz of production during the year. Moreover, it spun off a separate entity, African Barrick Gold, for the management of its African operations, during 2010. The company's global presence enables it to mitigate the risks involved in the operation of a sole segment. It has enjoyed significant market recognition over the past decade, and is likely to grow further through its current projects and expansion plans. Strength - Significant Reserve Base Barrick is one of the leading gold companies with substantial gold and copper reserves. Its operating mines are located in some of the worlds most prospective gold districts in North America, South America, Australia Pacific and Africa. Along with gold, it operates mines containing silver and copper reserves. As of December 31, 2010, the total proved and probable (2P) gold reserves were 139.8m oz. It had measured and indicated gold resources at 76m oz, and inferred gold resources at 37m oz. During the year, it added 9m oz of gold reserves due to the acquisition of additional 25% shareholding in Cerro Casale. Moreover, it has 6.5 billion lbs of copper reserves, 9.1 billion lbs of inferred copper reserves, 13 billion lbs of measured and indicated copper reserves, and 1.1 billion oz of silver reserves contained within gold reserves. Barrick's reserve base grants it a significant competitive edge over its peers, and it has continued to focus on the successful building and replacement of its reserves. Barrick Gold Corporation - Weaknesses Weakness - Litigations During its normal course of business, Barrick has become embroiled in various disputes and litigations. Some of the major disputes are the Cortez Hills Complaint, Marinduque Complaint, Perilla Complaint, Calancan Bay (Philippines) Complaint,

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El Morro Claim, Pakistani Constitutional Litigation, Pueblo Viejo and the Argentine Glacier Legislation. In April 2010, an action was filed in the Dominican Republic, against the subsidiary, PDVC, alleging violations of fundamental rights. The action seeks injunctive relief, and is being contested in the Ninth Criminal Trial Court of Santo Domingo. In September 2010, the Argentine government had enacted the National Law on Minimum Requirements for the Protection of Glaciers. As per this legislation, legal action was taken against several companies including Barrick's subsidiaries in the Veladero and Pascua-Lama provinces. Currently, the constitutionality of legislation is being debated at the National Supreme Court of Justice of Argentina. All these litigations involve a lot of negative press, leading to doubts on the integrity and credibility of the company. Such disputes can hinder the development of Barrick's various projects. Moreover, Barrick can incur significant financial damage through cancellation of its contracts, in the scenario of unfavourable outcomes. Barrick Gold Corporation - Opportunities Opportunity - Rising Demand for Gold and Copper During 2011, the gold and copper prices are expected to reach new heights. According to industry estimates, the gold prices will rise to new levels due to the ongoing sovereign credit crunch in Europe, the US $13 trillion debt, lack of confidence in the dollar, and central banks low real interest rate policies aimed at kick-starting sluggish economies. Moreover, according to industry estimates, the demand for copper may exceed supply in 2011 for the first time in four years, which will provide the company tremendous growth opportunities. The world refined copper market is expected to record a deficit of 500,000 tons to 600,000 tons in 2011. In light of its financial performance in 2010, Barrick can be expected to record considerable growth in production and revenues during 2011. Opportunity - Exploration and Drilling Program Barrick has formulated an ambitious exploration and drilling program for 2011. It has increased its exploration budget by more than 50%, to $370-390 million. This program involves the upgradation of resources at Turquoise Ridge and Cortez properties, and the development of its brownfield projects in the underexplored areas of El Indio and Papua New Guinea. The program is expected to enhance the company's mineral reserves and resources by the end of 2011. Opportunity - Strategic Acquisitions Barrick has its strategic focus on the improvements in its production capacities, through strategic acquisitions. During 2010, it acquired an additional 25% interest in the Cerro Casale Project in Chile from Kinross Gold Corporation. During the first half of 2011, it acquired Equinox Minerals Limited, for a total consideration of CAD 7.3 billion. Through this agreement, it has acquired 5.7 billion lbs of copper reserves in Lumwana and Jabal Sayid, along with inferred copper resources of 5.5 billion lbs. These strategic acquisitions have enhanced Barrick's mineral reserves and resources, which could further lead to the increase in its production. Opportunity - Investment on New Projects Barrick is involved in seven advanced and early stage projects. These projects are being undertaken across different countries around the world. It has two advanced projects: Pueblo Veijo in the Dominican Republic and Pascua-Lama straddling the border of Chile and Argentina. It also has five early-stage projects, Cerro Casale in Chile, Donlin Creek in Alaska, Reko Diq in Pakistan, Jabal Sayid in Saudi Arabia, and Kabanga in Tanzania. The Pueblo Veijo project has been 70% completed with 75% of the capital committed, and is expected to yield first production during mid-2012. At the end of Q2-2011, 90% of the engineering design of the Pascua-Lama project was completed, and is expected to yield first production during mid-2013. During 2010, Barrick increased it shareholding in the Cerro Casale project to 75%. The company has planned exploration programs in collaboration with related parties, during 2011. Through the acquisition of Equinox in 2011, Barrick acquired the Jabal Sayid project, of which nearly 75% of the capital has been invested, and is expected to yield first production of copper in mid-2012. During the second half of 2011, the revision of feasibility studies are expected to be completed for the Donlin Creek project. Regarding the Reko Diq project, the Supreme Court has ruled in favour of the defendants including Barrick. The feasibility study of the Kabanga project is expected to be completed during the second half of 2011, which will lead to the commencement of the approval phase for the project. Such projects are expected to increase the production capacity of the company, and will enable it to access more international markets. Barrick Gold Corporation - Threats Threat - Stringent Environmental Regulations The mining and exploration operations of the company are subject to various government regulations including regulations pertaining to environmental protection. Further, the company also requires government approvals and permits to maintain mining and exploration activities. In September 2010, the Argentine government had enacted the National Law on Minimum Requirements for the Protection of Glaciers. As per this legislation, legal action was taken against several companies including Barrick's subsidiaries in the Veladero and Pascua-Lama provinces. Currently, the constitutionality of legislation is being debated at the National Supreme Court of Justice of Argentina. If the company fails to comply with all these national and international regulations, it may be imposed with hefty fines and penalties, which could have a material impact on the

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profitability of the company. The company may also be denied with new projects, which might hamper its business prospects. Threat - Highly Competitive Market The company operates in gold and copper industry which is highly competitive. It competes in terms of price, product differentiation and quality, delivery reliability, and customer service. To survive and succeed in a stiff competitive environment, it becomes very important for the company to distinguish its product and service offerings through a clear and unique value proposition. The company competes with Kinross Gold Corporation, Goldcorp Inc., New Gold Inc., Agnico-Eagle Mines Ltd., and Yamana Gold Inc. The highly competitive market, changes in market conditions, including customer demand and technological development, may affect the companys competitiveness, sales and profitability.

NOTE: * Sector average represents top companies within the specified sector The above strategic analysis is based on in-house research and reflects the publishers opinion only

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