Barrick Gold Corporation
Q4 2016 Earnings Call Transcript

Published: 16 Feb 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. This is the conference operator. Welcome to the Barrick Gold 2016 Fourth Quarter and Year-end Results Conference Call. During the presentation, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded and a replay will be available on Barrick's website tonight on February 16, 2017. I would now like to turn the conference over to Kelvin Dushnisky, President. Please go ahead.

[Kelvin Dushnisky:]

Good morning. Thank you for joining us. Before we begin, I'd like to highlight that during this presentation, we'll be making forward-looking statements. This slide includes a summary of the significant risks and factors that could affect Barrick's future performance and our ability to deliver on these forward-looking statements. A copy of our most recent AIF will provide you with a more complete discussion. I'm here today with our Executive Chairman, John Thornton; our Chief Financial Officer, Catherine Raw; our Chief Operating Officer, Richard Williams; our Executive Vice President of Exploration and Growth, Rob Krcmarov; and our Chief Sustainability Officer, Peter Sinclair. Participating on the line are Curtis Cadwell from Cortez District; Bill MacNevin from Goldstrike; Greg Walker from Pueblo Viejo; Jim Whittaker from Lagunas Norte; Jorge Palmes from Veladero; and Henri Gonin from Turquoise Ridge. As usual, our other General Managers and members of the management team will also be available for questions following the formal portion of the call. Now, I'd like to turn the call over to our Executive Chairman, John Thornton for his opening remarks.

[John Lawson Thornton:]

Good morning. As you know, it was part of Barrick's DNA to be intentionally different. We agree with John Templeton's observation that if you want superior performance, you must be different. We also believe that if one understands what makes us distinctive, it will give you insight into our 2016 results and frame why you should have confidence in our future. So here is the essence of what makes us distinctive. First, our partnership culture. You will recall that in 2015 we made our best leaders owners by giving them the opportunity to own a meaningful number of shares as long as they performed at a high standard individually and collectively. And to remind you, these leaders cannot sell their shares until they retire. Last year, we created a program to make all our people owners with shares in the company. As far as we know, this program is the first of its kind. It is the 21st century expression of the partnership ethos that Peter Munk fostered in the company's early years. Today, we are once again a company of owners. Everyone at Barrick is an owner. That fact is in turn producing a true culture of owners. Owners take responsibility, hold each other accountable, work with a sense of urgency, and always seek to improve. Owners are all in. Second, capital allocation. Our overarching goal is to grow free cash flow per share, no matter the price of gold. All prospective investments, whether external acquisitions or internal allocations for exploration, expansion or other projects, compete for capital. They must meet our stated target of a 10% to 15% return on invested capital, through the metal price cycle align with our strategic goals, undergo rigorous risk assessments, and be able to grow our free cash flow per share now and over the long-term. Our leaders at our head office devote the greater part of their time to the allocation of capital and people. We created a new role that we believe is a first in our industry, a Chief Investment Officer. You all will understand very well what a true CIO does. He or she ensures that the same standards, scrutiny and rigor are applied consistently to every potential investment. We appointed Mark Hill to the position. Mark previously led the Evaluations group at Waterton Global Resource Management, a private investment firm with an outstanding track record of capital allocation. Expertise he combines with earlier experience at Barrick. Third, talent and the allocation of talent. When I became Executive Chairman, the first appointment we made was to elevate Darian Rich to the position of Executive Vice President, Talent Management. Talent and the allocation of that talent is the first topic at our weekly executive committee meetings. We are becoming a talent obsessed firm, as all true high-performance organizations are. And we are getting better at allocating it. Over the past year and a half, by example, nearly everyone of our general mine managers has rotated into new roles. We have also created positions that address the demand for the 21st century. In addition to the distinctive role of CIO, we created the role of Senior Vice President for Investor Engagement and Governance and staffed it with Daniel Oh, who has a background in Governance from BlackRock. We are tapping into all sources of talent. We recruit highly skilled military veterans, frequently with a special forces background, young minds from or with a Silicon Valley background and exceptional talent from across the mining industry. For us, it is critical to have the right mix. We like to remind ourselves that without Tom Brady, Bill Belichick is just a smart guy in a sweatshirt and without a world class offensive line, Tom Brady is just an athletic guy, under 1,000 pounds of Atlanta Falcons. Talent, allocating that talent, and fostering a partnership culture to nurture it is everything. Finally, our journey to become a leading 21st Century company through reviving our innovative gene, the gene that will empower us to re-imagine the future. Last year we launched our digital transformation in partnership with Cisco. The world has been changing much faster than the world of mining and we intend not merely to catch up, but to lead it. We will embed digital technology into every fiber of our business, which will allow us to harness the power of transparency and real-time information to capture and create far more value, further growing our free cash flow per share. We mean to redefine mining and ultimately to be one of this century's leading businesses, in any industry and any region of the world. These are the most important ways in which we are intentionally different. They are how we intend to continue delivering superior performance in creating wealth for all owners and for the countries and communities with which we partner. Thank you very much and I will now turn you back to Kelvin.

[Kelvin Dushnisky:]

Thanks, John. 2016 was an exceptional year for the business. At the start of the year, we identified a clear set of priorities and we committed to stay focused on them, just as we did in 2015. Our first priority was to generate free cash flow at a gold price of $1,000 per ounce. In 2016, not only did we achieve that objective, but we generated a record level of annual free cash flow, $1.51 billion to be exact. In a year that saw an 8% increase in the gold price, we increased our free cash flow by 221%. Our focus on operational excellence made this possible. We continued the implementation of our Best-in-Class program across the portfolio, reducing our all-in sustaining cost by 12% to $730 per ounce. Full-year gold production of 5.52 million ounces at the high-end of our guidance range reflected strong operating performance. As John mentioned, we announced a partnership with Cisco to launch Barrick's digital transformation, which is going to drive value across virtually every part of the business. We maintained a sharp focus on capital discipline and strengthened our investment review process with the appointment of our Chief Investment Officer, Mark Hill, as John also indicated. Total CapEx of $1.1 billion in 2016 also came in below our guidance for the year. Our capital allocation goals over the past two years have centered on restoring our balance sheet to withstand gold price volatility and investing to improve the quality of our asset base. Building on the success of 2015, when we reduced our debt by more than $3 billion, we reduced our debt by another $2 billion plus in 2016. This brings our total debt to $7.9 billion, of which less than $200 million is due before 2019, and approximately $5 billion is due after 2032. Reflecting this progress and our confidence in the business, we're increasing returns to our owners through a 50% increase in our quarterly dividend. So to summarize, in 2016, we set clear priorities and we met or exceeded them and the company is on solid footing with good momentum heading into 2017. This slide shows our priorities for this year. The first is to continue to ensure that we generate free cash flow at a gold price of $1,000 per ounce. Second, we'll maintain a hard focus on disciplined investment. Now that we have in-place the necessary system to maintain capital discipline, we will prudently invest capital back into the business. Exploration has been one of Barrick's primary value drivers for a long time. After several years focused on existing core districts, this year, we're increasing our investment in exploration both near-mine and greenfield. As part of this effort, we've intensified our focus on progressing the Frontera District on the El Indio belt, a region that had generated a number of great deposits and mines. In September, we announced the appointment of George Bee as Senior Vice President for the Frontera District. Along with an immediate focus on Pascua-Lama, George will drive our overall strategy to develop our assets in this highly prospective region of the Andes. In addition to progressing the various organic opportunities within our portfolio, we'll continue to evaluate external opportunities to increase the long-term value of the business; through acquisitions, joint ventures and other partnerships. Debt reduction also remains a top priority. By the end of 2018, we intend to reduce our total debt to $5 billion, and we will be halfway there by the end of this year. We'll achieve this through a combination of cash flow from operations, potentially selling non-core assets and creating new joint ventures and partnerships. As well, this year, we'll continue our commitment to operational excellence with our digital transformation, which is being spearheaded at Cortez in Nevada. Cortez will become Barrick's flagship digital mine, embedding digital technology in every dimension of the operation to deliver better, faster and safer mining. Building on the Cortez experience, Cisco, our partner, will support Barrick as we transform our entire business over time, bringing digital technologies to all of our mines, and support functions, as well as to our head office. To take full advantage of the digital transformation at Cortez and more, this year we'll unify our Cortez and Goldstrike operations. Richard will cover this during his remarks. None of our priorities for the year will be possible if we don't have the right talent in the right places. So we will continue our intensive focus on talent development in 2017. We're seeing the highly positive impact of decentralization, empowering the mine general managers in partnership with our executive directors has resulted in improved production and more efficient operations. We're cultivating a high-performance culture defined by commitment to partnership, consistent execution and continuous self-improvement. We will also seek out fresh perspectives from other industries, challenging ourselves to think differently and becoming the natural choice for top talent, strategic partners and long-term investors. Now just before I turn things over to Richard, I want to acknowledge the exceptional efforts of the entire Barrick team in delivering our 2016 results. They reflect the tireless effort of thousands of great people across the company, we're proud of all of them, and we know they're enthusiastic and motivated to continue our upward trend on performance and to deliver strong results again this year. So with that, I'll ask Richard to walk you through our 2016 operational highlights and our three-year guidance.

[Richard J. Williams:]

Thanks, Kelvin. Our first priority as you all know is safety, and although you can see at the bottom left of this chart a considerable improvement in our injury frequency rate, achieving lowest in our history and a 67% improvement since 2009. It is sadly with deep regret that I have to inform you that although not a 2016 result that one of our contract workers in Chile, Williams Miranda was killed on the February 5 while making improvements to the water management system on our Pascua site there. Our thoughts are with his family, particularly his three young children at this deeply sad time. Moving to our second priority, which is to be a flawless and completely transparent custodian of the environment, a nonnegotiable requirement for a 21st Century business. In 2016, we did reduce the number of recordable environmental incidents by 50% compared to the previous year, but we got a lot more to do yet. Digital is going to help us here, and for real advances, I ask you to look into what we're doing in Argentina and you'll hear some of this later. Our third priority is obviously the delivery of physical and financial objectives, the buying back commitment to continually improving the plan rather than just conforming to the plan at the start of the year. The latter, just conforming, is never enough in a capital intensive industry when you seek superior returns from your many changing opportunities and when managing risk in a dynamic way. As you can see, we've delivered superior cash from operations and Catherine will give you more of that later and the most in a single year in the company's history. We achieved this by increasing our operational margin, by relentless delivery of our Best-in-Class process, driving down operating costs and being increasingly efficient with the deployment of capital at every level, including sustaining capital. And this is being driven in the main by our empowered network to better inform entrepreneurial leaders, the guys on the ground working to that continual improvement philosophy, all of which is driving us to a steady-state fashion towards our aspiration of achieving a very sustainable sub $700 all-in sustaining cost by 2019. Also in this chart given that effective and safe mining even in the digital area and perhaps particularly so depends on sound leadership, one of the critical factors that's been highlighted by both Kelvin and John is the active management and development of talent ensuring that the right leaders are in the right place with the right energy and the right incentives to maximize their opportunities. An example of such a change is after an extraordinary successful three year stint as boss of the Cortez business, Matt Gili is now supporting the company as Chief Technical Officer with Basie Maree deploying back into the field into Saudi Arabia to support our joint venture there at the Jabal Sayid JM (16

[Catherine P. Raw:]

Thank you, Richard. So briefly, I'll go through the highlights of the fourth quarter. We delivered earnings per share of $0.36 for the quarter and adjusted earnings per share of $0.22, taking the full year earnings per share to $0.70, a 133% increase from the previous year. Q4 gold production was 1.52 million ounces, our highest quarterly production for the year. Gold cost of sales of $784 an ounce for the quarter and that delivered an AISC of $732 an ounce. Our Q4 copper production was 101 million pounds at a copper cost of sales of $1.45 per pound, and an all-in sustaining cost of $2.04 per pound. Operating cash flow for the quarter came in at $711 million, which delivered free cash flow, defined as operating cash flow less CapEx of $385 million. So for the year as a whole, Barrick generated $2.6 billion of operating cash flow, a 21% increase year-on-year. Subtracting capital expenditures from that number, Barrick delivered $1.5 billion of free cash flow. As this chart illustrates, our focus on the quality of ounce is rather than the quantity, a more disciplined approach to capital and the benefit of rising gold prices has led to a three-fold increase in free cash flow year-on-year, excluding the impact of the PV streaming deal in 2015. So now to go into a bit more detail on how we generated that free cash flow. I'm going to look at this excluding the impact of the PV stream and of divested sites. And so we've tackled this free cash flow generation on a number of fronts. The first of course is the gold price. This is the largest contributor to free cash flow as prices averaged 8% higher year-on-year. This was slightly offset by realized copper prices averaging 3% lower year-on-year. The second was capital, a more disciplined approach as well as lower stripping of Veladero given its difficult year through a combination of permanent savings and deferrals lead to a reduction in 2016 of $327 million. The third was cash cost, operating cost, delivering $251 million in cash flow improvement due to improved sales mix as we get more production especially with the Best-in-Class improvements from our high quality, low cost site; Cortez and Pueblo Viejo, lower fuel and energy prices and the impact in general across our portfolio of the Best-in-Class program and the effect it has on labor, contractor and consumable costs. Volumes after adjusting for the divested sites were up 114,000 ounces year-on-year and interest cost was down year-on-year, the benefit of buying back debt. So all of this was slightly offset by higher working capital, primarily due to higher inventories at Cortez and Veladero and higher income taxes paid. So turning to the balance sheet, we ended the year with $7.9 billion of debt. In the fourth quarter, we paid down just under $0.6 billion of debt to take our total debt reduction to just over $2 billion for the year. This has led to an annualized interest saving of $100 million, which takes the total savings to $235 million over the last two years. Our goal, as Kelvin stated, is to reduce our total debt to $5 billion by the end of 2018, and we intend to do half of that this year. We'll do that through free cash flow generation, through cash on hand and through further asset sales, joint ventures or partnerships. So the result of this debt reduction is going to significantly improve our financial flexibility and allow us to weather future gold price volatility. We now have less than $200 million of debt due before 2019, $2.4 billion in cash and a $4 billion undrawn credit facility. The majority of our debt is due post 2032 and the credit agencies have begun to take notice. Both Moody's and S&P upgraded their outlook in 2016, albeit not the credit rating. So as disclosed in yesterday's press release, we intend to file a shelf prospectus. We should regard this as routine housekeeping and we're doing so to position ourselves with the same flexibility as our peers. So to follow on from Richard's comments on 2017 guidance, we've provided more detail here of our expectations as of now. Just as last year, we will update our guidance if required with each quarter. I also refer you to page 34 of our MD&A. At the current spot price, we expect our tax rate to be around 45%. Our exploration evaluation costs are increasing to $185 million to $225 million. We are increasing our exploration budget as we move into new areas and or progress our pipeline of opportunities. Project expenses are also stepping up in 2017 to $230 million to $270 million, primarily resulting from the Lama prefeasibility study as well as water management costs associated with requirements of the temporary closure plan of the Pascua-Lama. So finally our G&A is expected to increase in 2017, $40 million of the $285 million is stock-based compensation. This is a variable cost dependent on Barrick's performance. If we do well, the share price does well. $45 million related to Acacia and $200 million up from $163 million in 2016 in corporate administration. Now this increase primarily relates to the overhead associated with delivering by digital transformation and the related IT cost to upgrade our infrastructure and ensure our networks are secure. 2017 sees the bulk of this activity and our aim is to rationalize this number over the next three years. With that, I will now hand over to Richard again, to introduce the GMs to discuss their operations.

[Richard J. Williams:]

Thank you very much, Catherine. Okay. As we've been doing up to now, in all of our calls, I'm going to hand you over to the General Managers who again operating as Chief Executive Officers looking long but delivering short and starting with Curtis Cadwell, our Executive General Manager at Cortez.

[Curtis Cadwell:]

Thank you, Richard. Cortez continued to deliver outstanding results in the fourth quarter with production of 310,000 ounces at cost of sales of $846 per ounce, and an all-in sustaining cost of $517. These strong results closed out 2016 with our best quarter, where our Best-in-Class initiatives made tangible production and cost saving contributions. Notably, we saw a 10% increase in underground production and a 20% increase in mill throughput, not coincidentally both of those divisions completed 2016 without a reportable safety or environmental incident. Regarding growth, development of the Range Front Declines continues with advanced rates coming in ahead of plan. The declines are being excavated using road-header technology and will ultimately be fitted with a conveyor system for more efficient ore transportation from the deeper portions of the Cortez Hills Underground. I'll take you through more details for this project on our Operations and Technical Update webcast on February 22. At Goldrush, permits to begin constructing the access declines have been received. Once developed, these declines will be used for underground exploration. Thanks. I'll now hand it over to Bill MacNevin at Goldstrike.

[Bill MacNevin:]

Thanks, Curtis. Q4 was a strong quarter with improvements in operational performance across the site driven by our Best-in-Class programs. 2016 was a remarkable year for Goldstrike along with reducing our cost significantly with both the TCM circuit performance in line with our expectations. In 2017, our focus continues to be on operational excellence in conjunction with our Best-in-Class program. We expect 2017 production to be lower than 2016 at 910,000 ounces to 950,000 ounces and higher all-in sustaining cost of $910 per ounce to $980 per ounce. Due to higher sustaining capital expenditures for talent expansions and the underground sustaining projects to enable us to mine deeper. Thank you. And now I'll hand over to Greg Walker at Pueblo Viejo.

[Greg Walker:]

Thank you, Bill. Pueblo Viejo finished the year strongly with an excellent fourth quarter, producing 189,000 ounces at an all-in sustaining cost of $443 an ounce. As part of our Best-in-Class program, the optimization projects continued to contribute to the improved operational performance at Pueblo Viejo. With increased availability in our primary mining fleet, gold recovery up 4% from 87% to 91% and increased autoclave throughput up 4%, all contributing to an excellent year. Silver recoveries, in particular, continued to improve, up from 67% in the third quarter to 79% in quarter four. This is well up on the 53% we had in the first half of 2016. During quarter four, we finalized an agreement with the government of the Dominican Republic through the Ministry of Mines and Energy to rehabilitate their historical heated tailing stand facility. This work commenced in November. In addition to realizing improved throughput and recovery in quarter four, our business improvement programs continued to drive value creation in all operational areas. This has allowed us to reduce the impact of lower head grade in 2017 and set our guidance range at 625,000 ounces to 650,000 ounces at an all-in sustaining cost of $530 per ounce to $560 per ounce. Thank you. I'll now hand over to Jorge Palmes at Veladero.

[Jorge Palmes:]

Thanks, Greg. At Veladero, 2016 was a very challenging year. In Q2, severe winter-related resulted in 42 days of lost production. In Q3, production was impacted by the two weeks suspension of an operation due to environmental incident quickly followed by a recovery action plan in Q4. We previously completed a series of remedial works to prevent such an incident from occurring again, including the deployment of unmanned aerial vehicles for remote sensing. Looking forward, our digital transformation initiative at the Barrick's first integrated Remote Operations Centre will help us drive high returns. For 2017, we expect increased production of 770,000 ounces to 830,000 ounces at all-in sustaining cost of $840 per ounce to $940 per ounce. And with that, I'll now hand it over to Jim Whittaker at Lagunas Norte.

[James Whittaker:]

Thanks, Jorge. 2016 was a great year at Lagunas Norte. Production was in line with our expectation. Note that 2016 all-in sustaining cost was below guidance and the mine is generating significant cash. There has been a marked improvement in health, safety and environment along with strengthening relations with our unions and nearby communities. 2017 guidance shows slightly lower production due to material depletion in the mine and we expect the all-in sustaining cost to be in the range of $560 per ounce to $620 per ounce. We continue to develop improvement projects and exploration options to bridge the gap to the refractory ore mine life extension project. I will update you on these projects on the February 22 Operations and Technical Update webcast. Thanks. I'll now hand it over to Henri Gonin, General Manager at Turquoise Ridge.

[Henri Gonin:]

Thanks, Jim. Production for the fourth quarter was higher than expectations, contributing to a record breaking production here at Turquoise Ridge. Higher production levels facilitated in driving our operating cost down and therefore allowing Turquoise Ridge to increase its free cash flow contribution. Improvements were realized through improved asset management practices and mine engineering to take advantage of the larger ore geometry. Several operational improvements, initiatives have increased efficiency and mining intensity. The forecast for 2017 is set at 260,000 to 280,000 ounces on a 75% basis and that's an improvement over 2016, at an all-in sustaining cost of $650 per ounce to $730 per ounce. The focus for 2017 will remain on productivity increases, completing optimization studies on the North zone and continuing to advance the third shaft project. Thanks. And I'll now hand it back to Richard.

[Richard J. Williams:]

Thanks, Henri. I'll briefly touch here on our copper operations. Copper production for 2016 decreased 96 million pounds, or 19% compared to 2015 due to lower production contribution from Zaldívar following the divestment of 50% of our ownership there. Excluding the impact of this divestiture, copper production increased by 7 million ounces, primarily related to the achievement of commercial production at Jabal Sayid. And we announced the Jabal Sayid mine reaching commercial production halfway through 2016, and it continues to perform in line with expectations, now led by Barrick. For 2017, we've increased our production guidance as we ramp up our production there. And with that briefly, I'll pass over to Rob to take you through our 2017exploration strategy and 2016 reserves and resources update.

[Robert L. Krcmarov:]

Thanks, Richard. When you think about delivering organic value, you should think about a strategy that spans the spectrum from short to long-term horizons. So to be a truly best-in-class team, that requires technical depth and execution skills in multiple disciplines; for grassroots exploration, to adding ounces post acquisition, near mine exploration, and an ability to form strong collaborative partnerships. I think we've accomplished all of it, and we'll continue to do so. While I'm going to go into all of these points on our Operations and Technical Update webcast, today I'll take the time to highlight two of them, and that's our continued value generation around Alturas and our partnerships. I'll also briefly go into reserves and resources noting that Rick Sims is on the line as well for any detailed questions on the subject. While Alturas is a current example of value delivery, we don't stop and rest. We continue to see upside in the district as the recent high-grade results demonstrate. These are north of the very high grades intersected in 2016 and further extend the potential high-grade envelope. I'll also note that these results are not included in the most recent 2016 resource figures for Alturas and could have a positive impact on the overall project economics. It's early days, but we are excited and see potential to expand to the north and south. Most recently, we've partnered with Osisko Mining to explore a part of the Labrador Trough in Québec. We think it's an area that's been under appreciated for gold potential and for the next two years, we'll be leveraging off of Osisko's reconnaissance expertise in this region. The Osisko team as you know, has impeccable exploration credentials, having successfully discovered Éléonore in the James Bay region of Québec under André Gaumond's leadership as well as the most recent discovery of Windfall Lake. And as you can see on the slide, we have a large land position and the early-stage results are extremely encouraging. Ultimately, we're thrilled with the prospect of this new initiative to Barrick, could yield not one, but multiple high grade modest CapEx discoveries. Barrick manages the industry's largest inventory of gold reserves and resources with a strong track record of adding reserves and resources at our operations through exploration and acquisitions. Although our reserves declined again in 2016, about 60% of our production was replaced by new reserves through drilling and cost improvement at our operating sites. This is evidence of our overall focus on enhancing mineral resource management to create the best short-term and the long-term value from our mines, which again is a reflection of our emphasis on producing profitable ounces. Other than production depletion, the single largest factor was due to a reduction in reserves from Pascua-Lama and that was due to a modified pit design. I should also note that if the Lama prefeasibility study concludes that a phased underground development option, meets our risk and financial criteria and is a more compelling investment proposition than the permitted bi-national open pit plan, we would expect to recapitalize reserves and resources at Pascua-Lama to reflect an underground mine plant and that would likely result in a reduction to current reserves and resources at this project. We increased our resource price assumptions to $1,500 per ounce to show us where to place our focus when the gold price increases. Measured and indicated resource increases were mainly due to the higher resource gold price. Meanwhile, we're managing a quality pipeline as high grade M&I resource addition tied directly to reserve. The increase of our inferred resource reflects our commitment to continue extract value from existing operations, approximately 5.2 million ounces were added through drilling, including 2.4 million ounces at Veladero, 1.3 million ounces at Hemlo and 1.3 million ounces at Alturas. These ounces provide a solid reserve replacement platform having sufficient grades to move directly to reserve with in field (40

[Peter Sinclair:]

Thanks, Rob. You heard today how we're transforming our business. What's also evolving is the way we think about sustainability. In 2016, we created a new sustainability vision to better reflect Barrick's culture and value. This vision naturally centers around the partnership culture that John referred to earlier. This culture starts inside our business, in the way we, as owners, treat each other, take responsibility and always seek to improve. And it naturally extends our relationships with our host communities, governments and others. We know from firsthand experience that when we get these relationships right, success follows. And by that, I mean a safer, more efficient workplace, fewer environmental incidents and stronger support from local communities. Our digital transformation is instrumental in realizing our new sustainability vision. Let me give you two concrete examples. Publicly sharing real-time water quality data at our Pascua-Lama project, helps build trust by giving local communities immediate assurance that we are protecting their precious water resource. Real-time digital tracking of our energy use at Pueblo Viejo helps improve efficiency, drives down costs, and helps us reduce greenhouse gas emission, an important pillar in the climate change strategy we're developing to use this year. These and other initiatives improve the way we share information, drive fact-based decisions and transform our commitment to transparency into action. Lastly, reflecting on our 2016 performance, I'm delighted that Barrick is included in the Dow Jones Sustainability World Index for the ninth straight year, a real tribute to our people throughout the company. And with that, I'll hand it back over to Kelvin.

[Kelvin Dushnisky:]

Thanks, Peter. To summarize, we're pleased with our performance for the year and we fully expect to carry this momentum into 2017. We hope that you'll join us for our Operations and Technical Update webcast on February 22, where we can spend more time discussing our operations, projects and digital transformation. So, thank you and now we'd like to open the call for any questions.

[Operator:]

We will now begin the question-and-answer session. The first question comes from Andrew Quail with Goldman Sachs. Please go ahead.

[Andrew Quail:]

Yeah. Morning, everybody. Thanks very much for the update. Congratulations on another very strong quarter. My question is mainly about that growth or the projects. You obviously provided a nice update overnight. I suppose looking at your guidance for CapEx, which is encouraging, you guys are talking about expansionary CapEx in 2017, 2018 and 2019, as your sustaining comes down. Is that – if you don't do any of these projects, does that go to zero, or can you give us a bit more of an idea about the order that you guys are looking at these projects now versus last year's Investor Day in February?

[Kelvin Dushnisky:]

Thanks, Andrew. I'll turn that over to Richard to respond to.

[Richard J. Williams:]

Sure. Thanks, Andrew. Just to remind you of the order, the Turquoise Ridge investments is really continuing from now and through the 2019. Lagunas Norte, again, investment continues say that, we can actually see the production advantage of that from 2020. Goldrush, again starting to be able to deliver, again, production from 2021 and in terms of the Cortez investment, again, through to 2022. So with respect to the schedule of investments that's kind of where we are, which is as briefed. In terms of the quantum of the investments, just like we've been driving sustaining capital down, the same process is being worked on in terms of those particular capital investments, and you will – you should expect those numbers to change over time.

[Andrew Quail:]

So we can get – I'm assuming an update hopefully this year about these approvals of these projects and therefore we can sort of add them to our models post 2021?

[Richard J. Williams:]

Yeah, absolutely, Andrew. Again, we've allocated quite a lot of time for this on the February 22 Technical Update. And again, not wanting to consume too much time on your answer here, I very much look forward to discussing this again with you at that moment.

[Andrew Quail:]

Great. Thanks very much.

[Kelvin Dushnisky:]

Thanks, Andrew.

[Operator:]

The next question is from Mike Jalonen with Bank of America. Please go ahead.

[Michael Jalonen:]

Thanks. Hi, Kelvin, and everyone and Mr. Chairman. Just a question – two questions. First, your debt reduction target of $1.5 billion this year, I get it probably about $1 billion of free cash flow, which is obviously very impressive. I guess the balance to come from asset sales, but Barrick hasn't sold an asset, well correct me if I am wrong, in about a year, and there has been some press on Super Pit possibly being sold, but the buyer doesn't have any – doesn't have the money. So just wondering about that. And then, secondly, on permitting following on Andrew's point, with the new Trump administration and all the talk about what they may do to the EPA, is that good news for your permitting of the U.S. projects?

[Kelvin Dushnisky:]

Thanks, Mike. Look, I think I can deal with both those. First in terms of KCGM, you're correct, started the process in the second quarter of last year. We're in advanced discussions with a proposed buyer. We can't really comment beyond that point, again as we've always indicated, if we get a price, we think is right, (46

[Michael Jalonen:]

Okay. Well, thank you.

[Richard J. Williams:]

You're welcome.

[Operator:]

The next question is from Andrew Kaip with BMO. Please go ahead.

[Andrew Kaip:]

Hi. Good morning, gentlemen, and congratulations on a strong finish to 2016. I have a couple of questions. First, Richard, I understand the desire to consolidate Goldstrike and Cortez into single operating unit, and the synergies that can be derived from that. I guess the question I have is, from an analyst perspective, are we going to lose any visibility on those two operations or will you still be providing the level of detail on a operation by operation basis?

[Richard J. Williams:]

On that, you're going to actually get more detail I suspect over time. Our intention is to ensure as we brief the consolidated business unit, remember we'll eventually go through to Turquoise Ridge. Given our insights delivered by this digital program as well, we're absolutely going to provide you what you're used to now and some advantage. So, I'd be reassured on that one.

[Catherine P. Raw:]

And just to clarify, we will provide consolidated numbers, so we will report all-in sustaining cost, et cetera from a consolidated basis. But what we would hope to do is give you the insights and transparency into how those numbers were achieved within the MD&A.

[Andrew Kaip:]

Thank you very much. With regard to Lagunas Norte, I noticed that reserves increased. And can you just confirm that that increase is largely attributed to sulfide reserves being added to the reserve statement for Lagunas?

[Kelvin Dushnisky:]

Yeah. Andrew, Jim Whittaker is on the line. Jim, do you want to respond?

[James Whittaker:]

Yeah. Sure. Thanks, Kelvin. Andrew, how is it going? Basically the situation at Lagunas Norte, to keep the answer very short, we had a lot of material that was once treated as waste because of the high carbon content and this was stockpiled in the mine, is generally an oxide material with some sulfide. What we've done, we've been looking at a way to either dry or wet separate that material, and what happens is it gives us some leverage to heap leach more oxide material in the coming years, which is why you see this immediate bump in reserves and resources. And it also, the finer fraction of that material will also be available for feed into the future PMR project. I'll go over this more in detail on the 22nd on the Technical Update.

[Andrew Kaip:]

So you have added oxide, leachable oxide reserves, can you give us a sense of that split between the finer fraction and what you might put on a heap leach or are we going to have to wait for the 22nd?

[Richard J. Williams:]

Well, right now, we're looking at about a 60-40 split between oxides and sulfides and fine sulfide, but that's – I mean, we're at a design stage – at a feasibility design stage. We still have to check some of the numbers, but I mean we tried to base some of our economics on that split.

[Andrew Kaip:]

Okay. That's great. Thanks. And then just finally, can you provide a little more clarity on Pueblo Viejo and the agreement to rehabilitate the historic tailings facility. I guess what I'm trying to understand is, you're constrained by tailings capacity at Pueblo Viejo and with this move, is there the capacity to increase your tailings capacity?

[Kelvin Dushnisky:]

Thanks. Andrew, you broke up. We got the question. Greg, can you respond please?

[Greg Walker:]

Yeah. No problem. The simple answer is no. The rehabilitation of the historical tailings facility will not give us capacity. What we're doing there is that, geotechnically the existing tailings facility is not up to the standard that we would expect and we're going into the – it's a government tailings facility. We're going in and strengthening the berms and cleaning out the area generally. So it's a rehabilitation issue and a closure issue, it's not going to give us any capacity for tailing storage.

[Andrew Kaip:]

And then, how is the permitting process for additional tailings storage capacity going at PV?

[Greg Walker:]

At this point, we're not in permitting. We've just finished our scoping study in that issue and we'll be having more discussion on the February 22 in more detail. But that project continues, but as I said, we just finished scoping and we're moving towards doing some more test work and some more understanding and moving towards prefeasibility in the second-half of this year.

[Andrew Kaip:]

Okay. Thank you.

[Kelvin Dushnisky:]

Thanks, Andrew.

[Operator:]

The next question is from David Haughton with CIBC. Please go ahead.

[David Haughton:]

Good morning, John, Kelvin and team. Thank you very much for the update. The first question could be to Richard if you don't mind. You mentioned, Richard the potential for as much as $100 per ounce saving with the consolidation in Nevada. Just wondering what kind of high level ideas you've got as to where that saving could be sourced from?

[Richard J. Williams:]

Yeah. Thanks, David. The first thing is, life of mine planning. Pulling together a consolidated group under Bill MacNevin to look at all the opportunities in Cortez and Goldstrike is, it may not sound like a radical step forward, but is actually getting the team down there ownership of the long plan that is going to yield some, as I said, advantages in both cost and in capital investment. So that's the first area. Second area is, although our Best-in-Class process as you know has been pretty relentless and it's driven on a week-by-week, month-by-month basis, there have been inconsistencies in its delivery between Cortez and Goldstrike in different areas. And delivering a consistent effect, particularly in the underground between both of those mines is also going to yield pretty rapid advantage. And then the third, with respect to the digital investment, again, it's early in terms of where we are right now. But we are looking to be able to deliver a 20% reduction in unit costs in the underground as a result of that digital investment. But I say that very early on because we're obviously in the trial phase of that in Cortez, but once – and we're very confident about where it's going to go, once that's been delivered, we roll it out very rapidly to Goldstrike and that would, of course, with operating costs deliver that advantage. So, it's all three of those things coming together under a single team motivated to do it that's going to allow it, David. So that's the answer.

[David Haughton:]

And just on that last point there Richard, the 20% saving underground, would that include things like smart ventilation, remote mining, et cetera?

[Richard J. Williams:]

I think it will include, over time it will include all of that, David. I mean, in terms of our digital program, the first thing we're focused on in the underground is the classic short interval control to know where everything is to be able to manage shift-by-shift and intra-shift much more effectively the flow of people and material and ore. That in itself is increasing throughput remarkably. If we then move forward from that increased investment in automation plus everything else you've outlined there, electrification and more, you then really start getting into some significant moves down the cost curve. So the first instance is gaining control of things through insight and then thereafter is building upon automation and elsewhere. Again, very successful elsewhere in the mining industry and then itself not radical, but something we're going to execute very quickly.

[David Haughton:]

The second key question I have got some observation on the all-in sustaining cost going through each of the operations. There are only two operations in 2017 expected to have lower all-in sustaining cost than 2016 and that's Cortez and Acacia. And just wondering whether that's a reflection of some deferrals of sustaining CapEx rolling out of 2016 into 2017 or whether there is some one-off lumpy items in this year that would taper off through time?

[Richard J. Williams:]

It's always a bit of both actually. And again, some of the lumpy items that we've had to do obviously as Bill outlined is stripping in Goldstrike, getting ourselves dewatering done, so we can go deeper in Goldstrike and the tailings expansion that just came to fruition at this moment in the life of mine plan, so it's there. But, again, sort of repeating the point as of last year, we're expecting these capital plans to be improved over time. They're not static. And although our initial (56

[Catherine P. Raw:]

And David, I will just highlight that if you look at our CapEx guidance for 2017 versus last year, you'll see that our CapEx guidance has actually gone down. So you haven't seen the impact of deferrals in 2016 to 2017 impact our overall CapEx as we have seen scope change and as we become more efficient. The other thing I would highlight is, there is a capital increase from Veladero because we weren't able to do a lot of the stripping that we had planned in 2016 and we've now had to move that to 2017. So just to reassure you, this isn't us just pushing capital from one year to the next.

[David Haughton:]

Thank you, Richard and Catherine. Looking forward to hearing more next week.

[Richard J. Williams:]

Thanks, David.

[Operator:]

Next question is from Greg Barnes with TD Securities. Please go, ahead.

[Greg Barnes:]

Thank you. Just want to go back to PV, Pueblo Viejo. I believe the agreement you had with the government back in 2013 came to an end of 2016 regarding the 50-50 split of cash flows between the mine and the government. What happens now?

[Kelvin Dushnisky:]

Greg?

[Greg Barnes:]

Yeah.

[Kelvin Dushnisky:]

Sorry. Greg Walker, please.

[Greg Walker:]

Sorry. Off-hand, I don't have an answer to that question. I'll have to follow that up, sorry.

[Catherine P. Raw:]

I can answer that question which is, part of what you're talking about is the minimum tax. It was for three years and it's being renegotiated as we speak. So we'll update you when we get the results of that, but our expectation is that we would effectively review that for another three years. But the exact stance are being negotiated as we speak.

[Greg Barnes:]

So would the 50-50 split more or less continue then?

[Catherine P. Raw:]

We'll have to get back to you, but effectively the tax rate is split between an income tax and a net profit interest that gets you to that roughly 50%. The exact number will be based upon the model and will be based upon a negotiation with the government. So I would use that for the moment, but we will update you when we get that result, probably with our next quarterly results.

[Greg Barnes:]

Okay. Thank you. Just a second question too. The Lama project, just trying to get some sense of what exactly you're targeting underground in terms of the size of the ore body or the scope, tons grade, what is that you're chasing there with the bulk mining method?

[Richard J. Williams:]

Okay. I'm just going to give a (59

[Catherine P. Raw:]

I just want to add that with this deadline, it's not an external gauge. So, we hope to finish that for internal review by August and we will update the market accordingly, but do not put that in your specific expectations from a press release on that. Thank you.

[Greg Barnes:]

Okay. Thank you.

[Kelvin Dushnisky:]

Thanks, Greg. I think we've time for one more question.

[Operator:]

The next question comes from Anita Soni with Credit Suisse. Please go ahead.

[Anita Soni:]

Hi. Good morning, guys, and congratulations on a good result. I – my questions mostly have been asked, so just wanted to get a little bit more color on Pascua and the reserve impact that you would have going to an underground. Could you give an idea of how much reduction with the rest of the ounces moved to resources at that time?

[Richard J. Williams:]

Thanks for your question, Anita. It's too early to say, we basically completed the scoping study, we're working towards the prefeasibility study. So, right now, it's a fairly – it's quite a moving target. We hope to pin that down later on this year.

[Kelvin Dushnisky:]

We will be able to speak more to that as well next week, Anita, during the update as well.

[Anita Soni:]

Thank you.

[Operator:]

This concludes the time allocated for the question-and-answer session. I would like to turn the conference back over to Kelvin Dushnisky. Please go ahead.

[Kelvin Dushnisky:]

Thank you, operator. And thank you everybody, who has dialed-in today. We apologize for the length of the presentation, didn't leave enough time for questions, we were a little time constrained. But for those of you who can join us, we look forward to speaking with you more next week on our Operations and Technical Update webcast. So thank you very much again.

[Operator:]

This concludes today's conference call. Should you have additional questions, please contact the Barrick Investor Relations Department. You may now disconnect your lines. Thank you for participating and have a pleasant day.