Barrick Gold Corporation
Q4 2014 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold Q4 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded on February 19, 2015. I will now turn the conference over to Amy Schwalm, Vice President-Investor Relations. Please go ahead.
  • Amy Schwalm:
    Thank you, operator and good morning everyone. Before we begin, I would like to point out that we will be making forward-looking statements during the course of this presentation. For a complete discussion of the risks, uncertainties and factors which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statements, please refer to our latest year-end report or our most recent AIF filing. With that, I'd like to turn it over to our Co-President, Kelvin Dushnisky.
  • Kelvin Dushnisky:
    Thank you, Amy and good morning to everyone on the call. Thank you for joining us. I’m here today with our Chairman, John Thornton; Jim Gowans, Co-President; Shaun Usmar, Senior Executive Vice President and CFO, as well as other members of the management team who will be available to answer your questions at the end of the call. As you can see from the agenda, we've a lot to cover this morning. First, John will make some opening remarks then Jim and I will take you through our results, our three year outlook and how we intend to begin restoring a strong balance sheet. Then we will review some exciting growth opportunities we have in the Americas and end with an update on our reserves and resources as well as our outlook for exploration. So without further delay, let me turn it over to our Chairman, John Thornton.
  • John Thornton:
    Thank you, Kelvin and good morning everyone. Thank you for joining us. I'm going to speak briefly probably around five minutes and I hope succinctly about essentially three topics. The first is how we are thinking about Barrick today and going forward. The second is the vital topic of capital allocation and the third is the topic of talent management. You may have been reading that we've been talking a lot about Barrick going back to the future. So let me explain what we mean by that. Our thesis is that when companies faultier, it's usually because they have forgotten their original DNA that is to say what it is that made them distinctive and gave them their purpose and their values and made them successful. We believe the only way to recapture that is to consciously go back to the future and understand who we were? What made us distinctive? What gave us our purpose and our values and reinterpret that with the 21st century. And so we're determined to return Barrick to the model and mindset that enabled it grow from a tiny start-up to the leading gold company in the world in 20 years. So what is Barrick’s core DNA? The Company's purpose is the generation of wealth through responsible mining, wealth for our owners, wealth for our people and wealth for the countries and communities with which we partner. This purpose in turn contains within it our core value, partnership. In Barrick's early years Peter Munk led a small team of exceptional people who work together as a team. They knew each other imminently, they trusted each other unreservedly and the shared responsibility and accountability for the Company's success and its setbacks. Their personal wealth was tied to the Company's fortunes so they had every incentive to work together as efficiently and effectively as possible. The head office limited its role to the allocation of capital, money and people, everything else they delegated to the people who ran the mines. The people who ran the mines were free from the needless constraints of bureaucracy and middle management and as a result they could run their businesses to generate maximum free cash flow. The head office could then focus on taking that cash and reinvesting it to generate maximum value per share for the Company's owners. It is this model that accounts for Barrick's early success and it is this model that we're returning. We have reduced our head office by almost 50% and we've eliminated all management layers between Toronto and our mines. Free from bureaucracy and middle management our operational leaders are now focused on maximizing free cash flow per share and the head office is focused on allocating that cash flow to maximize shareholder returns on a per share basis. As mentioned earlier, capital allocation is one of the central functions of the leaders of the Company, so let me tell you how we are thinking about it. First and foremost our focus is gold. We have no plans to diversify into other metals and we have no plans to add to our existing copper position. Going forward we’ll focus our investments in our core regions, this means high quality, long life assets in attractive jurisdictions. We expect our portfolio to deliver a 10% to 15% return on invested capital through the metal price cycle and as such any individual project we will look at and assess it against our hurdle rate of 15%. We will defer, cancel or sell projects that cannot achieve this target. Of course we recognize that achieving our target hurdle rates will require relentless outstanding execution. As such we will be applying far more rigor to ensure that we meet our cost and schedule commitments. And we will conduct post-investment reviews to evaluate how we’ve lived up to our original investment promises, using what we learn to improve execution on future projects. When it comes to investing in our existing mines to sustain or expand them we will not spread our capital evenly across the portfolio. Our operations must compete for it and we are not going to subsidize loss makers. In addition we are not going to invest in a high return project at a mine that is otherwise failing to meet overall expectations for returns on invested capital or one that does not align with our strategic focus. Assets that are unable to achieve a 10% to 15% return on invested capital will be sold and in the fullness of time investments in new projects will compete with acquisitions and share buybacks. The second critical area of focus for our leaders is talent management. Successful enterprises as we all know are obsessive about talent. We too are obsessed. We are putting greater emphasis on attracting and developing the industry’s best talent that is why we elevated our human resources function from what was essentially a staff support role to a central place in our executive team with the promotion of Darian Rich to Executive Vice President for Talent Management. Over the last six months we’ve attracted 12 new leaders to Barrick who personify the Company’s original values and bring vital skills and experience that support our business objectives, such as strengthening the balance sheet, fixing Pascua-Lama, improving efficiency and productivity and building partnerships in China and various other jurisdictions. This includes senior leader such as Kevin Thomson, our Senior Executive Vice President for Strategic Matters and Shaun Usmar, our Senior Executive Vice President and CFO, and it also includes top talent in critical operational roles including Sergio Fuentes, our new Executive Director for Pascua-Lama and Melanie Miller, our new Vice President for Supply Chain. We are making sure that we have the most capable and reliable people in key roles. We are clearly communicating our expectations to our leaders and we are providing them with continues feedback. We reward high performers and we address non-performance. We are also returning the Company to the model where our leaders are owners. This in my mind is not best understood as aligning the interest of senior management those are shareholders rather the goal is for our leaders to be owners. We are and will assuming they earn it significantly increase senior management’s ownership interest in the Company such the interest of management and the interest of owners, are one and the same. Last we year announced the innovative partnership plan and today we are extending that plan to 35 leaders in the Company from mine managers and country directors to our head office. Each year these people will be graded on their collective performance as measured against a transparent long-term score card disclosed to shareholders in advance, a significant portion of their total compensation if earned will be long-term in nature awarded in units that convert into Barrick common shares which cannot be sold until an individual retires or leaves the Company. In summary, our objective is to grow cash flow per share, to do that we will carefully allocate our two most precious resources capital and people. Capital will go only to high quality assets in the right places that are capable of delivering on our expected rates of return over the course of the metal price cycle. This will get Barrick’s flywheel turning again by producing level of cash flow required to reinvest in growth and buybacks when appropriate and also provide a reliable dividend. We will only get this done if we have the best people and we have put them in positions where they can act intelligently and quickly without encumbrances. We will be rigorously evaluating and developing all to ensure we have the right people in the right places to get the most from our assets and new investments. Our best people will be owners, thanks to our partnership structure and overtime that will grow to be a significant part of the network fully aligning incentives to go cash flow per share. That is the Barrick we are working tirelessly to build and we recognize we are only at the beginning of this journey. The initiatives we are outlining today are foundational in many ways the real work begins now but we see enormous inherent value locked up in this Company and we are determined to realize that potential for our owners. And with that I will turn the call back over to Kelvin.
  • Kelvin Dushnisky:
    Thank you, John. Now let’s take a look at how we performed in 2014. Above all we were sharply focused on maximizing free cash flow and returns through disciplined capital allocation and operational excellence. We took some critical steps last year which have positioned the Company to deliver in 2015 and beyond. First and most importantly, we returned to the lean decentralized operating model and partnership culture that originally made Barrick successful. This enables our mine and country managers to focus on optimizing their operations and growing free cash flow and we've already seen solid progress in this regard. We recognize that innovation plays a key role in unlocking the cash generating potential of our assets and realizing their full value. In 2014 we successfully brought our new thiosulfate processing technology or TCM online and began accelerating cash flow at full strength. The 2014 was the best safety year in our Company's history which reflects our commitment to safe and responsible mining. We were also named the mining industry leader by the Dow Jones sustainability world index and we're very proud of all of our colleagues across the company for achieving that great recognition. To restore our balance sheet to a position of strength is a top priority for us and we finished the year with strong liquidity, which allows us to tackle our debt in a disciplined manner. Our current level of debt is higher than we'd like and we intend to reduce it significantly in 2015, I'll go into more detail on this later in the presentation. As part of the return to our original partnership culture as John alluded to, we elevated the importance of talent management. Barrick has always been known for its deep bench strength across all areas of the Company and that is something we intend to maintain. Externally we entered into a joint venture agreement with Ma'aden, the Saudi Arabian state mining company to advance the Jabal Sayid project which is expected to begin shipping copper in early 2016. We remain focused on high potential assets in the best regions and already have an excellent base. 60% of 2014 production was from our five core mines in the Americas at very low all-in sustaining cost of $716 per ounce. Now let’s look at our results in a little more detail. As you can see we had a great operating year, I won't take you through every number but let me hit the highlights. We met our gold production guidance and all-in sustaining cost and C1 copper cost both came in below the low-end of their respective guidance ranges. We delivered just below our copper production guidance due to a late year minor equipment issue at Zaldivar which has since been resolved. Operating cash flow for the year was $2.3 billion and we expect to generate positive free cash flow in 2015 at current gold prices. At $2.2 billion CapEx came in at the low-end of the range and we're pleased to show a further drop with this year's guidance. Earnings per share for the year was $0.68 following adjustments for after-tax impairment charges of $3.4 billion related mainly to the Cerro Casale project as it did not adequately achieve our goal to improve the project economics and for Lumwana following the new 20% gross royalty rate in Zambia and in light of current copper prices which are at five year lows. Last night I returned from Zambia after a very candid and constructive meeting with the newly elected President and he administers finance and mines. I'm encouraged by the progress we made but there is no definitive solution yet. We agreed to work expeditiously to arrive at mutually acceptable outcome that would allow Lumwana to remain in operation. That is our hope but if we cannot reach an acceptable solution as we indicated earlier, we will commence suspension in March and we would expect to be fully wrapped down to a state of care and maintenance by June of this year. And we would only resume mining when we're comfortable that the metal price environment and taxation regime will sustain profitable operations. As I mentioned, 2014 all-in sustaining cost beat our guidance at $864 per ounce. Costs have declined by 15% from $1,014 per ounce in 2012. Our 2014 all-in sustaining cost were about $116 per ounce below the peer average and $400 per ounce below the average spot gold price last year. This is a reflection of the success of ongoing efforts to reduce cost across the company. Now let's turn to our outlook for the next three years. In 2015 we expect annual gold production from our current portfolio to be between 6.2 million and 6.6 million ounces and to remain above 6 million ounces in 2016 and 2017. We anticipate 2015 all-in sustaining cost to be in the range of $860 to $895 per ounce which should make us the lowest cost senior producer again this year. Looking out to 2017, our costs are expected to decline even below 2015 levels. We expect to produce between 310 million and 314 million pounds of copper this year at C1 cash cost in the range of $1.75 to $2 per pound. This outlook assumes the Lumwana suspension. Looking to 2015 and beyond, we have set clear goals and guidelines to maximize free cash flow and deliver superior returns. We have implemented a lean, decentralized operating model and eliminated all management layers between Toronto and the mines. We now have a small head office which is focused on defining strategy and allocating capital. As a result, we expect to realize $30 million of G&A savings in 2015 joined to $70 million in annualized savings starting in 2016. We intend to reduce our net debt this year by at least $3 billion through a combination of positive free cash flow, disciplined non-core asset sales, joint ventures and strategic partnerships. Our capital allocation approach will ensure that all new investments aligned with our strategic focus and maximized free cash flow and shareholder returns throughout the metal price cycle as John described. We expect our portfolio to deliver at 10% to 15% return on invested capital through price cycles as such new projects will be assessed against the high-end of the range at a hurdle rate of 15%. Existing mines will also have to compete for capital those that are unable to meet our capital allocation objectives overtime will be sold. This year we are also taking steps to improve the efficiency of our procurement and supply chain practices which will free up working capital by reducing inventories. We also expect to generate additional cash flow over the next year to improve the integration of site maintenance programs and our global procurement and logistic system. Jim will speak more to this in a few minutes. We are extending our innovative partnership plan initially with 35 leaders across the company. The plan fosters an emotional and financial investment in the business, our leaders become owners. We remain focused on operating the best assets in regions that are core to us and pursuing disciplined new growth in these areas. Similar to 2014 60% of our 2015 production will be generated from our five core mines in the Americas. And their average expected all-in sustaining costs of $725 to $775 per ounce this year are significantly below average industry costs and current gold prices. In 2015 we are prioritizing growth opportunities at or near existing operations in Nevada and we plan to complete four pre-feasibility studies by the end of this year. Jim will provide more details on this later as well. No priority is more important to us than restoring a strong balance sheet. Our debt reduction levers include; one, maximizing free cash flow to the lean, decentralized operating model with more efficient capital spending, lower G&A, and profitable growth; two, disciplined non-core asset sales, starting with Porgera and Cowal mine, we recognize this is a challenging market sell assets but we’ve had a number of strong unsolicited expressions of interest and we expect that to continue; and three, entering into joint ventures and strategic partnerships if and where they make sense. We will only complete transactions on terms we consider favorable to shareholders. We do not have to sell any asset if the price is not right. As we consider asset sales we will take into account certain aspects in addition to price. For example, if we sold Porgera and Cowal only the KCGM joint venture would remain in the Australia Pacific region and our partner is the operator. Selling these assets would allow us to further reduce regional G&A and overhead costs and free up more time for management to focus on our core suite of assets. As we indicated earlier we are very comfortable with our strong liquidity position which allows us to tackle debt reduction in a disciplined way. At the end of 2014 we had $2.7 billion of cash and an additional $4 billion available on our fully undrawn credit facility. And as the chart also shows our debt repayment schedule is modest with less than $1 billion due through 2017. As John discussed our early success was underpinned by a partnership culture and a simple but powerful operating model. We are returning to this successful formula. This will enable our mine mangers and country managers to focus on continually improving their operations to maximize free cash flow across the business. The head office can then focus on allocating these profits to maximize shareholder returns. As part of this transformation we’ve reduced our head office by close to half, from 260 positions in 2014 to 140 positions in 2015. These reductions are expected to drive material savings as shown on the next slide. As I mentioned earlier we expect to realize $30 million in G&A and overhead savings in 2015 increasing to $70 million in annualized savings in 2016. We’ve eliminated all management layers between head office and the mines what remains are shared services in the field that provide direct support to our mines and projects. These costs are no longer reported as G&A, they are allocated directly to the relevant operation as operating costs. This incentivizes mangers to use only the services they truly need. If there are services that are not required they will be eliminated which should drive further savings. Now let’s look at our high quality core mines and the additional opportunities we see in them. These five operations in the Americas provide us with an unparallel platform to generate returns for our shareholders. They’re arguably the most attractive assets in the entire gold industry generating strong operating cash flow even in today’s gold price environment while operating exceptional leverage to higher gold prices. We have the right people and exceptional mine managers at these sites which is integral to their success. And as well run as they are each of them still has substantial opportunity for improvement which Jim will discuss shortly. These mines produce 60% of our total gold production at an all-in sustaining cost of just $716 per ounce in 2014. Their strong performance continues to position Barrick extremely well in terms of both cost and production. As this slide indicates, they underpin our low cost base and these five core mines alone produced almost 4 million ounces of gold in 2014. Turning now to our reserves, as the chart shows, our average reserve grade for 2014 was 1.37 grams per tonne. This is significantly higher than the senior producer average of 0.9 grams per tonne. Looking at just our core mines, they have an even stronger average grade profile of 2 grams per tonne more than double the senior producer average. Now let me turn it over to Jim to discuss some of the exciting opportunities we have to extend the mine life and improve returns of our core assets. Jim?
  • Jim Gowans:
    Thanks Kelvin, good morning. So Kelvin has just talked about the superior quality of our portfolio driven by our core mines in the Americas and these mines keep on giving. We have identified a number of tremendous opportunities at these assets where we can improve the economics and extend the mine lives. And we're underway on executing on a number of these opportunities let me take you through a few of them. At Cortez, we will be completing a free feasibility study later this year on the deeper of the Cortez Hills Lower Zone. I'll go into this detail in a moment. At Goldstrike, we produced first gold from the thiosulfate circuits in November of last year. The TCM process as we refer to it is a very innovative and preparatory technology that doesn't use cyanide. It significantly improves the economics of Goldstrike because it allows us to bring about 4 million ounces forward in the mine plan and speaking to our team there this week, the recoveries are aligning with our expectations and the new circuit has met our production and cost expectations since it started up. Our ramp up will continue. At Goldstrike satellite deposit South Arturo initial development will be on the higher grade portion at modest CapEx of approximately $35 million, it will produce about 400,000 ounces in total on 100% basis, just as this initial phase in 2015 to 2017. At Pueblo Viejo, we are looking at increasing plant throughput by optimizing our ore blending and autoclave availability. We also have good potential to reduce cost by improving maintenance programs there. Longer term at PV there are significant reserves and resources that could potentially extend the mine’s life. At Lagunas Norte, we evaluating a plant to significantly extend its life by mining the refractory ore below the current oxide ore body, we looked at this potential a few years ago concluding that it was uneconomic at higher gold prices than today even. However, this new project contemplates a significantly reduced pit to mine only the higher grades and require less initial capital and only needs a smaller and more simple plant which would leverage onsite infrastructure. This is not currently reflected in our resources for Lagunas so we would see it as upside. And finally at Veladero we are working to reduce cost by improving the efficiency and effectiveness of our inventory management and maintenance systems and improving productivity and equipment availability and utilization. Beyond these opportunities, we've exciting potential at or near existing plants at Nevada in fact we will complete four pre-feasibility studies on projects in Nevada by the end of this year. These projects represent an attractive pipeline. There is strong potential for us to upgrade a significant portion of their resources to reserves over the next two years. We expect some to begin contributing new production within the next 5 to 6 years. We have one pre-feasibility study already completed the Turquoise Ridge, which I will discuss next and I look forward to updating you on the rest throughout the year as they come through. Turquoise Ridge is one of our most exciting opportunities. Production is currently limited by haulage and ventilation constraints. We have completed a pre-feasibility study on installing an additional shaft which could bring forward more than 1 million ounces of production, doubling output to an average of 500,000 ounces per year at an all-in sustaining cost of about $625 to $675 an ounce. But I would consider it is the makings of a core mine in a great region. Preliminary estimates indicate that CapEx could be approximately $300 million to $325 million and an attractive payback period of 2.5 years assuming a gold price of $1,300 per ounce. We expect permit approval by the third quarter of this year and pending a go ahead decision by our joint venture partners construction would begin as early as Q4 of this year with initial production in 2019. Turquoise Ridge's reserves grades of 17 grams per tonne are considerably higher than the average grade of our portfolio and notably that of our peers as illustrated in this slide. Drilling at the northern extension of the deposit continues to exceed expectations and is confirming that the ore body is larger than previously known even with higher grades. 2014 drilling added about 400,000 ounces to the north zone resources a 10% increase from the prior year. In 2015 we plan to add to the extensions drilled in 2014 and test the limits of the north zone even further north and at depth. And for those of you who know some of the asset’s history, our advanced ground support technology and improved reinforcement techniques have in fact mitigated the ground stability issues that have challenged the previous mining operation at this site, in fact Turquoise Ridge 2014 won our safety award for the safest small mine in our organization, so congratulations to them. At Goldrush which in my view is one of the most exciting discoveries in the last decade. We expect to share pre-feasibility findings in our third quarter results. Infill drilling in 2014 continued to demonstrate high-grade continuity. Nearly 70% of the overall resource now sits in the measured and indicated category. This has increased our confidence in the continuity of the mineralization here. An appropriate application for twin exploration declines was submitted in Q2 of last year. This will allow us to further define and identify the northern limits of this known deposit. Over Cortez pre-feasibility study for expanded underground mining just below the existing permitted levels will be completed in late 2015. Drilling indicates that this zone is primarily oxide and higher grade compared to the areas of underground mining. This should benefit processing costs. What I’m most excited about is this, the limits of the lower zone have yet not been defined and drilling suggests a potential for new targets and depths like the renegade zone and even deeper strategic stratigraphic horizons. There is also good potential to the south and we have extended the exploration drift. This allows for additional step out drilling which should begin in June. Drill results to-date include 36.6 meters at 31 grams per tonne and 27.4 meters at 20.9 grams per tonne, both oxide in nature which compares favorably with the average grade of 13.8 grams per tonne in the refractory ore above the 800 foot level. Over in the west in Spring Valley which is 70% owned by Barrick and located about 75 miles west to Cortez, is a low capital cost heap-leach project with excellent potential to become another standalone mine in Nevada. We expect the pre-feasibility study for this project to be completed in late 2015. In addition to these near mine opportunities we have a number of world’s greatest or largest undeveloped gold deposits, this includes Pascua-Lama of course. The mine has a potential to generate significant free cash flow over 25 plus year mine life, but make no mistake we are well aware of its unique challenges and have acknowledged the issues that have led to its suspension. The question before us now is whether economics going forward would justify resuming its development. To that end we recently hired a new Project Executive Director, Sergio Fuentes. Sergio reports directly to Kelvin and I. He has nearly 30 years of experience managing complex construction projects in Chile, including those at high-altitudes. While the mine remains on care and maintenance he and the local team are working to address outstanding legal and regulatory issues in Chile as expeditiously as possible and are completing a robust new execution plan to optimize remaining construction activities. If the plan aligns with our objectives and has a minimum ROIC of 15% we will evaluate moving forward but not before. In any scenario we must permit and construct a new water management system in Chile. We will submit our application for a new system by June with permitting to take about two years. In the meantime we are working to minimize the cost of holding this asset. I will wrap up with a brief discussion on the reserves and exploration focus. We recently reported 2014 reserves of 93 million ounces with an average reserve grade of 1.37 grams per tonne. As you can see from this slide, the quantity and quality of our reserves comfortably exceed that of our senior peers. Approximately 65% of the reduction in reserves from 104 million ounces at the end of 2013 was due to the ounces mined and processed in the last year 2014, plus a balance largely reflecting asset sales. We continue to use conservative gold price assumptions of $1,100 an ounce unchanged from 2013. While this may well be below our gold price outlook and current spot prices, it reflects our emphasis on pursuing profitable ounces. Our pursuit will be focused on our best regions. Regions that are proven gold rich districts where we have a competitive advantage through our experience and expertise, as well as established partnerships with governments and communities and where there is existing infrastructure, supplier relationships and all the key components that help build a critical mass. These are Nevada and the Andean regions, about 85% of our budget is allocated to the Americas and about half of the budget will be directed to Nevada. Thank you, I'll now turn over to Kelvin for closing remarks.
  • Kelvin Dushnisky:
    Thank you, Jim. To conclude, we'd like to leave you three key messages. First, looking to the future, our assets continue to perform exceptionally well, we've a highly attractive project pipeline in Nevada, which aligns with our regional focus and has excellent potential to meet or exceed our target rate of return on invested capital. Second, we're serious about significantly reducing our debt in 2015. And our strong liquidity position means that we can do this in a disciplined way. And finally we're well on our way to returning to the simple and powerful model that made Barrick successful in the past. Lean, nimble, decentralized and committed to maximizing free cash flow and generating superior returns for our shareholders. We look forward to updating you on our progress throughout the year. Before I finish I want to take this opportunity to acknowledge the departure of Ammar Al-Joundi, Ammar has made significant contributions to Barrick over the years and we all wish him lots of success in his future endeavors. With that, I'd like to turn it over to Q&A. Operator, may we have the first question please.
  • Operator:
    Certainly. [Operator Instructions] Your first question is from Andrew Quail of Goldman Sachs. Please go ahead.
  • Andrew Quail:
    Just have one question, a range for this statement it says nothing about some potential acquisitions and I think that last year there was obviously some noise around a company forming or company transforming potential transaction, I just wondering where does that sort of sit now, is there any sort of horizon where that makes sense and can you give some color maybe John, on what you are thinking about moving back to the Americas and maybe now even looking at acquisitions outside in the Asia or even African regions?
  • Kelvin Dushnisky:
    It’s Kelvin, maybe I can answer that. I think first and foremost, as we've indicated our driving priority is fixing the balance sheet and so as we indicated that's going to be priority one and we're going to be laser focused on that. And obviously to do that we're going to be driving free cash flow from the operations and continuing to focus in that respect so in terms of transformational acquisitions at this point that's really not an area of focus.
  • Andrew Quail:
    And so can you go just -- do you think that or do you believe there are synergies in Nevada if there was anything like that or can more comment?
  • Kelvin Dushnisky:
    Well, we're focusing, we couldn't be more laser focused than on our operations in Nevada and our project pipeline, of course the pre-feasibility studies being done this year with great growth with our portfolio in Nevada so we just see Nevada as core to us on a going forward basis and that's certainly going to continue.
  • Operator:
    Thank you. The following question is from Stephen Walker of RBC Capital Markets. Please go ahead.
  • Stephen Walker:
    Just a couple of questions, first of all, a little bit of outlook for the balance sheet. Debt to total capital now is about 50% if the $3 billion is applied to the debt to total capital by year-end it will be 40% to 44% in that range. I guess the question is, is there a longer term goal that you have in the debt to total capital or in a ratio with respect to the balance sheet and then is it safe to assume that the $1.7 billion that comes to maturity in '15 to 2018 will be paid down with cash on the balance sheet?
  • Kelvin Dushnisky:
    I think to start as we indicated before, net debt of $7 billion is certainly a target that we're aiming for and are comfortable with. So let me ask Shaun if he wants to comment any further in terms of the remaining question.
  • Shaun Usmar:
    Look I think to directly to the question, our focus is on getting the runs on the board and we have come out with a very clear statement of intent on the $3 billion with obviously the focus I'm trying to move beyond that. It's important for us to maintain our investment grade rating on our debt and directly to the second question yes, the intention would be to continue to focus on our existing portfolio in order to satisfy debt requirements and to do smart transactions along the way as we clearly outlined in this call.
  • Stephen Walker:
    And just if I may by the way of follow-up, talking about sale of assets obviously Cowal and Porgera relatively low cost and relatively high cost assets respectively. You mentioned that there have been a lot of unsolicited enquiries about some of the other assets within the portfolio, my question is when you look at Acacia, your holding there and you look at other assets such as Zaldivar and some of the non-North American assets, what you consider sort of core and non-core and to what extent could you be looking at other asset sales whether it’s copper asset sales or the precious metals outside of the core regions in North America that have been indentified, what assets could potentially be considered for liquidation or sale or…?
  • Kelvin Dushnisky:
    Okay Steve Kelvin again. Look that’s a quite question you touched on a number of points Steve, look first and foremost as we’ve always said nothing is sacred, we look at the entire portfolio, having said that the five core assets that we’ve already spoke about as Jim said Turquoise looks like it’s about to become a core asset. Then others in the portfolio you touched on Acacia and Zaldivar, let me start with Acacia. We’ve been very clear and John has mentioned this a number of times as well that we’re extremely happy with the way the management team is continuing to perform and we’re seeing that in the Acacia share price. We think there is more value to be unlocked in Acacia and so at this point we’re very pleased to continue to hold it, the questions asked, I mean could it be a point in the future when you’d consider divesting of course you never-say-never but at this point we’re really pleased with what we’re seeing and we think there is just more room to go. Zaldivar you asked, I mean Zaldivar is copper but it’s also in a core region it’s a fantastic asset and so I always said before there is nothing that is off the table, for assets like Zaldivar there those are the ones that you have to look at they are very hard to replace and therefore we place a very high premium on them. And otherwise as you look across the portfolio we spend a lot of time Jim and his team in particular looking at each of the assets and indentifying where we can unlock further value from them. We’ve already been putting those measures in place and so it’s put us in a position to really understand the assets well as we move toward considering them for sale. So nothing is off the table but we definitely will not be selling anything that doesn’t fulfill value and because of our strong liquidity position we’re in a fortunate position that way we can be disciplined.
  • Operator:
    Thank you. The following question is from Greg Barnes of TD Securities. Please go ahead.
  • Greg Barnes:
    Shaun and Kelvin, I just want to gauge how committed you are to the net $2 billion debt reduction in a $1,200 gold price scenario like we are now and free cash flow I think trying to do would be 1,300 and selling the assets like Cowal and Porgera and possibly Acacia would still leave you with a bit of a gap on their numbers, would you issue equity during the year to make sure you hit that $3 billion net debt reduction target?
  • Kelvin Dushnisky:
    Greg, it’s Kelvin. Look, we just think that the other three levers that we mentioned one of which you touched on the free cash flow as well as the asset sales, possible joint ventures and partnerships those are really the three areas we’re going to be focused on and we’re confident that we can achieve our 3 billion target with that. Equity is something that would be a very kind of distant force lever and it’s not something that we’re focusing on right now.
  • Shaun Usmar:
    Greg, I just want to add to that I mean Kelvin’s referenced it earlier there is a significant effort underway with Jim’s technical teams in particular to look at that intrinsic value of these assets and I think that is really where we’re focusing our time, effort and energy right now. We’re not focusing on the easy options we’re looking at all the levers. So, now the operations are a key component to that but as you have heard with John’s opening statements we’re looking at a G&A costs in every aspect in our portfolio that we can derive efficiency and cash generation from. So that’s the focus on this management team at this time.
  • Greg Barnes:
    And just to follow-up on that point Shaun, how do you think production evolves beyond 2017 with the sale of Cowal and Porgera you are down to a little over 5 million ounces? But you do have organic projects do you think you can sustain a 5 million ounce production level beyond 2017 through to the early 2020?
  • Shaun Usmar:
    Look Greg, I think the first comment I’d have on that is whereas the plan we’ve provide typically a year of guidance we thought to provide this additional vendor which we think is important for the market also to demonstrate that there is additional production particularly in our core regions and we are focused on that and that’s part of the work that Jim and his team are doing. As I mentioned earlier the teams that, we have these technical teams that are going around all finding additional value which we seek to try and catch within these mine plans and that’s what is ongoing and we will continue in the early part of this period. So I think certainly what we’re seeing there are certainly growth options which represent relatively low capital additions within this business. But we are focusing also on the portfolio as a whole and it’s going to be less about ounces and more about value.
  • Kelvin Dushnisky:
    Greg, just as to finish on that I think Shaun hit the nail at the end the real focus unlike the past is going to be on quality of ounces not quantity and there is a little bit of cash flow per share that will be regardless.
  • Operator:
    Thank you. The following question is from Tony Lesiak of Canaccord Genuity. Please go ahead.
  • Tony Lesiak:
    A question on sustaining capital, based on the guidance you’re running about 250 an ounce this year well above historical averages, where do you see sustaining capital trending over the next few years?
  • Kelvin Dushnisky:
    Jim or Shaun?
  • Jim Gowans:
    I’ll start with that and then Shaun could pick in. What I looking at right now is that we'd be running pretty flat on that obviously it's going to make some differences as we get into some of the additional shaft to Turquoise Ridge and a couple of other expansions of pads but it will be pretty flat or improving.
  • Tony Lesiak:
    And that would be sustaining because I'd assume the Turquoise Ridge shaft that would be expansionary?
  • Jim Gowans:
    It is part of the capital that goes into the Turquoise Ridge sustaining in terms of the development of the ore zones.
  • Tony Lesiak:
    And timing for the new Pascua execution plan?
  • Kelvin Dushnisky:
    I think that it's Kelvin Tony so as indicated we've hired Sergio Fuentes, who is the new Senior Project Manager, very top caliber talent, 30 years of experience developing operate projects in the Andean. So what he has been focusing on since he started late last year is two things. One, China continue to minimize holding costs on the asset and number two, he starting to put together his optimization plan which will include a schedule. Based on current discussions we're looking at probably something internally early next year I will have numbers that form a math but candidly the next time we come up with a number on Pascua-Lama to the market we want it to be extremely well baked, completely scrubbed and it will have an execution plan, if we decided to go forward with the project this will be one where we have kind of returned to how Barrick used to build projects on time and on budget.
  • Tony Lesiak:
    And finally on Lumwana, based on the new reserves, where do you see free cash breakeven, assuming you can get the old royalty taxation regime back and given current oil prices?
  • Kelvin Dushnisky:
    At Lumwana we would at current prices under the old regime we would be breaking even about now.
  • Tony Lesiak:
    And does that factor in the cheaper oil?
  • Kelvin Dushnisky:
    It doesn't factor in lower oil no.
  • Operator:
    Thank you. The following question is from John Bridges of JPMorgan. Please go ahead. John Bridges, your line is now open. Please proceed with your question. [Operator Instructions]
  • John Bridges:
    Can you hear me?
  • Operator:
    Yes please go ahead.
  • John Bridges:
    I was just wondering you're very specific about the hurdle rates. What gold price underpins that?
  • Kelvin Dushnisky:
    Shaun, do you want to address this?
  • Shaun Usmar:
    Yes, look what we'd looked at this point is through the cycle returns that we will get on the portfolio currently we've looked at the full suite of new projects and investments from scoping study throughout we've the sense sort of the breakeven gold prices where those projects would be attractive and we tend to focus our limited resources on those options that firstly fit as John had said earlier with our strategy and then be very judicious as to applying the capital beyond that. In this gold price environment we're looking as we have put in the documents from spots up to $1,300 but of course as you move through the cycle we will continue to look at it through a range of pricing. We're I’d say very conservative at this point with our use of capital.
  • John Bridges:
    And then coming back to the back to basics and back to the old style Barrick and of course one of the key drivers of the Company was you're sitting on Goldstrike, to what extent have you considered replacing assets in the success of the new style Barrick?
  • Kelvin Dushnisky:
    Well, I think one thing -- it's Kelvin, John, one thing you can expect to see from us is probably being a little more active and judicious in terms of managing the portfolio. You hit on Goldstrike and clearly for us it's evident how core Nevada is and we will continue to be you have heard from Jim the potential we have for our ongoing opportunities within the current portfolio and beyond in Nevada. I think the other thing that you'll expect us to see is, in the past we have probably held on to assets a little too long and so not turning the portfolio something that we would prefer to be a little more active about and so rather than waiting till every last drop is squeezed, you will expect to see us do more in terms of asset sales and it's going to be a matter of making sure that we've got the best assets in the portfolio, so you'll see more pruning on a going forward basis.
  • Shaun Usmar:
    And John in terms of adding to the assets and replacing reserves, we have really focused our exploration people on adding both on the Brownfields but we have some exciting developments on the Greenfield as we will work on them as well.
  • Operator:
    Thank you. The following question is from David Haughton of Bank of Montreal. Please go ahead.
  • David Haughton:
    I have got a broader question for you, what role do you see Chinese investment playing in the global gold industry and for Barrick specifically given your commitment to that region you desire to reduce debt and form strategic partnerships?
  • Kelvin Dushnisky:
    Well David, we have got the expert right here maybe I’ll ask John if he can comment on that.
  • John Thornton:
    David, first of all thank you for your question. As you can appreciate it’s a rather complicated topic, so now let me try to deconstruct it carefully so that it is not misunderstood. I think the first thing to be said is we feel very strong as I hope any company in 21st century would that is absolutely essential that we understand China cold and that’s the reason that we went out and hired somebody to be in charge of China for Barrick. So at a minimum we want to be smart about the implications of China in this century in our business. So that’s kind of a minimum standard. Secondly I want to say is, having had all the experience I have there I have a very good sense of the nuances and the complexities and what you might call the good, bad and the ugly so I’m under no illusion as to the level of complexity and sophistication and patience needed to come to a determination about a specific idea or a specific partnership or a specific relationship and what that might or might not do for us overtime and therefore we are going about this in a very-very paced manner a very in-depth manner. We’re in no hurry to do something. If do anything at all we want to do the right thing and take our time to do it, that probably gives us a bias towards being modest to begin with and build it overtime because we know relationships take time. And as a result we are spending a good amount of time on a continuing basis with various Chinese counterparts getting them smarter about us and us smarter about them and when we come to the some kind of particular specific resolution we will then go ahead and execute but I want to emphasize don’t hold your breath for that because this is going to be a long time in coming. But we feel that in the fullness of time having a distinctive relationship with the Chinese will be good for Barrick and good for our owners and good for everyone so that’s why we’re going to pursue it in a relentless but balanced fashion.
  • David Haughton:
    Do you see that you’ve got a fairly clear run at this compared to your mining and gold peers around the world.
  • John Thornton:
    I guess I’d answer it this way this comment by the way is not restricted to mining. I would say just about every serious company in the world as you well understand has been looking at China trying to get involved with China, trying to do something with China et cetera, et cetera and the spectrum of what has been accomplished to-date ranges from the god awful to the reasonably good and a lot of it’s transaction based, a lot of it’s short-term and orientation even though it is dressed up with other words. And so I think we have a, if I can say so a distinctive advantage in the depth of understand that we’ve got about the level of complexity and our willingness to be disciplined about what we do because we’re simply well informed about how this might play out.
  • David Haughton:
    Yes. The idea of the Chinese investment appears full of promise. But as yet have seen no significant transactions of note, so I wish you luck on that.
  • Operator:
    Thank you. The following question is from Harry Mateer of Barclays. Please go ahead.
  • Harry Mateer:
    A couple of questions I guess first just a bit more on the debt reduction goals, first just why specify net debt reduction and not gross debt I assume that was intentional is that just a function of having a pre-payable debt in the near-term? And then second what led you to put a 2015 deadline on it certainly an encouraging and aggressive target but pretty soon. So as we take out the means you have had discussions on a potential JV or strategic partner that are advance enough to give you confidence is that something to get range in the next 10 months or so?
  • Kelvin Dushnisky:
    Look, I’ll start, it’s Kelvin and turn over to Shaun I think in terms of starting with the second part of the question why on 2015, we recognize the importance of reducing the debt and we’re going to tackling it aggressively and so that’s why we put an aggressive schedule in front of us, we’re confident we can get there and we’re going to do everything we can to achieve it. In terms of first part of the question maybe Shaun you’d like to address it.
  • Shaun Usmar:
    I’d just add to Kelvin’s point I mean on 2015 I think the comments were made upfront that we’re not going to be irrational around our pursuit reduction of net debt. But it is a statement of intent which we understand we be looked at for the fullness of time, with this team but there is a very strong focus on execution. On the first part it’s not as you portrayed I think we’re focusing on reduction of total debt and that was just a read across on the net debt component.
  • Harry Mateer:
    And then in terms of I mean is there anything you’d look to actually pay down from total debt this year, could we see a repeat of a couple of years ago where you guys actually went into the market intended for some bonds?
  • Shaun Usmar:
    Yes.
  • Harry Mateer:
    And then second, it does sound like this net debt reduction is intended to be a permanent improvement in the capital structure rather than something where you just take that down now to use up that additional capacity in the future is that how we should think about it, this is intended to be a permanent improvement?
  • Shaun Usmar:
    Correct, that is exactly how you should think about it.
  • Kelvin Dushnisky:
    I think it goes to John's earlier point about the Company being conservative in nature by history that's exactly what we want to return to.
  • Operator:
    Thank you. That concludes today's question-and-answer session. I'd now like to turn the meeting back over to Mr. Dushnisky.
  • Kelvin Dushnisky:
    Well, thank you operator and thank you everyone for joining us on the call this morning. And thank you for your questions we hope we had answered them completely and we'll look forward to reporting back to you with our Q1 results. Thank you very much.
  • Operator:
    The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.