African Barrick's profits drop as cash costs soar

African Barrick Gold (ABG) saw shares sink on Monday after revealing that first-half gold production, revenue and profits were all down on the first half.

Attributable gold output sank 14% in the six months to June 30th from 345,857 ounces to 297,742 ounces. This was due to expected lower grade material mined at Buzwagi, waste stripping at North Mara and batch processing at Tulawaka.

Revenue fell 8% year-on-year from $578m to $534m. Earnings before interest, tax, depreciation and amortisation dropped 30% from $245m to $171m.

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Meanwhile, cash costs per ounce sold jumped 43% to $938, up 43% on the year, due to lower production, higher energy costs and industry-wide cost pressures. The group said it expects to be at the upper-end of the cash cost guidance range.

Despite this, the dividend per share was raised from 3.2 cents to 4.0 cents, up 25%.

"Over the second half of 2012 our focus will be on continuing to deliver against our mine plan with an expected grade driven increase in production and corresponding decline in cash costs, while maintaining capital discipline," said ABG's Chief Executive Officer Greg Hawkins.

In a separate statement, ABG also proposed to buy up the outstanding share capital of Aviva Mining (Kenya), its first expansion outside Tanzania.

ABG currently has four producing mines, all located in north-west Tanzania, and is hoping that this acquisition could add a number of licenses in neighbouring West Kenya.

The purchase, subject to the approval of Aviva's shareholders (which will be sought at a general meeting in late August/early September), is for an initial cash consideration of A$20m (around £13m).

"This acquisition represents the first step in expanding our footprint outside of Tanzania and building our future growth pipeline. The acquisition is an attractive entry into an under explored and highly prospective land package in a country bordering our existing operations. Whilst Kenya is a relatively new mining destination, it has a solid transport infrastructure, a stable government and ABG already has an established supply chain in country," Hawkins said.

Through the acquisition, ABG will buy Aviva's 51% interest in a joint venture with fellow miner Lonmin and a right to earn up to a 75% interest in a second joint venture with Advance Gold Corporation.

Shares were 16% lower at 317p by the close of trade.

BC