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Barrick eyes US$240M in short-term savings from Nevada joint venture

Barrick Gold Corp. has started to see savings flow from a Nevada joint venture with Newmont Goldcorp Corp. that combined the two companies' major assets in the state and closed July 1, Barrick President and CEO Mark Bristow said on an Aug. 12 earnings call.

In the short term, Bristow said Barrick has identified US$240 million in annualized savings. Synergies include more efficient trucking routes across previously separate properties and renegotiated contracts on consumables for the combined operations.

Barrick has said it expects to see between US$450 million and US$500 million in annual synergies over the first five years of the joint venture.

"We're in good shape and have no reason to change that guidance," Bristow said.

Haywood Securities analyst Kerry Smith told S&P Global Market Intelligence that the savings would start to show up on Barrick's balance sheet in the third quarter, capturing "low-hanging fruit" such as ore logistics.

In the second quarter, Barrick swung year over year to a US$194 million profit from a US$94 million loss.

Earlier this year, Barrick and Newmont agreed to combine their main Nevada assets in a joint venture, creating what Barrick billed as the world's largest gold production complex. The merger came after Barrick made a hostile bid for Newmont, which at the time was contingent on Newmont nixing a merger with Goldcorp. But in a change of course, Barrick dropped its bid and the two companies negotiated the Nevada joint venture.

Streamlined head office

On the earnings call, Bristow also outlined cuts to general and administrative expenses the company began making after a 2018 acquisition of Randgold, which he had headed up.

Barrick said its headcount under general and administrative expenses was about 140, down from about 500 in 2018. Bristow said second-quarter corporate administration charges, net of severances costs, were about US$30 million, in line with 2019 projections.

Bristow attributed the savings and more streamlined organization to a leaner operating model he imported from Randgold.

In unfinished business, Bristow said Barrick was still studying how best to pin down reserves. Among other metrics, Randgold used a gold price of US$1,000 per ounce to calculate reserves, while Barrick has used US$1,200/oz.

"It won't be more than US$1,200/oz ... is my guidance," Bristow said, noting the company has a firm handle on its reserve calculation strategy.

Bristow said the reserve assessment would not only come down to the gold price but to how each individual operation best operates. "You can't just take those big Nevada mines and say, 'Well, we're just going to run them at US$1,000/oz.' They've got to be redesigned."