The world’s second-largest gold producer has added to stockpiles of cyanide, explosives and other vital raw materials as it battles rising inflation exacerbated by the war in Ukraine.
Mark Bristow, chief executive of Barrick Gold, said the miner had increased its inventories of key “consumables” to five months’ supply from three to protect its cost base against rising prices.
“With the Russian invasion, we responded very quickly and increased some of our inventory up to five months . . . like cyanide and explosives for instance,” he told the Financial Times. “We now have price stability for up to five months.”
Russia is an important supplier of the raw materials that go into explosives, while high gas costs in Europe have crimped production of cyanide, which is used to separate gold from its ore.
The comments from Bristow underscore the tough conditions facing the mining industry, which has struggled to hit production targets and keep costs under control this year because of inflationary pressures and disruptions related to Covid-19.
While Barrick managed to hit its output targets in the first quarter of the year, the company’s production costs rose 20 per cent to $1,164 per ounce.
In the face of rising energy, labour and raw material costs, Bristow said Barrick had increased its 2022 inflation guidance to 8 per cent, from 5 per cent previously.
“We did that after adjusting our oil price forecast to $100 a barrel for the year,” he said, accusing the US central bank of fuelling inflation by “pumping cash” into the system last year when it was clear that prices were rising.
As well as increasing inventories, Bristow said Barrick had other levers it could pull to hit its full-year total production cost forecast of $1,040 to $1,120 an ounce.
The company expects to mine between 4.2mm and 4.6mm ounces of gold this year.
“We still have some fat in the system in Nevada,” Bristow said, referring to Barrick’s flagship US assets.
His comments came after Barrick reported adjusted net earnings for the three months to March of $463mn, down 26 per cent from the previous quarter, because of lower sales and higher costs. Revenue was $2.8bn.
The company declared a dividend of 20 cents a share, up from 10 cents previously, after ending the quarter with net cash of $743mn
Barrick last month set out plans to develop a huge copper-gold mine in a remote region of Pakistan close to its borders with Iran and Afghanistan.
Bristow said the $7bn Reko Diq deposit, which could come online within five to six years, would transform the company into a leading copper miner.
“It will take Barrick to number eight in the world as a copper producer,” he said. Copper, a vital metal for the energy transition, is often found alongside gold.
Asked about the gold price, Bristow said it was not surprising it had jumped to almost $2,000 an ounce in the wake of Russia’s invasion of Ukraine.
“That is what gold does in crisis,” he said. The precious metal, which is viewed as a haven in times of trouble, was trading close to an 11-week low at $1,886 an ounce on Wednesday.
