FOR: BARRICK GOLD CORPORATION
PARIS, NYSE, TSX, Swiss SYMBOL: ABX
LSE SYMBOL: BGD
February 23, 2006
Barrick Earns $175 Million-$0.32 per share-in Q4
TORONTO, ONTARIO--(CCNMatthews - Feb. 23, 2006) - Barrick Gold Corporation
(NYSE:ABX)(TSX:ABX)(LSE:BGD)(SWX:ABX)(EURONEXT PARIS:ABX) -
YEAR-END REPORT 2005 - FEBRUARY 22, 2006
Based on US GAAP and expressed in US dollars
Full-Year Net Income Increased 62% to $401 Million
Highlights
- Q4 net income was $175 million, or $0.32 per share, and cash flow from operations was $269 million, or $0.50
per share. Full-year net income was $401 million, or $0.75 per share, and full-year cash flow from operations
was $726 million, or $1.35 per share.
- Gold sales were 1.65 million ounces at total cash costs of $221 per ounce(1) in Q4 2005. Full-year production
was 5.46 million ounces of gold at total cash costs of $227 per ounce - in line with Barrick's original
production and cost targets during a year of significant cost pressures for the mining industry.
- Gold reserves as at December 31, 2005 were 89 million ounces(2) based on a $400 gold price, excluding
reserves at Placer Dome mines and projects.
- Significant progress continues at the Company's development projects, including Cowal in Australia which is
on target to achieve its first gold production in Q1 2006, and approval by the Chilean environmental
authorities of the Pascua-Lama project in Chile/Argentina.
- On October 31, 2005, Barrick announced its offer to acquire all the outstanding shares of Placer Dome Inc. to
further strengthen its competitive position within the gold mining industry. The Company has subsequently taken
up and paid for shares which represent approximately 94% of the common shares of Placer Dome and expects to
acquire the remaining shares by the end of Q1.
- Donald J. Carty, John W. Crow, Robert M. Franklin and J. Brett Harvey have been appointed to the Board of
Directors as independent directors.
Barrick Gold Corporation today reported earnings of $175 million ($0.32 per share) for fourth quarter 2005
compared to earnings of $156 million ($0.29 per share) in the year-earlier period. Earnings included a number
of special items that had a $52-million post-tax ($0.10 per share) favorable impact in fourth quarter 2005,
compared to a positive effect of $127 million post-tax ($0.24 per share) in the prior-year quarter. (See page
26 of Management's Discussion and Analysis for further details.) Cash flow from operations for fourth quarter
2005 was $269 million ($0.50 per share) compared to $123 million ($0.23 per share) in the year-earlier period.
Fourth-quarter 2005 earnings were favorably impacted by a $50-per-ounce higher realized gold price, higher
sales volumes and lower total cash costs compared to the prior-year period.
"The fourth quarter capped off a strong year for Barrick. As our new generation of mines began to deliver
shareholder value through strong production, earnings and cash flow, the time was right for another major value-
add initiative - the Placer Dome transaction," said Greg Wilkins, President and CEO. "The result is a Canadian-
based powerhouse in the global gold-mining industry with the size, scale, strength, and experience to develop
world-class assets."
For 2005, net income increased 62% to $401 million ($0.75 per share) and cash flow from operations increased
43% to $726 million ($1.35 per share), compared to net income of $248 million ($0.46 per share) and cash flow
from operations of $509 million ($0.95 per share) in 2004. (See page 15 of Management's Discussion and Analysis
for details of various items significantly impacting the comparability of results.) The Company's results
primarily benefited from an 8% increase in gold sales volumes, a 12% higher realized gold price, and the lowest
total cash costs amongst the senior gold producers.
Barrick reduced its gold hedge commitments by a further 400,000 ounces in the quarter, bringing the total
reduction in the year to one million ounces. The Corporate Gold Sales Contracts position was 6.0 million
committed ounces at year-end, or 9% of reserves excluding Pascua-Lama.
PRODUCTION AND COSTS
In fourth quarter 2005, Barrick sold 1.65 million ounces of gold at total cash costs of $221 per ounce,
compared to 1.2 million ounces sold at total cash costs of $223 per ounce for the prior-year quarter.
The fourth quarter benefited from another strong quarter at Lagunas Norte and Goldstrike. For the full-year
2005, the Company was in line with its production and total cash costs guidance despite the significant cost
pressures faced by the mining industry during the year. This is the third straight year that Barrick has met
its operating targets and demonstrates the Company's ability to deliver on its targets and its cost containment
initiatives.
The North America region fourth-quarter production was in line with the third quarter 2005, but at slightly
higher total cash costs, due primarily to higher power costs at Goldstrike.
The South America region saw a significant increase in production in the fourth quarter versus the third
quarter 2005 at slightly higher total cash costs. Lagunas Norte's production and total cash costs both improved
over the third quarter. Commissioning activities were completed at Veladero and production levels are ramping
up.
The Australia/Africa region's operating performance in the fourth quarter was similar to the third quarter 2005
and the region met its most recent guidance.
RESERVES AND RESOURCES
Excluding reserves and resources acquired in the Placer Dome transaction, the Company had proven and probable
gold reserves of 89 million ounces at year-end 2005, based on a $400-per-ounce gold price. The Company also
reported gold mineral resources of 17.6 million ounces and inferred resources of 12.3 million ounces based on a
$450-per-ounce gold price.
Silver contained in Barrick's gold reserves at year end is 933 million ounces and is primarily derived from the
Pascua-Lama deposit, one of the largest silver resources in the world, which contains 685 million ounces of
silver.
DEVELOPMENT PROJECTS UPDATE
The Company's Cowal project in Australia is nearing completion with construction of the systems necessary for
processing oxide ore over 85% complete. Pre-commissioning of the process plant commenced in mid December. Ore
is being mined and stockpiled. First gold production is expected to commence by the end of the first quarter
2006.
At the East Archimedes project at the Ruby Hill mine site in Nevada, all major mine equipment is now in service
and pre-stripping activities are progressing well. Initial staffing of the project is complete and the first
gold pour is targeted for mid-2007.
The Company continued to make progress advancing its Pascua-Lama project in Chile/Argentina. Barrick recently
received approval of the environmental impact assessment from Chilean environmental regulatory authorities and
the Company is committed to working within the framework of the Resolution. Barrick is currently assessing the
Resolution and it is possible that upon completion of this assessment, up to one million ounces of
mineralization at the Pascua-Lama project may be reclassified from reserves to mineralized material for U.S.
reporting purposes but will remain as reserves for Canadian reporting purposes. The next milestone is the
approval of the environmental impact assessment by Argentine regulatory authorities. The project remains on
target to commence construction later in 2006, for first production in 2009.
The Western 102 power plant in Nevada was deemed complete in early December 2005 after performance testing.
Cost savings are expected with the start-up of the power plant.
At Buzwagi in Tanzania, the pre-feasibility study was completed and the feasibility study is underway.
Permitting and work on the environmental impact assessment is proceeding, and construction efforts will
commence as soon as necessary permits are received.
EXPLORATION UPDATE(3)
Drilling was carried out on 15 properties in the quarter and exploration spending was $46 million. Exploration
highlights from the quarter were at South Arturo, North Post, Buzwagi and Tusker.
In Nevada, 28 holes were completed by year end at the South Arturo target on the Dee property with all holes
intersecting oxide mineralization. At year end, gold mineral resources at Dee totaled 158,000 ounces with
significant potential to increase resources. At the North Post target on the Goldstrike property, initial
results from the underground drill program confirmed the potential of the northern extension of the lower zone.
In Tanzania, drill programs at Buzwagi converted 2.4 million ounces of resources to reserves for Canadian
reporting purposes. The drill program at the Tusker target on the Nyanzaga property extended the mineralization
along strike and at depth.
Drill programs in the Frontera district in South America resumed in the fourth quarter, with drilling carried
out at Guanaco Zonzo, Regalito and Cerro Pecos.
In Russia, field work commenced on three new exploration licenses which were acquired through the auction
process.
PLACER DOME INTEGRATION AND 2006 OUTLOOK
On October 31, 2005, Barrick announced its offer to acquire all the outstanding shares of Placer Dome Inc. to
further strengthen its competitive position within the gold mining industry. As of February 3, 2006, the
Company has taken up and paid for approximately 94% of the common shares of Placer Dome. The remaining shares
will be acquired by compulsory acquisition by the end of the first quarter and, upon its completion, Barrick
will sell certain assets to Goldcorp under its previously-announced agreement.
"The powerful combination of Barrick and Placer Dome provides us with an unrivalled pipeline of projects and
opportunities that solidifies our future for many years," said Greg Wilkins, President and CEO.
On January 20, 2006, the Company launched its integration plan that includes visits to all operations and
offices, working with Placer Dome personnel and to begin the capture of the estimated $200 million of annual
synergies in an orderly and timely manner.
The Company expects 2006 gold production of 8.6 - 8.9 million ounces and copper production of approximately 350
million pounds. This preliminary guidance reflects Barrick's proportionate share of Placer Dome production
since it acquired control on January 20, 2006, and will be confirmed at a later date. Total cash costs are
expected to be in the range of $275 - $290 per ounce of gold and about $1.10 per pound of copper, and include
the impact of purchase accounting fair value adjustments. Excluding these one-time, non-cash accounting
adjustments, copper cash costs would be approximately $0.75 per pound. The Company has purchased put options to
protect revenue on approximately 300 million pounds of expected 2006 copper production. These options guarantee
a minimum price of $2.00 per pound, while allowing the Company to fully participate in higher spot copper
prices.
At year-end 2005, proven and probable gold reserves of Barrick, including its interest in Placer Dome reserves
acquired, adjusted for the anticipated sale of certain assets to Goldcorp, were 139 million ounces(4),
containing 933 million ounces of silver. It also has 6.1 billion pounds of copper reserves.
As a result of the Placer Dome acquisition, Barrick's gold sales contracts amounted to 20.0 million ounces on a
pro forma basis as at December 31, 2005. Since year end, Placer Dome's gold hedge program has been reduced and
simplified with all outstanding sold call options eliminated. As of February 22, 2006, the combined gold sales
contracts totaled 18.5 million ounces, a reduction of 1.5 million ounces since year-end 2005. Of this total,
9.5 million ounces are allocated as Project Gold Sales Contracts in support of the Pascua-Lama and Pueblo Viejo
development projects. The remaining 9.0 million ounces of Corporate Gold Sales Contracts represent 8% of total
reserves excluding Pascua-Lama and Pueblo Viejo. Further reductions can be expected as the Company remains
committed to reducing its gold sales contracts in this favorable gold price environment.
CORPORATE GOVERNANCE
As part of its continued commitment to strong governance practices, the Company announced that it appointed J.
Brett Harvey to the Board of Directors effective December 15, 2005. Mr. Harvey is President and CEO of CONSOL
Energy Inc., a leading multi-energy producer of coal, gas and electricity, and brings a wealth of experience in
the mining and energy sectors to his position as an independent director of Barrick.
Barrick also announced that it has appointed Donald J. Carty, John W. Crow and Robert M. Franklin to the Board
of Directors effective February 22, 2006. Messrs. Carty, Crow and Franklin are Directors of Placer Dome, and
the Company welcomes them as independent directors of Barrick. Mr. Carty is the retired Chairman and Chief
Executive Officer of AMR Corporation. Mr. Crow is the former Governor of the Bank of Canada and now is
President of J&R Crow Inc., an economic and financial consulting firm. Mr. Franklin is the former Chairman of
Placer Dome, holding that position since 1993 and has served on the Placer Dome Board of Directors since 1987.
Barrick's vision is to be the world's best gold company by finding, acquiring, developing and producing quality
reserves in a profitable and socially responsible manner. Barrick's shares are traded on the Toronto, New York,
London, Euronext-Paris and Swiss stock exchanges.
(1) Total cash costs per ounce is defined as cost of sales divided by ounces sold. Total cash costs per ounce
exclude amortization expense, which was $74 per ounce in fourth quarter 2005. For further information on this
performance measure see page 17.
(2) Calculated in accordance with National Instrument 43-101 as required by Canadian securities regulatory
authorities. For United States reporting purposes, Industry Guide 7 (under the Securities Exchange Act of
1934), as interpreted by the Staff of the SEC, applies different standards in order to classify mineralization
as a reserve. Accordingly, for U.S. reporting purposes, Buzwagi is classified as mineralized material. Barrick
is currently assessing the resolution issued by Chilean regulatory authorities approving the environmental
impact assessment for the Pascua-Lama project. It is possible that upon completion of this assessment, up to 1
million ounces of mineralization at the Pascua-Lama project may be reclassified from reserves to mineralized
material for U.S. reporting purposes but will remain as reserves for Canadian reporting purposes. For
additional information on reserves see the tables and related footnotes on pages 89 - 93.
(3) Barrick's exploration programs are designed and conducted under the supervision of Alexander J. Davidson,
P. Geo., Executive Vice President, Exploration and Corporate Development of Barrick. For information on the
geology, exploration activities generally, and drilling and analysis procedures on Barrick's material
properties, see Barrick's most recent Annual Information Form/Form 40-F on file with Canadian provincial
securities regulatory authorities and the US Securities and Exchange Commission.
(4) For a breakdown of Placer Dome's reserves and resources by category and additional information relating to
such reserves and resources, see Placer Dome's press release of February 20, 2006. Such reserves and resources
were calculated by employees of Placer Dome in accordance with National Instrument 43-101, as required by
Canadian securities regulatory authorities, and in accordance with Placer Dome's previously established
policies and procedures, and have not been independently verified by Barrick Gold Corporation. Industry Guide 7
(under the Securities and Exchange Act of 1934), as interpreted by Staff of the SEC, applies different
standards to classify mineralization as a reserve. Based on a preliminary review, Barrick does not intend to
report mineralization at the Pueblo Viejo project as a reserve for U.S. reporting purposes at this time.
/T/
Key Statistics
Three months
ended Year ended
(in United States dollars) December 31, December 31,
------------------------ ----------------
(Unaudited) 2005 2004 2005 2004
---------------------------------------------------- ----------------
Operating Results
Gold production (thousands of
ounces)(1) 1,648 1,169 5,460 4,958
Gold sold (thousands of
ounces) 1,650 1,200 5,320 4,936
Per Ounce Data
Average spot gold price $ 486 $ 434 $ 444 $ 409
Average realized gold price 467 417 439 391
Total cash costs(2) 221 223 227 214
Amortization(3) 74 76 76 86
Total production costs 295 299 303 300
---------------------------------------------------- ----------------
Financial Results (millions)
Gold sales $ 776 $ 501 $ 2,350 $ 1,932
Net income 175 156 401 248
Operating cash flow 269 123 726 509
Per Share Data (dollars)
Net income (basic) 0.33 0.30 0.75 0.47
Net income (diluted) 0.32 0.29 0.75 0.46
Operating cash flow (basic
and diluted) 0.50 0.23 1.35 0.95
Weighted average common shares
outstanding (millions)(4) 541 534 538 534
---------------------------------------------------- ----------------
As at As at
December 31, December 31,
-------------------------
2005 2004
----------------------------------------------------
Financial Position (millions)
Cash and equivalents $ 1,037 $ 1,398
Non-cash working capital 151 141
Long-term debt(5) 1,721 1,655
Shareholders' equity(6) 3,850 3,574
----------------------------------------------------
(1) Includes equity ounces in Highland Gold.
(2) Represents cost of goods sold plus royalties, production taxes
and accretion expense, less by-product revenues, divided by
ounces of gold sold. For further information on this performance
measure, refer to page 17.
(3) Represents amortization expense at the Company's producing mines
divided by ounces of gold sold.
(4) Fully diluted, includes shares issuable upon exchange of BGI
(Barrick Gold Inc.) exchangeable shares.
(5) We drew down $1 billion under our credit agreement subsequent
to December 31, 2005 to pay for the cash component of the Placer
acquisition. We expect to repay the amounts borrowed with
proceeds realized on closing of the Goldcorp agreement.
(6) Shareholders' equity increased subsequent to
December 31, 2005, in connection with the Placer Dome
acquisition, refer to Note 3 to the Financial Statements.
Production and Cost Summary
Production (attributable Total Cash
ounces) (000's) Costs (US$/oz)(1)
-------------------------- -------------------------
Three months Three months
ended Year ended ended Year ended
------------- ------------ ------------ ------------
December 31, December 31, December 31, December 31,
(Unaudited) 2005 2004 2005 2004 2005 2004 2005 2004
------------------------------ ------------ ------------ ------------
North America
Open Pit 495 373 1,514 1,381 $ 217 $ 230 $ 235 $ 249
Underground 127 134 510 562 345 233 314 255
------------------------------ ------------ ------------ ------------
Goldstrike
Property
Total 622 507 2,024 1,943 242 231 255 250
Eskay Creek 25 73 172 290 15 7 49 32
Round Mountain
(50%) 78 84 368 381 291 267 246 225
Hemlo (50%) 51 66 230 247 317 232 288 241
Holt-McDermott(2) - - - 55 - - - 197
Marigold (33%) 19 15 69 47 213 194 219 198
------------------------------ ------------ ------------ ------------
795 745 2,863 2,963 245 212 244 223
------------------------------ ------------ ------------ ------------
South America
Pierina 174 94 628 646 165 155 139 111
Lagunas Norte 298 - 550 - 102 - 110 -
Veladero 51 - 56 - n/a - n/a -
------------------------------ ------------ ------------ ------------
523 94 1,234 646 126 155 126 111
------------------------------ ------------ ------------ ------------
Australia/Africa
Plutonic 57 74 251 305 293 251 263 223
Darlot 39 28 135 140 237 255 259 210
Lawlers 38 29 131 110 231 249 271 246
Kalgoorlie (50%) 81 110 417 444 331 241 248 234
------------------------------ ------------ ------------ ------------
215 241 934 999 291 247 257 229
Bulyanhulu 72 89 311 350 401 323 358 284
Tulawaka (70%) 33 - 87 - 217 - 253 -
------------------------------ ------------ ------------ ------------
320 330 1,332 1,349 303 265 280 243
------------------------------ ------------ ------------ ------------
Highland equity
portion 10 - 31 - 314 n/a 303 n/a
------------------------------ ------------ ------------ ------------
Total 1,648 1,169 5,460 4,958 $ 221 $ 223 $ 227 $ 214
------------------------------ ------------ ------------ ------------
Total Production Costs (US$/oz)
-------------------------------
Three months
ended Year ended
December 31, December 31,
------------ ------------
(Unaudited) 2005 2004 2005 2004
----------------------- ----------------------------------
Direct mining costs(3) $ 237 $ 265 $ 255 $ 248
Hedge gains(4) (16) (24) (21) (19)
By-product credits (19) (35) (25) (30)
----------------------------------------------
Cash operating costs 202 206 209 199
Royalties 12 13 12 11
Production taxes 5 2 4 2
Accretion and other costs 2 2 2 2
---------------------------------------------------------------------
Total cash costs 221 223 227 214
Amortization 74 76 76 86
---------------------------------------------------------------------
Total production costs $ 295 $ 299 $ 303 $ 300
---------------------------------------------------------------------
(1) Total cash costs per ounce statistics for 2005 and 2004 are not
comparable due to the change in accounting for deferred stripping
costs. Refer to page 34 for further details. For further
information on this performance measure, refer to page 17.
(2) Holt-McDermott ceased production in fourth quarter 2004.
(3) At market currency exchange rates and commodity prices.
(4) From currency and commodity hedge contracts.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")
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Our Business 7
Core Business 7
Vision and Strategy 8
Capability to Deliver Results 8
Key Economic Trends 10
Operations Review 14
Executive Overview and 2006 Outlook 14
Consolidated Gold Production and Sales 17
Total Cash Costs Performance Measures 17
Results of Operating Segments 18
Other Costs and Expenses 22
Quarterly Information 26
Liquidity, Capital Resources and Financial Position 27
Cash Flow 27
Liquidity 28
Financial Position 30
Contractual Obligations and Commitments 31
Financial Instruments 32
Off Balance Sheet Arrangements 33
Critical Accounting Policies and Estimates 35
Cautionary Statement on Forward-Looking Information 42
Glossary of Technical Terms 43
/T/
This MD&A is intended to help the reader understand Barrick Gold Corporation ("Barrick", "we", or the
"Company"), our operations and our present business environment. Unless otherwise specified, all references in
this MD&A are to Barrick excluding the impact of the 2006 acquisition of Placer Dome Inc. ("Placer Dome"). It
includes the following sections:
- Our Business - a general description of our core business; our vision and strategy; our capability to deliver
results; and key economic trends in our present business environment.
- Operations Review - an analysis of our consolidated results of operations for the last three years focusing
on our material operating segments and the outlook for 2006.
- Liquidity, Capital Resources and Financial Position - an analysis of cash flows; sources and uses of cash;
financial instruments; off-balance sheet arrangements; contractual obligations and commitments; and our
financial position.
- Critical Accounting Policies and Estimates - a discussion of accounting policies that require critical
judgments and estimates.
This MD&A, which has been prepared as of February 22, 2006, is intended to supplement and complement our
unaudited consolidated financial statements and notes thereto for the year ended December 31, 2005 prepared in
accordance with United States generally accepted accounting principles, or US GAAP (collectively, our
"Financial Statements"). You are encouraged to review our Financial Statements in conjunction with your review
of this MD&A. Additional information relating to our Company, including our most recent Annual Information
Form, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For an explanation of terminology
used in our MD&A that is unique to the mining industry, readers should refer to the glossary on page 43. All
dollar amounts in our MD&A are in US dollars, unless otherwise specified.
For the purposes of preparing our MD&A, we consider the materiality of information. Information is considered
material if: (i) such information results in, or would reasonably be expected to result in, a significant
change in the market price or value of our shares; or (ii) there is a substantial likelihood that a reasonable
investor would consider it important in making an investment decision; or (iii) if it would significantly alter
the total mix of information available to investors. We evaluate materiality with reference to all relevant
circumstances, including potential market sensitivity.
OUR BUSINESS
Core Business
We are currently one of the world's largest gold companies in terms of market capitalization, annual gold
production and gold reserves. In early 2006, we completed the acquisition of Placer Dome, which will result in
a significant increase in the scale of our mining operations. Details of the acquisition can be found on page
15. Our operations in 2005 were concentrated in these regions: North America, Australia/Africa and South
America. In 2006, we intend to divide the Australia/Africa region into two separate regions. Each region
receives direction from the Corporate Office, but has responsibility for all aspects of its businesses
including strategy/sustainability and managing all aspects of mining operations including exploration,
development/construction, production and closure.
NOTE: A chart titled "Gold Ounces Produced by Region in 2005" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222a.jpg
We generate revenue and cash flow from the production and sale of gold. We sell our gold production in the
world market through three primary distribution channels: gold bullion is sold in the gold spot market, gold
bullion is sold under gold sales contracts between ourselves and various third parties, or gold concentrate is
sold to independent smelting companies.
Vision and Strategy
Our vision is to be the world's best gold company by finding, developing and producing quality reserves in a
profitable and socially responsible manner.
Our goal is to create value for our shareholders. We reinvest cash flow from our mines in exploration,
development projects and other investments to work towards sustainable growth in gold production and cash flow.
It can take a number of years for a project to move from the exploration stage through to mine construction and
production. Our business strategy reflects this long lead time, but shorter-term priorities are also set for
current areas of focus.
/T/
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Long-term
Strategy Elements Focus Areas Measures
---------------------------------------------------------------------
Growth in - Growth at existing mine sites - Additions to and
reserves and by finding new reserves and size of reserves
production converting mineralized and mineralized
material to reserves. material.
- Growth through successful - Consistent
exploration focused investment in
principally in key exploration and
exploration districts development.
(Goldstrike, Frontera, Lake - Growth in annual
Victoria and in Russia/ gold production.
Central Asia). - Construction
- Growth through targeted progress versus
acquisitions. estimates.
- Advance the development of - Actual
Cowal, Pascua-Lama, East construction
Archimedes and Buzwagi as costs
well as newly acquired versus estimates.
Placer Dome projects,
including Pueblo Viejo,
Cortez Hills and Donlin
Creek.
- Continue to develop a
business unit in Russia/
Central Asia.
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Operational - Control costs. - Total cash costs
excellence - Global supply per ounce.(1)
chain management. - Amortization
- Continuous improvement per ounce.(1)
initiatives. - Ore throughput
- Currency, interest rate and equipment
and commodity hedge utilization
programs. statistics.
- Improve productivity through - Liquidity -
continuous improvement operating cash
initiatives. flow and credit
- Effective assessment and ratings.
management of risk. - Key balance
- Effective capital allocation. sheet ratios.
- Secure efficient sources of
funding for capital needs.
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Strengthen the - Workforce - identify - Talent review
organization and develop talent. and performance
- Leadership development and management.
succession planning. - Compliance with
- Adopt best practices in applicable
corporate governance, corporate
including strengthening governance
internal controls over legislation.
financial reporting.
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Responsible - Reinforce health - Safety leadership
mining and safety culture. and other
- Enhance environmental training
performance, including use initiatives.
of innovative technology - Medical aid
to protect the environment. injury frequency.
- Maintain positive community - Environmental
and government relations. performance.
- Compliance with
regulatory
requirements.
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(1) For more information on total cash costs per ounce performance
measures, see pages 17 to 18.
/T/
Capability to Deliver Results
Resources and processes provide us with the capability to execute our strategy and deliver results. The
critical ones are:
Experienced Management Team and Skilled Workforce
We have an experienced management team that has a proven track record in the mining industry. Strong leadership
and governance are critical to the successful implementation of our core strategy. We are focusing on
leadership development for key members of executive-level and senior mine management.
A skilled workforce has a significant impact on the efficiency and effectiveness of our operations. The remote
nature of many of our mine sites presents challenges in maintaining a skilled workforce. Competition for well-
trained and skilled employees is high in our industry, so we are focusing on employee retention, recruiting
skilled employees, and positive labor relations. We maintain training programs to develop the skills that
certain employees need to fulfill their roles and responsibilities. Priorities for our Human Resources group
include strengthening our workforce, developing employee leadership skills and succession planning. We are
implementing Human Resource system solutions to enhance our ability to analyze and manage labor costs,
productivity and other key statistics to help us effectively manage the impact our workforce has on our mining
operations.
Environmental, Health and Safety
As part of our commitment to corporate responsibility, we focus on continuously improving health and safety
programs, systems and resources to help control workplace hazards. Continuous monitoring and integration of
health and safety into decision-making enables us to operate effectively, while also focusing on health and
safety. In 2005, we continued to focus on enhancing leadership and personal commitment through the development
of our health and safety risk management guidelines, which were successfully piloted at one of our mine sites;
training for all levels of supervision and management through our "Courageous Safety Leadership" program; and
the full implementation of processes at both corporate and regional locations that support governance and
accountability measurements. Key areas of focus for 2006 will include safety leadership through training and
health and safety risk management practices; designing and enhancing processes and programs to ensure safety
requirements are met; and communicating a safety culture as part of Barrick's core values.
We are subject to extensive laws and regulations governing the protection of the environment, endangered and
protected species, waste disposal and worker safety. We seek to continuously implement operational improvements
to enhance environmental performance. We have environmental groups at the corporate, regional business unit and
operating site levels to support our environmental efforts. In 2005, we established an Environmental, Health,
Safety and Sustainability Committee to establish policy direction for environmental performance. We became a
signatory to the International Cyanide Management Code and committed to certification of all of our operations.
In 2005, we also became a signatory to the United Nations ("UN") Global Compact, which represents the world's
largest voluntary corporate citizenship initiative. Among its principles, the UN Global Compact encourages
businesses to support a precautionary approach to environmental challenges, undertake initiatives to promote
greater environmental responsibility, and encourage the development and diffusion of environmentally friendly
technologies. To provide further guidance toward achieving our environmental objectives, we developed a new
Environmental Management System Standard in 2005. Each year, we issue a Responsibility Report that outlines our
environmental, health and safety and social responsibility performance for the year.
Cost Control and Supply Sourcing
Successful cost control and supply sourcing depends upon our ability to obtain and maintain adequate quantities
of equipment, consumables and supplies as required by our operations at competitive prices.
Our Supply Chain group is focusing on improving long-term cost control and sourcing strategies, for major
consumables and supplies used in our mining activities, through global commodity purchasing teams. It also
facilitates knowledge sharing across our global business and implementation of best practices in procurement.
We continue to develop strategies to help us analyze and source consumables and supplies at the lowest cost
over the life of a mine, including where appropriate, long-term alliances with certain suppliers to ensure
adequate supply is maintained.
Maintenance represents a significant component of operating costs at our mines and impacts the availability of
plant and equipment. Our Global Maintenance team is working to reduce maintenance costs and increase equipment
utilization through an internal maintenance community. Key areas of focus include setting business process
standards for maintenance to optimize usage of mine equipment and enable cost-effective purchasing of mine
equipment. They are implementing a global maintenance system, based on the principles of Total Production
Maintenance, to facilitate the sharing of best practices across the Company and to track capital equipment
statistics such as utilization, availability and useful lives.
Information Management and Technology
Our Information Management and Technology group provides focused and responsive support to enable us to meet
our current business objectives and long-term strategy elements. It manages significant risks, such as
information security; risks relating to the implementation of new applications; and the risk of failure of
critical systems. We are implementing strategies to mitigate these risks, including monitoring operating
procedures and the effectiveness of system controls to safeguard data, evaluating the effective use of
technology and maintaining disaster recovery plans. Other areas of focus include working with other functional
groups to reduce technology diversity by standardizing system solutions, and ongoing analysis of business needs
and the potential benefits that can be gained from system solution enhancements.
Continuous Improvement
Our Continuous Improvement ("CI") group is focused on instilling a continuous improvement culture across the
Company to increase shareholder value by reducing costs, improving throughput/productivity, and improving
quality and safety. Our CI group coordinates annual operational/business reviews to identify and prioritize
improvement opportunities. The group also facilitates strategic planning sessions to develop our business
strategy.
Internal Controls Over Financial Reporting and Disclosure
We maintain a system of internal controls over financial reporting designed to safeguard assets and ensure
financial information is reliable. We undertake ongoing evaluations of the effectiveness of internal controls
over financial reporting and implement control enhancements, where appropriate, to improve the effectiveness of
controls. In 2005, we focused on the design, testing and assessment of the effectiveness of internal controls
over financial reporting to enable us to meet the certification and attestation requirements of the Sarbanes-
Oxley Act ("SOA") for 2006. We presently file management certifications annually under Section 302 and Section
906 of the SOA, and expect to comply with the reporting requirements of Section 404 of the SOA as required by
law.
We also maintain a system of disclosure controls and procedures designed to ensure the reliability,
completeness and timeliness of the information we disclose in this MD&A and other public disclosure documents.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by Barrick
in reports filed with securities regulatory agencies is recorded, processed, summarized and reported on a
timely basis, as required by law, and is accumulated and communicated to Barrick's management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
Key Economic Trends
In 2005, there has been a continuation of the trend of higher gold and silver prices which, while benefiting
gold revenues and by-product credits, also leads to higher gold royalty expenses. A trend of inflationary
pressure on the cost of labor, other commodities and consumables, such as oil, natural gas and propane, has
caused upward pressure on production costs. We believe that other companies in the gold mining industry are
experiencing similar trends. The Placer Dome acquisition will lead to a general increase in the magnitude of
the effect of these economic factors on our business.
Gold, Silver and Copper Prices
Market gold prices have a significant impact on our revenue. Silver prices impact total cash costs per ounce(1)
of gold as silver sales are recorded as a by-product credit. These prices are subject to volatile price
movements over short periods of time, and are affected by numerous industry and macroeconomic factors that are
beyond our control.
(1) Total cash costs per ounce excludes amortization, see pages 17 to 18 for further information on this
performance measure.
Gold prices followed an upward trend in 2005, closing the year at $513 per ounce. This trend continued into
2006 with gold reaching a 25-year high of $572 per ounce in early February 2006. In contrast to 2004, the
correlation between gold prices and the Euro has lessened, which suggests that exchange rates have become less
important in determining gold prices. Other economic influences such as supply and demand, oil prices, trade
deficits and US interest rates are important factors in explaining gold price movements. Demand for gold
continues, with reports that certain central banks are considering buying gold to add to their reserves, and
strong jewelry demand in China and India. The prospects for gold as an investment remain favorable,
particularly in response to any global economic/political uncertainty. The past few years have seen a
resurgence in gold as an investment vehicle, with more readily accessible gold investment opportunities (such
as gold exchange traded funds - "ETFs").
NOTE: A chart titled "Gold Prices" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222b.jpg
Over the last three years, our realized gold sales prices have tracked the rising market gold price. Periods
when our average realized price was below average market prices were primarily caused by us voluntarily
choosing to deliver into gold sales contracts at dates earlier than the final contractual delivery date and at
prices lower than prevailing market prices to reduce outstanding gold sales contracts.
NOTE: A chart titled "Spot Silver Prices" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222c.jpg
Silver rallied along with gold at the end of 2005, despite continued news that attrition in the US photographic
market would depress demand. Silver prices have had support from industrial consumers as technological advances
continue to provide silver with new uses, as well as robust jewelry demand from India. The last three years
have seen a decline in our silver production, as reserves at our Eskay Creek mine are depleted and the mine
approaches the end of its life. After Pascua-Lama begins production, we expect that the quantities of silver we
produce will increase significantly.
NOTE: A chart titled "Spot Copper Prices" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222d.jpg
The acquisition of Placer Dome will lead to copper prices having a more significant effect on our results due
to copper production from the Zaldivar copper mine and the Osborne gold and copper mine. In 2005, these mines
combined produced 359 million pounds of copper. Copper prices rose 67% in 2005 as a result of supply
reductions, smelter bottlenecks, and low global copper inventory levels, combined with ongoing high levels of
copper demand. In early February 2006, copper prices reached a high of $2.33 per pound.
In 2006, we purchased put options to protect revenue on approximately 300 million pounds of expected 2006
copper production. These options guarantee a minimum price of $2.00 per pound, while allowing us to fully
participate in higher spot copper prices.
Currency Exchange Rates
NOTE: A chart titled "Monthly AUD$ Spot and Average Hedge Rates" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222e.jpg
NOTE: A chart titled "Monthly CAD$ Spot and Average Hedge Rates" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222f.jpg
NOTE: A chart titled "Monthly Rand Spot Rates" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222g.jpg
Results of our mining operations in Australia and Canada, reported in US dollars, are affected by exchange
rates between the Australian and Canadian dollars and the US dollar, because a portion of our annual
expenditures are based in local currencies. Placer Dome has a mine located in South Africa that will cause us
to also have economic exposure to the South African Rand in the future.
A weaker dollar would cause costs reported in US dollars to increase. The Canadian dollar outperformed most
major currencies in 2005, including the US dollar, mainly due to sustained higher energy prices and global
investor interest in resource assets. We expect the Canadian dollar to remain strong in 2006. The Australian
dollar remains steady, mainly due to higher commodity prices, and the exchange rate with the US dollar was
fairly stable in 2005. The Rand has shown increased stability against the US dollar in 2005 as compared to
previous years, mainly due to increased liquidity and continued strong foreign direct investment in South
Africa.
We have a currency hedge position as part of our strategy to control costs by mitigating the impact of
volatility in the US dollar on Canadian and Australian dollar-based costs. Over the last three years, our
currency hedge position has provided benefits to us in the form of hedge gains when contract exchange rates are
compared to prevailing market exchange rates as follows: 2005 - $100 million; 2004 - $96 million; and 2003 -
$58 million. These gains are reflected in our operating costs.
Our currency hedge position at the end of 2005 provides protection for our Canadian and Australian dollar-based
costs for a significant portion of the next three years. The average hedge rates vary depending on when the
contracts were put in place. For hedges in place for future years, average hedge rates are higher because some
of the contracts were added over time as the US dollar weakened. The average rates of currency contracts over
the next three years are $0.68 for Australian dollar contracts and $0.76 for Canadian dollar contracts. Beyond
the next three years, most of our Canadian and Australian dollar-based costs are subject to market currency
exchange rates, and consequently costs reported in US dollars for our Australian operations and our Canadian
operations could increase if currency exchange rates against the US dollar remain at present levels.
Inflationary Cost Pressures
Our industry is experiencing significant inflationary cost pressures for many commodities and consumables used
in the production of gold, as well as, in some cases, constraints on supply. These pressures have led to a
trend of higher production costs reported by many gold producers, and we have been actively seeking ways to
mitigate these cost pressures. In the case of diesel fuel and propane, we put in place hedge positions that
have been successful in mitigating the impact of recent price increases to a significant extent. For other cost
pressures, we have been focusing on supply chain management and continuous improvement initiatives to mitigate
the impact on our business.
Fuel
We consume on average about 2 million barrels of diesel fuel and approximately 24 million gallons of propane
annually across all our mines.
NOTE: A chart titled "Crude Oil Market Price (WTI)" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222h.jpg
Diesel fuel is refined from crude oil and is therefore subject to the same price volatility affecting crude oil
prices. With global demand increasing and oil supply disruptions in 2005, oil prices rose from $43 per barrel
at the start of the year to $61 per barrel at the end of the year. To help control the costs of fuel
consumption, we have a fuel hedge position totaling 2 million barrels, which represents about 25% of our total
estimated consumption in each of the next four years. The fuel hedge contracts are primarily designated for our
Goldstrike, Round Mountain, and Kalgoorlie mines. The average hedge rate of our fuel contracts is $44 per
barrel. In 2005, we realized benefits in the form of fuel hedge gains totaling $9 million (2004: $4 million;
2003: nil), when fuel hedge prices were compared to market prices. These gains are reflected in our operating
costs. If the trend of high diesel fuel prices continues, this could impact future gold production costs.
Propane prices rose from $0.76 per gallon at the start of 2005 to $1.04 at the end of the year. Propane prices
have increased mainly due to a substitution of propane for natural gas by some consumers that caused an
increase in demand for propane. To help control the costs of propane consumed at our mines, we have a propane
hedge position totaling 17 million gallons, which represents about 70% of our estimated future propane
consumption through to the end of 2006, at an average price of $0.79 per gallon. We realized hedge gains
totaling $1 million in 2005 (2004 and 2003: nil), when market prices were compared to our propane hedge prices.
These gains are reflected in our operating costs.
Electricity
We purchase about 1.6-1.7 million megawatt hours of electricity annually across all our mines. We buy
electricity from regional power utilities, and in addition at some mines, we generate our own power.
Fluctuations in electricity prices are generally caused by local economic factors and impact costs to produce
gold. Electricity prices have generally been rising in recent years due to increases in the price of diesel
fuel, coal and natural gas, which are used by many power generators, as well as excess demand for electricity.
Natural gas prices rose in North America in 2005, as Hurricane Katrina and other factors caused a tightening of
supply that has not fully recovered yet.
To partially mitigate the impact of rising electricity costs, we built a 115-megawatt natural gas-fired power
plant that became operational in the fourth quarter of 2005. This power plant provides Goldstrike with the
flexibility to generate its own power or buy cheaper power from other producers, with the goals of minimizing
the cost of power consumed and enhancing the reliability of electricity availability at the mine.
Consumables
With increasing demand for tires and limitations in supply from tire manufacturers, costs have been rising and
some companies have experienced difficulty securing tires. We have been seeking to mitigate this cost pressure
by finding ways to extend tire lives and looking at various alternatives for supply. In 2006, our focus will be
to complete a tire tender process and sign long-term agreements with preferred tire suppliers to ensure that we
continue to receive adequate supply of tires for our mines and development projects. The limited availability
of tires has not had a significant impact on productivity at our mines.
Prices for certain other consumables, such as cyanide and explosives, have also been generally increasing,
which in turn leads to higher mining and processing costs. In 2005, we benefited from contract pricing for
cyanide that was below the prevailing market price. For 2006, we expect to procure most of our cyanide at
market prices, with price increases due to higher costs for caustic soda and natural gas. For explosives, we
experienced price increases in 2005 because natural gas and ammonia are both used in the production of ammonium
nitrate explosives. We are evaluating alternatives to reduce consumables costs through supply chain and
continuous improvement initiatives.
Labor Costs
With high demand for experienced miners and relatively inflexible supply, the industry has been facing upward
pressure on labor costs, as well as higher turnover rates in some cases, due to the strong demand. Labor cost
pressures have been most significant in Australia.
US Dollar Interest Rates
NOTE: A chart titled "US Dollar Interest Rates" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222i.jpg
Short-term US dollar interest rates rose in 2005 as the US Federal Reserve continued its tightening cycle. We
expect long-term interest rates to rise as the front end of the curve rises due to inflation risks. Volatility
in interest rates mainly affects interest receipts on our cash balances ($1 billion cash at the end of 2005),
and interest payments on variable-rate debt ($0.6 billion of variable-rate debt at the end of 2005). Based on
the relative amounts of these variable-rate financial assets and liabilities, rising interest rates would have
an overall positive impact on our results. The relative amounts of variable-rate financial assets and
liabilities may change in the future depending upon the amount of operating cash flow we generate as well as
amounts invested in capital expenditures.
In response to the volatility in interest rates, we have used interest rate swaps to alter the relative amounts
of variable-rate financial assets and liabilities and to mitigate the overall impact of changes in interest
rates. Management of interest-rate risk takes into account the term structure of variable-rate financial assets
and liabilities. On $425 million of our cash balances, we have fixed the interest rate through 2007 at 3.63%
using interest rate swaps. These interest rate swaps generated hedge gains, when rates under the swaps are
compared to market interest rates, totaling $6 million in 2005; $19 million in 2004; and $18 million in 2003.
In the future, we may alter the notional amounts of interest rate swaps outstanding as the relative amounts of
variable-rate assets and liabilities change to manage interest rate risk.
/T/
OPERATIONS REVIEW
Selected Annual Information
For the years ended December 31
($ millions, except per share and per ounce data in dollars)
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
Gold production ('000s oz) 5,460 4,958 5,510
---------------------------------------------------------------------
Gold sales
'000s oz 5,320 4,936 5,554
$ millions $2,350 $1,932 $ 2,035
---------------------------------------------------------------------
Market gold price(1) 444 409 363
---------------------------------------------------------------------
Realized gold price(1) 439 391 366
---------------------------------------------------------------------
Total cash costs(1),(2) 227 214 189
---------------------------------------------------------------------
Amortization(1) 76 86 90
---------------------------------------------------------------------
Total production costs(1) 303 300 279
---------------------------------------------------------------------
Net income 401 248 200
---------------------------------------------------------------------
Net income per share
---------------------------------------------------------------------
Basic 0.75 0.47 0.37
---------------------------------------------------------------------
Diluted 0.75 0.46 0.37
---------------------------------------------------------------------
Cash inflow (outflow)
---------------------------------------------------------------------
Operating activities 726 509 519
---------------------------------------------------------------------
Capital expenditures (1,104) (824) (322)
---------------------------------------------------------------------
Other investing activities (76) 3 (12)
---------------------------------------------------------------------
Financing activities 93 740 (266)
---------------------------------------------------------------------
Cash position - end of year 1,037 1,398 970
---------------------------------------------------------------------
Total assets 6,862 6,287 5,345
---------------------------------------------------------------------
Total long-term financial
liabilities $1,780 $ 1,707 $ 789
---------------------------------------------------------------------
Gold reserves (millions of
contained oz)(A) 88.6 89.1 85.9
---------------------------------------------------------------------
(1) Per ounce weighted average.
(2) Total cash costs per ounce statistics exclude amortization.
Total cash costs per ounce is a performance measure that is used
throughout this MD&A. For more information see pages 17 to 18.
/T/
Executive Overview and 2006 Outlook
In 2005, we produced 5.5 million ounces of gold at average total cash costs of $227 per ounce, in line with our
original guidance for the year. The contribution to gold production from three new mines, Tulawaka, Lagunas
Norte and Veladero, more than offset slightly lower production from Eskay Creek and Plutonic. Through our
currency and commodity hedge programs, and supply chain initiatives, we were able to mitigate to some extent
the impact of inflationary cost pressures.
We had earnings of $401 million ($0.75 per share) and generated operating cash flow of $726 million ($1.35 per
share) in 2005.
/T/
Key Factors Affecting Earnings
---------------------------------------------------------------------
For the years ended December 31 Refer
($ millions) to page
---------------------------------------------------------------------
Net income - 2004 $ 248
---------------------------------------------------------------------
Increase (decrease)
---------------------------------------------------------------------
Higher realized gold prices 17 $ 255
---------------------------------------------------------------------
Higher sales volumes(1) 17 35
---------------------------------------------------------------------
Higher total cash costs 17 (69)
---------------------------------------------------------------------
Lower amortization rates per ounce 23 53
---------------------------------------------------------------------
Lower interest expense 24 12
---------------------------------------------------------------------
Higher income tax expense(2) 25 (36)
---------------------------------------------------------------------
Special items(3) 15 (111)
---------------------------------------------------------------------
Other 25 14
---------------------------------------------------------------------
Total increase $ 153
---------------------------------------------------------------------
Net income - 2005 $ 401
---------------------------------------------------------------------
(1) Impact of changing sales volumes on margin between selling
prices, total cash costs and amortization.
(2) Excluding the impact of the tax effects of special items.
(3) Special items are post-tax and exclude the impact on the period
of deferred stripping accounting changes.
/T/
At year-end, on a pro forma basis, we had proven and probable reserves, including reserves of 88.6 million
ounces at our existing properties and our acquired interest in Placer Dome reserves of 50.1 million ounces of
gold(B), of 138.7 million ounces of gold(A),(B), based on a $400 per ounce gold price assumption and 6.15
billion pounds of copper(B), after adjusting for the anticipated sale of certain assets to Goldcorp.
We continued to effectively support and shape our growth profile, including a focus on Russia and Central Asia,
and to make significant progress on the development of our new generation of mines. The Tulawaka, Lagunas Norte
and Veladero mines began production in 2005, and we expect our fourth new mine, Cowal in Australia, to commence
its first gold production in first quarter 2006. We continued work on advancing our other projects, including
Buzwagi and Kabanga in Tanzania, Pascua-Lama in Chile/Argentina and East Archimedes in Nevada. We have the
capital resources to fund our development projects without the need for any equity dilution. In 2005, we issued
$50 million of public debt in Peru and drew down $129 million under our Peru lease and Veladero project
financings. We continue to have the gold mining industry's only A credit rating (A-), as rated by Standard &
Poor's.
(A) Calculated in accordance with National Instrument 43-101 as required by Canadian securities regulatory
authorities. For United States reporting purposes, Industry Guide 7, (under the Securities and Exchange Act of
1934), as interpreted by Staff of the SEC, applies different standards in order to classify mineralization as a
reserve. Accordingly, for US reporting purposes, Buzwagi is classified as mineralized material. Barrick is
currently assessing the implications of conditions contained in the resolution issued by Chilean regulatory
authorities approving the environmental impact assessment for the Pascua-Lama project. It is possible that
following the completion of such assessment, up to 1 million ounces of mineralization at the Pascua-Lama
project may be reclassified from reserves to mineralized material for US reporting purposes. For a breakdown
of reserves by category and additional information relating to reserves, see pages 89 to 93 of this Year End
Report.
(B) For a breakdown of Placer Dome's reserves and resources by category and additional information relating to
such reserves and resources, see Placer Dome's press release of February 20, 2006. Such reserves and resources
were calculated by employees of Placer Dome in accordance with National Instrument 43-101, as required by
Canadian securities regulatory authorities, and in accordance with Placer Dome's previously established
policies and procedures, and have not been independently verified by Barrick Gold Corporation. Industry Guide
7 (under the Securities and Exchange Act of 1934), as interpreted by Staff of the SEC, applies different
standards to classify mineralization as a reserve. Based on a preliminary review, Barrick does not intend to
report mineralization at the Pueblo Viejo project as a reserve for US reporting purposes at this time.
/T/
Special Items - Effect on Earnings Increase (Decrease) ($ millions)
---------------------------------------------------------------------
For the years ended 2005 2004 2003
December 31 Refer Pre- Post- Pre- Post- Pre- Post-
to page tax tax Tax tax Tax Tax
---------------------------------------------------------------------
Non-hedge derivative gains 25 $ 6 $ 4 $ 5 $ 9 $ 71 $ 60
---------------------------------------------------------------------
Gains on sale of
investments, interests in
mining properties and
Kabanga transaction 25 37 35 42 31 40 32
---------------------------------------------------------------------
Impairment charges on
investments, long-lived
assets and royalty
interest 25 (16) (16) (144) (99) (16) (14)
---------------------------------------------------------------------
Changes in asset
retirement obligation cost
estimates at closed mines 25 (15) (11) (22) (17) (10) (10)
---------------------------------------------------------------------
Deferred stripping
accounting changes
---------------------------------------------------------------------
Cumulative effect 36 6 6 - - - -
---------------------------------------------------------------------
Impact on the period
compared to previous
policy 36 64 44 - - - -
---------------------------------------------------------------------
Resolution of Peruvian tax
assessment
---------------------------------------------------------------------
Outcome of tax
uncertainties 25 - - - 141 - -
---------------------------------------------------------------------
Reversal of other accrued
costs 25 - - 21 15 - -
---------------------------------------------------------------------
Deferred tax credits
---------------------------------------------------------------------
Change in Australian tax
status 25 - 5 - 81 - -
---------------------------------------------------------------------
Release of valuation
allowances 25 - 32 - 5 - 62
---------------------------------------------------------------------
Total $ 82 $ 99 $(98) $ 166 $ 85 $ 130
---------------------------------------------------------------------
/T/
Cash Flow
In 2005, our cash position decreased by $361 million. We generated $726 million of operating cash flow, $217
million higher than in 2004, mainly because of higher gold sales volumes and realized gold prices, partly
offset by higher total cash costs. Capital expenditures were $1.1 billion, $280 million higher than in 2004,
due to the levels of construction activity at our development projects. We received $93 million from financing
activities in 2005, including $92 million in proceeds on the exercise of stock options and $179 million in
proceeds from various financing facilities used to fund construction at our development projects, partly offset
by $59 million of scheduled repayments on financing facilities and dividend payments of $118 million.
Acquisition of Placer Dome
In early 2006, we completed the acquisition of Placer Dome. We expect that the total cost of acquisition will
be about $10.1 billion. We will consolidate Placer Dome's results of operations from January 19, 2006. Placer
Dome is one of the world's largest gold mining companies, with gold mineral reserves of 60.4 million ounces and
copper reserves of 6.15 billion pounds at December 31, 2005. Placer Dome produced 3.6 million ounces of gold
and 359 million pounds of copper in 2005. It has 12 producing mines based in North America, South America,
Africa and Australia/New Guinea, and three significant projects that are in various stages of
exploration/development. Its most significant mines are Cortez in the United States, Zaldivar in Chile, Porgera
in New Guinea, North Mara in Tanzania and South Deep in South Africa. The most significant projects are Cortez
Hills and Donlin Creek in the United States, and Pueblo Viejo in the Dominican Republic. We plan to sell Placer
Dome's Canadian mines to Goldcorp Inc. ("Goldcorp"), as well as certain other interests in mineral properties.
As at February 17, 2006, Placer Dome had a committed gold hedge position totaling approximately 6.2 million
ounces. We plan to focus on reducing this acquired hedge position further over time, consistent with the plans
for our existing gold hedge position.
We believe that the business combination between Barrick and Placer Dome is a unique opportunity to create a
Canadian-based leader in the global gold mining industry. This business combination further strengthens our
position in the industry, with respect to reserves, production, our development pipeline and balance sheet. We
expect that the combination will yield synergies from the combined companies of approximately $200 million
annually beginning in 2007. We expect to realize the synergies in the following areas:
- Operations - through the optimization and sharing of mining and processing infrastructure in common
jurisdictions, including Nevada, Australia and Tanzania;
- Exploration - by carefully assessing our exploration spending and focusing on the most prospective areas and
reducing the overall exploration spending of the combined enterprise;
- Administration - by eliminating duplication of offices and overheads;
- Procurement - through the improved purchasing power of the larger enterprise; and
- Finance and Tax - by realizing tax synergies in certain jurisdictions, opportunities for debt optimization
and a lower overall cost of capital resulting from a larger balance sheet.
Sale of certain Placer Dome operations to Goldcorp
Goldcorp has agreed, subject to certain conditions, to acquire all of Placer Dome's Canadian operations (other
than its offices in Vancouver and Toronto), including all mining, reclamation and exploration properties,
Placer Dome's interest in the La Coipa mine in Chile, and a 40% interest in the Pueblo Viejo project in the
Dominican Republic, for cash consideration of about $1.5 billion. We expect that the sale of these operations
to Goldcorp will close in the first half of 2006. Until closing, we expect to consolidate the results of these
operations, and we do not expect to record any significant gain or loss on closing of the sale.
/T/
Selected Pro Forma Consolidated Financial Information (Unaudited)
---------------------------------------------------------------------
($ millions, except Pro
per share data forma
in dollars) As reported Pro combined
----------------- forma Barrick/
Placer adjust- Placer
Barrick Dome ments(1) Dome
---------------------------------------------------------------------
Income statement - For the year ended December 31, 2005
---------------------------------------------------------------------
Sales
---------------------------------------------------------------------
Gold $ 2,350 $ 1,458 $ (251) $ 3,557
---------------------------------------------------------------------
Copper - 520 - 520
---------------------------------------------------------------------
Total sales 2,350 1,978 (251) 4,077
---------------------------------------------------------------------
Costs and expenses 1,853 1,781 (240) 3,394
---------------------------------------------------------------------
Income before income taxes
and other items 455 113 12 580
---------------------------------------------------------------------
Net income 401 80 8 489
---------------------------------------------------------------------
Net income per share -
basic and diluted 0.75 0.18 0.57
---------------------------------------------------------------------
Balance sheet - As at
December 31, 2005
---------------------------------------------------------------------
Cash 1,037 880 308 2,225
---------------------------------------------------------------------
Other current assets 711 769 (31) 1,449
---------------------------------------------------------------------
Non-current assets 5,114 4,045 (978) 8,181
---------------------------------------------------------------------
Unallocated purchase price - - 7,221 7,221
---------------------------------------------------------------------
Current liabilities 560 546 1 1,107
---------------------------------------------------------------------
Long-term debt 1,721 1,107 - 2,828
---------------------------------------------------------------------
Other non-current
liabilities 731 801 998 2,530
---------------------------------------------------------------------
Net assets $ 3,850 $ 3,240 $ 5,521 $ 12,611
---------------------------------------------------------------------
(1) Adjustments to reflect certain estimated effects of purchase
accounting and the estimated effects of the sale of certain
Placer Dome operations to Goldcorp. See note 3 to the Financial
Statements for details.
/T/
The pro forma information has been presented for illustrative purposes only to show the effect of the
acquisition of 100% of Placer Dome by Barrick as though it had occurred on January 1, 2005 for the pro forma
unaudited selected income statement information. The unaudited selected balance sheet information as at
December 31, 2005 was prepared using the consolidated balance sheets of Barrick and Placer Dome as at December
31, 2005. Certain adjustments have been reflected in this pro forma information to illustrate the effects of
harmonizing accounting policies and purchase accounting, and to reflect the impact of the sale of certain
Placer Dome operations to Goldcorp, where the impact could be reasonably estimated. We will complete an
exercise to value the identifiable assets and liabilities acquired, including any goodwill that may arise upon
the acquisition.
This unaudited pro forma consolidated financial statement information is not intended to be indicative of the
results that would actually have occurred, or the results expected in future periods. Results of operations for
Placer Dome could differ materially from those recorded in 2005 due to the effects of purchase accounting, the
harmonization of Placer Dome's accounting policies with Barrick's accounting policies, and other factors such
as the key economic trends described on pages 10 to 13. As a result of the bid process, Placer Dome's 2005
income statement reflects approximately $21 million of non-recurring transaction-related costs. Any potential
synergies that may be realized, and integration costs that may be incurred, have been excluded from the pro
forma information. The information prepared is only a summary, and more details can be found in note 3 to the
Financial Statements.
2006 Outlook
In 2006, we expect to produce between 8.6 to 8.9 million ounces of gold at total cash costs of $275 to $290 per
ounce and approximately 350 million pounds of copper at total cash costs of about $1.10 per pound including the
contribution from the Placer Dome operations after adjusting for the sale of certain operations to Goldcorp.
Copper total cash costs per pound include the impact of purchase accounting fair value adjustments. Excluding
these one-time, non-cash accounting adjustments, copper cash costs would be lower by approximately $0.35 per
pound. The overall average total cash costs per ounce of Placer Dome's gold production is higher than the
average for the existing Barrick mines, and consequently, we expect that the overall average total cash costs
per ounce of our gold production will increase following the acquisition. We expect the overall amortization
expense may increase following the completion of the purchase price allocation.
Consolidated Gold Production and Sales
By replacing gold reserves depleted by production year over year, we can maintain production levels over the
long term. If depletion of reserves exceeds discoveries over the long term, then we may not be able to sustain
gold production levels. Reserves can be replaced by expanding known ore bodies, acquiring mines or properties
or locating new deposits. Once a site with gold mineralization is discovered, it may take several years from
the initial phases of drilling until production is possible, during which time the economic feasibility of
production may change. Substantial expenditures are required to establish proven and probable reserves and to
construct mining and processing facilities. Given that gold exploration is speculative in nature, some
exploration projects may prove unsuccessful.
Our financial performance is affected by our ability to achieve targets for production volumes and total cash
costs. We prepare estimates of future production and total cash costs of production for our operations. These
estimates are based on mine plans that reflect the expected method by which we will mine reserves at each mine,
and the expected costs associated with the plans. Actual gold production and total cash costs may vary from
these estimates for a number of reasons, including if the volume of ore mined and ore grade differs from
estimates, which could occur because of changing mining rates; ore dilution; metallurgical and other ore
characteristics; and short-term mining conditions that require different sequential development of ore bodies
or mining in different areas of the mine. Mining rates are impacted by various risks and hazards inherent at
each operation, including natural phenomena such as inclement weather conditions, floods, and earthquakes and
unexpected labor shortages or strikes. Total cash costs per ounce are also affected by ore metallurgy that
impacts gold recovery rates, labor costs, the cost of mining supplies and services, foreign currency exchange
rates and stripping costs incurred during the production phase of the mine. In the normal course of our
operations, we attempt to manage each of these risks to mitigate, where possible, the effect they have on our
operating results.
In the first half of 2005, ounces produced and sold were similar to the first half of 2004. In the second half
of 2005 compared to the same period in 2004, ounces produced increased by about 32%, while ounces sold
increased by 26% as production and sales began at Lagunas Norte and increased at the Goldstrike open pit while
only production began at Veladero.
In 2005, we sold most of our production at market prices, and delivered approximately 0.8 million ounces into
gold sales contracts. We realized an average gold sales price of $439 per ounce, $48 higher than in 2004,
mainly due to higher market gold prices. The price realized for gold sales in 2006 and beyond will depend on
market conditions and the selling prices of any gold sales contracts into which we voluntarily deliver, which
could be below prevailing spot market prices.
/T/
Consolidated Total Cash Costs per Ounce(2)
(in dollars per ounce)
---------------------------------------------------------------------
For the years ended December 31 2005 2004 2003
---------------------------------------------------------------------
Cost of gold sales(1) $ 255 $ 248 $ 210
---------------------------------------------------------------------
Currency/commodity hedge gains (21) (19) (12)
---------------------------------------------------------------------
By-product credits (25) (30) (21)
---------------------------------------------------------------------
Royalties/mining taxes 16 13 12
---------------------------------------------------------------------
Accretion/other costs 2 2 2
---------------------------------------------------------------------
Total cash costs(2) $ 227 $ 214 $ 191
---------------------------------------------------------------------
(1) At market currency exchange and commodity rates.
(2) Total cash costs per ounce excludes amortization - see page 18.
/T/
Total cash costs for 2005 were in line with the original full-year guidance, but higher than in 2004, primarily
due to inflationary cost pressures experienced in 2005, partly offset by the start-up of low-cost production
from Lagunas Norte, the availability of higher-grade ore at Goldstrike open pit, and the impact of the change
in accounting for stripping costs (see page 36).
Total Cash Costs Performance Measures
Total cash costs include all costs absorbed into inventory, including royalties, by-product credits, mining
taxes and accretion expense, except for amortization. Total cash costs per ounce is calculated by dividing the
aggregate of these costs by gold ounces sold. Total cash costs and total cash costs per ounce are calculated on
a consistent basis for the periods presented. On our income statement we present amortization separately from
cost of sales. Some companies include amortization in cost of sales, which results in a different measurement
of cost of sales on the income statement. We have provided below a reconciliation to illustrate the impact of
excluding amortization from cost of sales and total cash costs per ounce statistics.
In managing our mining operations, we disaggregate cost of sales between amortization and the other components
of cost of sales. We use total cash costs per ounce statistics as a key performance measure internally to
monitor the performance of our mines. We use the statistics to assess how well our mines are performing against
internal plans, and also to assess the overall effectiveness and efficiency of our mining operations. We also
use amortization cost per ounce statistics to monitor business performance. By disaggregating cost of sales
into these two components and separately monitoring them, we are able to better identify and address key
performance trends. We believe that the presentation of these statistics in this manner in our MD&A, together
with commentary explaining trends and changes in the statistics, enhances the ability of investors to assess
our performance. These statistics also enable investors to better understand year-on-year changes in cash
production costs, which in turn affect our profitability and ability to generate cash flow.
The principal limitation associated with total cash costs per ounce statistics is that they do not reflect the
total costs to produce gold, which in turn impacts the earnings of Barrick. We believe that we have compensated
for this limitation by highlighting the fact that total cash costs exclude amortization as well as providing
details of the financial effect. We believe that the benefits of providing disaggregated information outweigh
the limitation in the method of presentation of total cash costs per ounce statistics.
Total cash costs per ounce statistics are intended to provide additional information and should not be
considered in isolation or as a substitute for measures of performance prepared in accordance with US GAAP. The
measures are not necessarily indicative of operating profit or cash flow from operations as determined under US
GAAP. Other companies may calculate these measures differently.
/T/
Illustration of Impact of Excluding Amortization from Total Cash
Costs Per Ounce
($ millions, except per ounce information in dollars)
---------------------------------------------------------------------
For the years ended December 31 2005 2004
---------------------------------------------------------------------
Cost of sales per Barrick income statement $ 1,214 $ 1,047
---------------------------------------------------------------------
Amortization at producing mines 409 425
---------------------------------------------------------------------
Cost of sales including amortization $ 1,623 $ 1,472
---------------------------------------------------------------------
Ounces sold (thousands) 5,320 4,936
---------------------------------------------------------------------
Total cash costs per ounce as reported $ 227 $ 214
---------------------------------------------------------------------
Amortization per ounce 76 86
---------------------------------------------------------------------
Cost of sales (including amortization)
per ounce $ 303 $ 300
---------------------------------------------------------------------
/T/
Results of Operating Segments
In our Financial Statements, we present a measure of historical segment income that reflects gold sales at
average consolidated realized gold prices, less segment expenses and amortization of segment property, plant
and equipment. Our segments mainly include producing mines and development projects. We monitor segment
expenses using "total cash costs per ounce" statistics that represent segment cost of sales divided by ounces
of gold sold in each period. The discussion of results for producing mines focuses on this statistic in
explaining changes in segment expenses, and should be read in conjunction with the mine statistics presented on
pages 85 to 88.
Conducting mining activities in certain countries outside North America subjects us to various risks and
uncertainties that arise from carrying on business in foreign countries including: uncertain political and
economic environments; war and civil disturbances; changes in laws or fiscal policies; interpretation of
foreign taxation legislation; and tax implications on repatriation of foreign earnings. We monitor these risks
on an ongoing basis and mitigate their effects where possible, but events or changes in circumstances could
materially impact our results and financial condition.
For development projects, we prepare estimates of capital expenditures, reserves and costs to produce reserves.
We also assess the likelihood of obtaining key governmental permits, land rights and other government
approvals. Estimates of capital expenditures are based on studies completed for each project, which also
include estimates of annual production and production costs. Adverse changes in any of the key assumptions in
these studies or other factors could affect estimated capital expenditures, production levels and production
costs, and also the economic feasibility of a project. We take steps to mitigate potentially adverse effects of
changes in assumptions or other factors. Prior to the commencement of production, the segment results for
development projects reflect expensed mine start-up costs.
NORTH AMERICA
In 2005, the region produced 2,863,000 ounces (2004: 2,963,000 ounces) at total cash costs of $244 per ounce
(2004: $223 per ounce). Gold production in 2005 was within full-year production guidance and slightly lower
than 2004 as higher production at Goldstrike Open Pit was offset by slightly lower production at Goldstrike
Underground, the processing of fewer tons at Eskay Creek in 2005 and the cessation and sale of mining
operations at Holt-McDermott in 2004. In 2005, total cash costs per ounce increased over 2004 due to lower
production levels at Goldstrike Underground and inflationary cost pressures, partly offset by higher toll
milling credits and the impact of the change in accounting for stripping costs (see page 36). Total cash costs
per ounce were slightly better than the full-year guidance as a result of higher production at Goldstrike Open
Pit, partly offset by higher costs at Goldstrike Underground and Round Mountain.
Goldstrike Open Pit, United States
Production was higher in 2005 than 2004 as a result of mining in areas of the pit with higher ore grades, on
completion of the ninth west layback in the second half of the year, partly offset by lower tons processed in
the first half of the year due to above average rainfall that impacted mining rates, harder ore encountered
that impacted milling rates, and higher toll milling volumes in 2005. Total cash costs per ounce in 2005 were
lower than both guidance and 2004 due to the higher production levels and higher toll milling credits, as well
as the impact of the change in accounting for stripping costs (see page 36), partly offset by the impact of
inflationary cost pressures and higher royalties due to higher market gold prices.
Goldstrike Underground, United States
In 2005, there was an increase in drift-and-fill mining due to mine sequencing changes to compensate for
difficult ground conditions. Lower mining rates due to the increase in drift-and-fill mining, as well as a
temporarily plugged backfill raise, were partly offset by a drawdown of stockpiles in the first half of 2005,
resulting in lower gold production than guidance and 2004. Lower production levels combined with inflationary
cost pressures, higher ground support costs due to difficult ground conditions, an increase in drift-and-fill
mining, and higher royalty costs due to higher market gold prices, resulted in higher total cash costs per
ounce in 2005 than in 2004, and slightly higher than the guidance for 2005.
Western 102 Power Plant in Nevada, United States
The 115-megawatt natural gas-fired power plant in Nevada to supply our Goldstrike mine was completed and began
operating in December 2005. The construction cost was $96 million.
Eskay Creek, Canada
As the mine approaches the end of its reserve life in 2008, lower availability of high-grade direct-to-smelter
ore resulted in the mining of more lower-grade ore tons, leading to lower gold production in 2005. Total cash
costs per ounce in 2005 were lower than the guidance for the year, but higher than in 2004 due to the lower
production levels and lower silver by-product credits (volume-related), partly offset by lower smelter costs
and higher silver prices.
Round Mountain (50% Owned), United States
In 2005, higher recoveries of gold from ore placed on the leach pad were offset by slightly lower tons placed
on the pad, resulting in slightly lower production in 2005 over 2004. Tons processed and recovery rates each
period do not necessarily correlate to the ounces produced in the period as there is a time delay between
placing tons on the leach pad and producing gold. Total cash costs per ounce were slightly lower than the
guidance for 2005, although higher than 2004, mainly due to the impact of inflationary cost pressures and the
change in accounting for stripping costs (see page 36). The joint venture partners have agreed to proceed with
a pit expansion project, resulting in an increase in gold reserves, and an extension of the expected mine life
from 2010 to 2015.
East Archimedes, United States
In 2004, we made a decision to proceed with the East Archimedes project in Nevada. The project is an open-pit,
heap leach operation exploiting the East Archimedes deposit, a deeper continuation of the ore mined previously
at Ruby Hill. Construction capital is estimated at about $75 million over an expected two-year construction
phase. Gold production is expected to commence by mid-2007. Project highlights include:
- Construction capital costs of $35 million were incurred in 2005.
- The workforce is in place and all major equipment is in service.
- The remaining balance of the mining fleet was received in fourth quarter 2005.
- Pre-strip activities are in progress.
SOUTH AMERICA
The region produced 1,234,000 ounces in 2005 (2004: 646,000 ounces) at total cash costs of $126 per ounce
(2004: $111 per ounce). After achieving production start-up ahead of schedule in mid-June 2005, Lagunas Norte
made a significant contribution to the region's results in the second half of 2005. Veladero had its first gold
pour in September 2005 and commenced full production in fourth quarter 2005. We expect these two mines to make
a significant contribution to production for the region in 2006 and beyond. In 2005, gold production exceeded
guidance for the year due to higher than expected production at Pierina, while total cash costs per ounce were
within the range of guidance provided for the year. Total cash costs per ounce were higher than 2004 due to
higher total cash costs per ounce at Pierina.
Pierina, Peru
Although mining at Pierina occurred in higher-grade areas of the pit in 2005, lower quantities of run-of-mine
ore were placed on the leach pad than in 2004, which led to slightly lower production in 2005. Total cash costs
per ounce increased over 2004 due to the impact of inflationary cost pressures, combined with the impact of
higher equipment maintenance, labor and ground support costs, partly offset by higher silver by-product credits
and the positive impact of the change in accounting for stripping costs (see page 36). Mining costs per ton of
ore were higher in 2005 as tons of waste mined increased over 2004. Gold production and total cash costs per
ounce in 2005 were slightly higher than guidance.
Lagunas Norte, Peru
The Lagunas Norte mine achieved start-up in June 2005, ahead of schedule, with a capital construction cost of
$323 million. Lagunas Norte produced 550,000 ounces in 2005, at total cash costs of $110 per ounce, with the
mining of higher-grade near-surface ore. Both gold production and total cash costs per ounce were within the
range of guidance for the year.
Veladero, Argentina
The Veladero mine had its first gold pour, ahead of schedule, in September 2005. Commissioning activities are
complete and the mine is ramping up production levels. Capital construction costs for the project were $547
million. The mine produced 56,000 ounces in 2005.
Pascua-Lama, Chile/Argentina
In 2004, we made a decision to proceed with the development of the Pascua-Lama project in Chile/Argentina,
contingent on obtaining the necessary permits, approvals and fiscal regimes. We recently received approval of
the environmental impact assessment from Chilean environmental regulatory authorities and we are committed to
working within the framework of the Resolution granted to us. The Resolution, which was issued on February 17,
2006, imposes certain conditions in connection with the development of the project. We are currently assessing
the implications of such conditions and it is possible that, following completion of such assessment, reserves
for U.S. reporting purposes could be reduced by up to 1 million ounces. It is expected that reserves for
Canadian reporting purposes would remain unchanged. Approval of the environmental impact assessment by
Argentine regulatory authorities is targeted for second quarter 2006. The timing of receipt of such approval,
as well as the resolution of some of the other external issues, such as permitting and licensing, cross-border
operating issues and fiscal, tax and royalty issues are largely beyond our control.
Capital and operating cost estimates for the Pascua-Lama project were based on the cost and commodity price
environment prevailing at the time of the updated feasibility study, which was finalized in June 2004. The
design of the project has been optimized in the course of the permitting process to incorporate additional
operating and construction efficiencies, additional environmental mitigation measures, and other project
improvements. We are in the course of updating cost estimates to reflect such changes, inflationary cost
pressures and higher commodity prices. Although such factors will result in some increase in capital and
operating cost estimates, based on the current cost and commodity price environment, and combined with other
efficiencies, we do not expect significant changes to the overall economics of the project.
AUSTRALIA/AFRICA
The region produced 1,332,000 ounces in 2005 (2004: 1,349,000 ounces) at total cash costs of $280 per ounce
(2004: $243 per ounce). Lower production in 2005 was mainly due to the discontinuation of open pit mining at
Plutonic in second quarter 2005 and lower production at Kalgoorlie in the second half of the year, partly
offset by new production from Tulawaka. Total cash costs per ounce were higher in 2005 mainly because of
inflationary cost pressures, higher exchange rates under hedge contracts, lower tons mined and produced at
Bulyanhulu and lower production levels at Plutonic after open-pit mining ended in second quarter 2005.
Kalgoorlie (50% Owned), Australia
Mill throughput was higher in 2005 due to lower maintenance downtime than in 2004; but gold production was
lower in 2005 than 2004. Lower production was the result of mining in lower-grade areas of the pit and lower
recovery rates experienced in the second half of 2005, partly offset by higher mill throughput due to improved
mill utilization and the positive impact of finer ore sizes. Total cash costs per ounce were within the range
of guidance for 2005. The combined impact of lower production levels, inflationary cost pressures and higher
exchange rates under hedge contracts, and the effect of the change in accounting for stripping costs (see page
36), resulted in higher total cash costs per ounce in 2005 than in 2004. We are assessing process changes,
controls and other management measures for the roaster facility to reduce mercury emissions. Kalgoorlie has
installed a first-stage mercury scrubber on its carbon kiln and is assessing the performance of that unit to
determine what additional steps might be appropriate. The assessment is continuing, after which we will be able
to estimate any capital requirements and operating cost impact associated with such measures.
Plutonic, Australia
Gold production at Plutonic was lower in 2005, as the mine processed fewer tons of ore after open-pit mining
ended in second quarter 2005, also resulting in a higher proportion of ore feed from the underground, which is
of a higher grade than open-pit ore. Total cash costs per ounce were higher in 2005 than 2004, mainly due to
the combined effect of the lower gold production levels, higher equipment maintenance, higher exchange rates
under hedge contracts and inflationary cost pressures, partly offset by lower operating costs related to
cessation of open-pit mining and the impact of the change in accounting for stripping costs (see page 36).
Total cash costs per ounce were slightly higher than guidance while gold production was within the guidance
range.
Bulyanhulu, Tanzania
Gold production was lower in 2005, mainly due to a combination of lower tons mined and lower ore grades. Tons
mined were lower in 2005, mainly due to reduced equipment availability, a hoist gearbox failure and labor
issues due to roster changes in 2005. Ore grades were also lower in 2005 as tons were mined from lower-grade
stopes. Total cash costs per ounce in 2005 were higher than guidance and 2004 due to the lower gold production
levels, inflationary cost pressures and higher administration and underground maintenance costs.
Cowal, Australia
The Cowal project in Australia remains on schedule for its first gold production in first quarter 2006.
Construction costs are anticipated to be about ten per cent over the guidance of about $305 million as a result
of the impact of inflationary cost pressures in Australia. We have been taking steps to mitigate cost increases
where possible. Project highlights at the end of 2005 include:
- Capitalized costs, including capitalized interest, were $258 million in 2005.
- Construction of the systems necessary to process oxide ore were over 85% complete.
- Pre-commissioning of the process plant started in mid-December 2005 and the electrical transmission line was
commissioned in January 2006.
- Plant-site concrete and buildings were 98% complete.
- About one million tons of ore have been stockpiled to date.
Buzwagi, Tanzania
The drill program at Buzwagi is substantially complete and the results are being compiled. A pre-feasibility
study is complete and will be used to support a reserve of 2.4 million ounces under Canadian reporting
standards.(1) The permitting process is underway with the Tanzanian authorities and an engineering project
consultant has been assigned to initiate a feasibility study to support a production decision.
Kabanga (50% Owned), Tanzania
In April 2005, we entered into a joint-venture agreement with Falconbridge Limited ("Falconbridge") with
respect to the Kabanga nickel deposit and related concessions in Tanzania. Falconbridge acquired a 50% indirect
interest in respect of the Kabanga project for $15 million cash and a funding commitment. Falconbridge will be
the operator of the joint venture. In 2004, the Kabanga project had an estimated inferred resource of 26.4
million tonnes grading 2.6% nickel(1). This resource is currently being updated, based on the field work to be
completed in 2006.
(1) Calculated in accordance with National Instrument 43-101 as required by Canadian securities regulatory
authorities. For United States reporting purposes, Industry Guide 7 (under the Securities Exchange Act of
1934), as interpreted by the Staff of the SEC, applies different standards in order to classify mineralization
as a reserve. Accordingly, for US reporting purposes, Buzwagi is classified as mineralized material. For
additional information on reserves see the tables on pages 89 to 93.
Over the next several years, Falconbridge has agreed to fund and conduct a further $50 million work plan that
will include additional exploration and infill drilling, and technical work to update the resource model for
Kabanga and bring the project towards feasibility. Falconbridge has initiated the establishment of a dedicated
team in Tanzania to coordinate and advance the work plan. After expenditure of $50-million, Falconbridge will
decide on whether to proceed with the project. If Falconbridge proceeds with the project, they will fund the
next $95 million of any project development expenditures to advance the Kabanga project. Thereafter,
Falconbridge and Barrick will share equally in joint-venture revenues and expenditures.
RUSSIA/CENTRAL ASIA
In 2005, we continued to focus on developing our operations in the region. In April 2005, we spent $50 million
to increase our ownership in Highland Gold Mining PLC ("Highland Gold") from 14% to 20%. Our 20% ownership
interest is reflected in our Financial Statements and production statistics on an equity basis. We continue to
work with Highland Gold on projects where we have the option to acquire a joint interest. We established a
project office in Moscow and appointed a Regional Vice President to lead the development of our business in the
region.
/T/
OTHER COSTS AND EXPENSES
Exploration, Development and Business Development Expense
---------------------------------------------------------------------
($millions)
For the
years
ended Comments on significant trends and
December 31 2005 2004 2003 variances
---------------------------------------------------------------------
Exploration
---------------------------------------------------------------------
North America $29 $26 $19 2005 vs 2004 - Higher activity at
Goldstrike. 2004 vs 2003 - Higher
activity at Goldstrike, Eskay Creek
and Round Mountain.
---------------------------------------------------------------------
Australia/ 41 38 22 2005 vs 2004 - Higher activity at
Africa Bulyanhulu. 2004 vs 2003 - Higher
activity in Tanzania, primarily at the
Buzwagi project.
---------------------------------------------------------------------
South America 19 20 19
---------------------------------------------------------------------
Russia/Central 6 5 4 2005 vs 2004 - Higher activity to
Asia support development of the new business
unit.
---------------------------------------------------------------------
Other countries 3 1 -
---------------------------------------------------------------------
Mine development 12 22 53 2005 vs 2004 - In 2004, we expensed
Lagunas Norte development costs
totaling $9 million until May 1, when
the project achieved the criteria to
classify mineralization as a reserve
for US reporting purposes. 2004 vs 2003
- In 2003, we expensed development
costs at Lagunas Norte totaling $29
million, and at Veladero totaling $18
million until October 2003 when the
project achieved the criteria to
classify mineralization as a reserve
for US reporting purposes.
---------------------------------------------------------------------
Non- 16 7 - Non-capitalizable costs mainly
capitalizable represent items incurred in the
project costs development/construction phase that
cannot be capitalized.
---------------------------------------------------------------------
Business 15 22 20 2005 vs 2004 - Decrease in overhead
development/ costs associated with the
other administration of exploration and
development programs.
---------------------------------------------------------------------
Total $141 $141 $137
---------------------------------------------------------------------
Amortization Expense
---------------------------------------------------------------------
($millions, except per ounce amounts in dollars)
Incr. (decr.)
due to
-------------
Sales
For the years vol- 2005 2004
ended 2005 umes 2004 Per Per Comments on other
December 31 Amount (1) Other Amount ounce ounce variances
---------------------------------------------------------------------
Goldstrike $90 $3 $4 $83 $60 $61 Capital additions
Open Pit in 2005, partly
offset by an
increase in
reserves.
---------------------------------------------------------------------
Goldstrike 60 (6) - 66 119 120 Capital additions
Underground in 2005, offset by
an increase in
reserves.
---------------------------------------------------------------------
Eskay Creek 26 (21) (4) 51 153 176 Writedown of book
value in 2004,
partly offset by
an increase in
amortization due
to a decrease in
reserves.
---------------------------------------------------------------------
Round Mountain 17 - - 17 45 47 Capital additions
in 2005, offset
by an increase in
reserves.
---------------------------------------------------------------------
Lagunas Norte 29 29 - - 53 -
---------------------------------------------------------------------
Pierina 72 (2) (33) 107 115 165 Increase in
reserves and
transfer of
certain
assets to Lagunas
Norte in 2005.
---------------------------------------------------------------------
Kalgoorlie 20 (3) 3 20 49 44 Capital additions
in 2005.
---------------------------------------------------------------------
Plutonic 10 (2) 1 11 39 34 Capital additions
in 2005.
---------------------------------------------------------------------
Bulyanhulu 34 (2) 2 34 113 100 Capital additions
in 2005.
---------------------------------------------------------------------
Other mines 51 13 2 36 63 59
---------------------------------------------------------------------
Sub total 409 9 (25) 425
---------------------------------------------------------------------
Corporate 18 27
assets
---------------------------------------------------------------------
Total $427 $452
---------------------------------------------------------------------
Amortization Expense (Cont'd)
---------------------------------------------------------------------
($millions, except per ounce amounts in dollars)
Incr. (decr.)
due to
-------------
Sales
For the years vol- 2004 2003
ended 2004 umes 2003 Per Per Comments on other
December 31 Amount (1) Other Amount ounce ounce variances
---------------------------------------------------------------------
Goldstrike $83 $(4) $- $87 $61 $53 Capital additions
Open Pit in 2004, offset by
an increase in
reserves.
---------------------------------------------------------------------
Goldstrike 66 (6) (1) 73 120 122 Increase in
Underground reserves, partly
offset by capital
additions in 2004.
---------------------------------------------------------------------
Eskay Creek 51 (8) 12 47 176 132 Decrease in
reserves and
capital additions
in 2004.
---------------------------------------------------------------------
Round Mountain 17 - (3) 20 47 54 Increase in
reserves, and a
decrease in
property, plant
and equipment as
amortization
exceed capital
additions in the
year.
---------------------------------------------------------------------
Pierina 107 (48) (11) 166 165 182 Increase in
reserves.
---------------------------------------------------------------------
Kalgoorlie 20 1 (1) 20 44 48 Increase in
reserves.
---------------------------------------------------------------------
Plutonic 11 - 1 10 34 31 Capital additions
in 2004, partly
offset by an
increase in
reserves.
---------------------------------------------------------------------
Bulyanhulu 34 3 (6) 37 100 123
---------------------------------------------------------------------
Other mines 36 (3) 2 37 59 57 Capital additions
at Hemlo and
Marigold.
---------------------------------------------------------------------
Sub total 425 (65) (7) 497
---------------------------------------------------------------------
Corporate 27 25
assets
---------------------------------------------------------------------
Total $452 $522
---------------------------------------------------------------------
(1) For explanation of changes in sales volumes refer to page 17.
Corporate Administration, Interest Income and Interest Expense
---------------------------------------------------------------------
($millions)
For the
years
ended
December 31 2005 2004 2003 Comments
---------------------------------------------------------------------
Corporate
administration $71 $71 $73 2004 vs 2003 - Severance costs of $9
million in 2003, with higher regulatory
compliance costs in 2004.
---------------------------------------------------------------------
Interest (38) (25) (31) 2005 vs 2004 - Increase in the average
income cash balance, combined with an increase
in market interest rates. 2004 vs 2003
- Lower average cash balances in 2004,
combined with higher gains on cash
hedges in 2003.
---------------------------------------------------------------------
Interest
costs
---------------------------------------------------------------------
Incurred 125 60 49 Increase mainly due to new financing
put in place in 2004 and 2005. Average
long-term debt outstanding increased
from $0.8 billion in 2003 to $0.9
billion in 2004 to $1.8 billion in
2005.
---------------------------------------------------------------------
Capitalized (118) (41) (5) 2005 vs 2004 - Increased amounts were
capitalized in 2005 to Pascua-Lama,
Cowal, Veladero, and Lagunas Norte
development projects as construction
costs were incurred and capitalized.
Capitalization at Lagunas Norte ceased
in third quarter 2005, while
capitalization at Veladero ceased in
fourth quarter 2005. Average book value
of these four projects was $1.3 billion
in 2005 and $0.6 billion in 2004. 2004
vs 2003 - Higher amounts were
capitalized at development projects due
to construction costs capitalized in
2004, and capitalization at Pascua-Lama
from July 1, 2004.
---------------------------------------------------------------------
Expensed $7 $19 $44 We expect interest expense to increase
in 2006 over 2005 as Lagunas Norte and
Veladero started production and ceased
interest capitalization in third
quarter and fourth quarter 2005,
respectively.
---------------------------------------------------------------------
Impairment of Long-lived Assets
---------------------------------------------------------------------
($millions)
For the
years
ended
December 31 2005 2004 2003
---------------------------------------------------------------------
Impairment $- $58 $- In 2004, we completed an impairment
charge test for the Eskay Creek mine, due to a
- Eskay Creek downward revision to reserves, the
continued weakening of the US dollar
that impacts Canadian dollar operating
costs, and upward revisions in asset
retirement obligation costs.
---------------------------------------------------------------------
Impairment - 67 - We completed an impairment test in 2004
charge on a group of Peruvian exploration-
- Peruvian stage properties based on finalization
exploration of the exploration program for the year
properties and an updated assessment of future
plans for the property.
---------------------------------------------------------------------
Impairment - 14 5 2004 includes writedown on various
charge - other exploration-stage properties.
---------------------------------------------------------------------
Total $- $139 $5
---------------------------------------------------------------------
Other (Income) Expense
---------------------------------------------------------------------
($millions)
For the
years
ended
December 31 2005 2004 2003
---------------------------------------------------------------------
Non-hedge $(6) $(5) $(71) The gains and losses arise primarily
derivative due to changes in commodity prices,
gains currency exchange rates and interest
rates.
---------------------------------------------------------------------
Gains on (5) (36) (36) In 2005, we sold certain land
asset sales positions in Australia. In 2004, we
sold various mining properties,
including the Holt-McDermott mine in
Canada and certain land positions
around our inactive mine sites in the
United States. In 2003, we sold
various mining properties, including
several land positions around inactive
mine sites in the United States, as
well as the East Malartic Mill and
Bousquet mine in Canada. The majority
of these land positions were fully
amortized in prior years and therefore
any proceeds generated gains on sale,
before selling costs and taxes.
---------------------------------------------------------------------
Gain on (15) - - Gain recorded in 2005 relates to the
Kabanga closing of a transaction with
transaction Falconbridge.
---------------------------------------------------------------------
Gains on (17) (6) (4) 2005 vs 2004 - $10 million of the
investment gains in 2005 related to the sale of
sales investments held in a rabbi trust for
a deferred compensation plan. Other
gains in all years mainly relate to
the sale of various other investments.
---------------------------------------------------------------------
Impairment 16 5 11 2005 impairment charge relates to the
charges on writedown of two investments which
investments were determined to be impaired. 2003
impairment charge relates mainly to
investments under a deferred
compensation plan.
---------------------------------------------------------------------
Changes in 15 22 10 Charges relate to revisions to cost
asset estimates at various closed mines.
retirement
obligations
at closed
mines
---------------------------------------------------------------------
Environmental 13 14 38 In 2003, three North American mines
remediation shut down and two South American mines
costs had recently shut down, and as a
result the expenditures were very high
in this year.
---------------------------------------------------------------------
Accretion 10 7 7
expense
---------------------------------------------------------------------
Currency (3) 1 (2) In 2005, gains reflect the
translation strengthening of the Canadian dollar
(gains) on monetary assets.
losses
---------------------------------------------------------------------
Other items 59 41 41 Includes charges for World Gold
Council fee, legal costs for major
litigation and certain costs incurred
at our regional business units.
---------------------------------------------------------------------
Total $67 $43 $(6)
---------------------------------------------------------------------
Income Taxes
---------------------------------------------------------------------
For the
years
ended
December 31
2005 2004 2003
($ millions, In- In- In-
except come come come
percentages) tax tax tax
Effective ex- ex- ex-
income Pre- Effect- pense Pre- Effect- pense Pre- Effect- pense
rates on tax ive (re- tax ive (re- tax ive (re-
elements in- tax cov- in- tax cov- in- tax cov-
of income come rate ery) come rate ery) come rate ery)
---------------------------------------------------------------------
Income tax
expense
before
elements
below $455 21% $97 $45 53% $24 $222 30% $67
---------------------------------------------------------------------
Change in
Australian
tax status (5) (81) -
---------------------------------------------------------------------
Outcome of
tax
uncertain-
ties - (141) -
---------------------------------------------------------------------
Release of
deferred
tax valu-
ation
allowances
recorded
in prior
years (32) (5) (62)
---------------------------------------------------------------------
$60 $(203) $5
---------------------------------------------------------------------
/T/
Income tax expense increased in 2005 in comparison to the tax recoveries in 2004, as the 2004 tax recoveries
arose primarily with respect to the change in Australian tax status and the outcome of tax uncertainties. Our
underlying tax rate decreased to 21% in 2005 in part due to the impact of a lower amount of deliveries into
gold sales contracts in a low tax-rate jurisdiction at prices below the prevailing spot market gold price than
in 2004. A shift in the geographic mix of gold production, and therefore income before taxes, towards
jurisdictions with lower tax rates also contributed to a reduction in the underlying tax rate.
As gold prices increase, our underlying tax rate also increases, reaching about 29% with market prices at or
above $475 per ounce. This expected underlying rate excludes the effect of gains and losses on non-hedge
derivatives, the effect of delivering into gold sales contracts in a low tax-rate jurisdiction at prices below
prevailing market prices, and any release of deferred tax valuation allowances.
We record deferred tax charges or credits if changes in facts or circumstances affect the estimated tax basis
of assets and therefore the amount of deferred tax assets or liabilities or because of changes in valuation
allowances reflecting changing expectations in our ability to realize deferred tax assets. In 2005, we released
valuation allowances totaling $32 million, of which $31 million related to Argentina, in anticipation of higher
levels of future taxable income after production began at Veladero, and also due to the impact of higher market
gold prices. In 2004, we recorded a tax credit of $141 million on final resolution of a Peruvian tax assessment
in our favor, as well as the reversal of other accrued costs totaling $21 million ($15 million post-tax). We
also recorded credits of $81 million due to a change in tax status in Australia following an election that
resulted in a revaluation of assets for tax purposes; and also an election to file tax returns in US dollars,
rather than Australian dollars. In 2005, we revised our estimate of the revaluation of assets for tax purposes
due to the change in status, and recorded a further deferred tax credit of $5 million.
The interpretation of tax regulations and legislation and their application to our business is complex and
subject to change. We have significant amounts of deferred tax assets, including tax loss carry forwards, and
also deferred tax liabilities. Potential changes to any of these amounts, as well as our ability to realize
deferred tax assets, could significantly affect net income or cash flow in future periods. For more information
on tax valuation allowances, see page 40.
/T/
Quarterly Information ($ millions, except where indicated)
---------------------------------------------------------------------
2005 2004
--------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
---------------------------------------------------------------------
Gold sales $ 776 $ 627 $ 463 $ 484 $ 501 $ 500 $ 454 $ 477
---------------------------------------------------------------------
Net income 175 113 53 60 156 32 34 26
---------------------------------------------------------------------
Net income per
share - basic
(dollars) 0.33 0.21 0.10 0.11 0.30 0.06 0.06 0.05
---------------------------------------------------------------------
Net income per
share - diluted
(dollars) 0.32 0.21 0.10 0.11 0.29 0.06 0.06 0.05
---------------------------------------------------------------------
/T/
Our financial results for the last eight quarters reflect the following general trends: rising spot gold prices
with a corresponding rise in prices realized from gold sales; and rising gold production and sales volumes as
our new mines began production in 2005. These historic trends are discussed elsewhere in this MD&A. The
quarterly trends are consistent with explanations for annual trends over the last two years. Net income in each
quarter also reflects the timing of various special items that are presented in the table on page 26.
Fourth Quarter Results
In fourth quarter 2005, we produced 1.65 million ounces at total cash costs of $221 per ounce(1) compared to
1.17 million ounces at total cash costs of $223 per ounce in the prior-year quarter. Revenue for fourth quarter
2005 was $776 million on gold sales of 1.65 million ounces, compared to $501 million in revenue on gold sales
of 1.2 million ounces for the prior-year quarter. Sales volumes increased due to the contribution from new
mines that began production in 2005. During the quarter, spot gold prices averaged $486 per ounce. We realized
an average price of $467 per ounce during the quarter compared to $417 per ounce in the prior-year quarter
mainly due to higher spot gold prices. Earnings for fourth quarter 2005 were $175 million ($0.32 per share on a
diluted basis), $19 million ($0.03 per share on a diluted basis) higher than the prior-year quarter. The
increase in earnings over the prior-year quarter reflects higher gold sales volumes and realized gold prices,
partly offset by the impact of special items.
(1) Total cash costs per ounce excludes amortization - see page 17.
/T/
Effect on Earnings Increase (Decrease)
---------------------------------------------------------------------
Three months ended December 31
($ millions) 2005 2004
---------------------------------------------------------------------
Pre-tax Post-tax Pre-tax Post-tax
---------------------------------------------------------------------
Non-hedge
derivative gains
(losses) $ (1) $ (1) $ 6 $ 6
---------------------------------------------------------------------
Gains on sales of
investments and
mining properties 8 8 35 25
---------------------------------------------------------------------
Impairment charges
on long-lived
assets and
investments (13) (13) (135) (93)
---------------------------------------------------------------------
Change in asset
retirement
obligation
estimates (2) (3) (19) (15)
---------------------------------------------------------------------
Deferred stripping
accounting changes
---------------------------------------------------------------------
Impact on the
period compared to
previous policy 35 24 - -
---------------------------------------------------------------------
Resolution of
Peruvian tax
assessment - - 21 156
---------------------------------------------------------------------
Deferred tax
credits
---------------------------------------------------------------------
Change in
Australian tax
status - 5 - 48
---------------------------------------------------------------------
Other - 32 - -
---------------------------------------------------------------------
Total $ 27 $ 52 $ (92) $ 127
---------------------------------------------------------------------
/T/
In fourth quarter 2005, we generated operating cash flow of $269 million compared to operating cash flow of
$123 million in the prior-year quarter. Higher operating cash flow primarily relates to the combined effect of
higher gold sales volumes and higher realized gold prices.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
NOTE: A chart titled "Cash Flow" is available on CCNMatthews' website at:
http://www.ccnmatthews.com/docs/abx0222j.jpg
Operating Activities
Operating cash flow increased by $217 million in 2005 to $726 million. The key factors that contributed to the
year over year decrease are summarized in the table below.
/T/
Key Factors Affecting Operating Cash Flow
---------------------------------------------------------------------
($ millions) Impact on
comparative
operating
cash flows Comments on
2005 2004 significant
For the years ended vs vs trends
December 31 2005 2004 2003 2004 2003 and variances
---------------------------------------------------------------------
Gold sales
volumes ('000s oz) 5,320 4,936 5,554 $ 68 $ (109) See page 17.
---------------------------------------------------------------------
Realized gold
prices ($/oz) $ 439 $ 391 $ 366 255 123 See page 17.
---------------------------------------------------------------------
Total cash costs
($/oz) 227 214 189 (69) (123) See page 17.
---------------------------------------------------------------------
Sub-total 254 (109)
---------------------------------------------------------------------
Other inflows
(outflows)
---------------------------------------------------------------------
Income tax
payments (80) (45) (111) (35) 66 2005 vs 2004
- Increased
payments in
2005 relate
to higher
gold prices
and the
start of
Lagunas
Norte
production.
2004 vs 2003
- Large
payment in
2003 paid to
Canadian tax
authorities
in relation
to 2002
final
payment.
---------------------------------------------------------------------
Increase in
inventories (151) (51) (1) (100) (50) Due to
build-up of
both ore and
supplies
inventory at
operating
mines,
particularly
for mines
that went
into
production
in 2005.
---------------------------------------------------------------------
Other non-cash
working capital 68 (65) (45) 133 (20) 2005 vs 2004
- Increase
in accounts
payable in
2005 mainly
due to
timing of
payments and
for mines
that began
production
in 2005.
2004 vs 2003
- Increase
in taxes
recoverable
in 2004
relating to
input taxes
on mine
construction
costs.
---------------------------------------------------------------------
Interest expense 7 19 44 12 25 See page 24.
---------------------------------------------------------------------
Cost of Inmet
settlement in
2003 - - 86 - 86
---------------------------------------------------------------------
Effect of other
factors (47) (8)
---------------------------------------------------------------------
Total $ 217 $ (10)
---------------------------------------------------------------------
Investing Activities
---------------------------------------------------------------------
($ millions)
For the years
ended December 31 2005 2004 2003 Comments
---------------------------------------------------------------------
Growth capital
expenditures(1)
---------------------------------------------------------------------
Veladero $ 213 $ 284 $ 68 Costs mainly relate to
construction activity.
Production start-up in
fourth quarter 2005.
---------------------------------------------------------------------
Lagunas Norte 100 182 4 Construction activity
started in second
quarter 2004.
Production start-up
in second quarter
2005.
---------------------------------------------------------------------
Cowal 258 73 24 Construction activity
started in second
quarter 2004. Higher
levels of activity in
2005, leading up to
production start-up
expected in first
quarter 2006.
---------------------------------------------------------------------
Tulawaka 5 48 1 Costs mainly relate to
construction activity.
Production start-up
in first quarter 2005.
---------------------------------------------------------------------
Pascua-Lama 98 35 9 Higher levels of
activity since
decision in mid-2004
to proceed with the
project, as well as
capitalized interest
since mid-2004.
---------------------------------------------------------------------
Western 102 Power Plant 80 18 - Construction activity
started in first
quarter 2004. Higher
levels of activity in
2005 in lead-up to
production start-up
in the fourth quarter.
---------------------------------------------------------------------
East Archimedes 35 - - Construction activity
started in first
quarter 2005.
---------------------------------------------------------------------
Sub-total $ 789 $ 640 $ 106
---------------------------------------------------------------------
Sustaining
capital
expenditures
---------------------------------------------------------------------
North America $ 103 $ 86 $ 80 Higher sustaining
capital expenditures
at Goldstrike in 2005,
in particular, a
100-ton shovel
purchase and higher
budgeted expenditures
in general.
---------------------------------------------------------------------
Australia/Africa 90 83 115 2003 was higher due
to a transition to
owner-mining at
Plutonic that resulted
in equipment purchases.
---------------------------------------------------------------------
South America 114 8 17 Purchases of equipment
at newly operational
mines.
---------------------------------------------------------------------
Other 8 7 4
---------------------------------------------------------------------
Sub-total $ 315 $ 184 216
---------------------------------------------------------------------
Total $ 1,104 $ 824 $ 322
---------------------------------------------------------------------
(1) Includes both construction costs and capitalized interest.
/T/
We plan to fund the expected capital expenditures for 2006 from a combination of our $1 billion cash position
at the end of 2005, and operating cash flow that we expect to generate in 2006. We are considering putting in
place project financing for a portion of the mine construction costs at Pascua-Lama.
On February 14, 2006, we entered into an agreement with Antofagasta plc ("Antofagasta") to acquire 50% of
Tethyan Copper Company's ("Tethyan") Reko Diq project and associated mineral interests in Pakistan in the event
that Antofagasta is successful in its bid to acquire Tethyan. If Antofagasta's bid is successfully completed,
we will reimburse Antofagasta approximately $100 million in cash for 50% of the acquisition, including the claw-
back right to be acquired or extinguished from BHP Billiton who has a right to claw-back a material interest in
certain Tethyan's mineral interests.
Financing Activities
The most significant financing cash flows in 2005 were $179 million on issue of new long-term debt obligations,
$92 million received on the exercise of employee stock options partly offset by dividend payments made totaling
$118 million. We also made scheduled payments under our long-term debt obligations totaling $59 million in
2005.
Liquidity
Liquidity Management
Liquidity is managed dynamically, and factors that could impact liquidity are regularly monitored. The primary
factors that affect liquidity include gold production levels, realized gold sales prices, cash production
costs, future capital expenditure requirements, scheduled repayments of long-term debt obligations, our credit
capacity and expected future debt market conditions. Working capital requirements have not historically had a
material effect on liquidity. Counterparties to the financial instruments and gold sales contracts that we hold
do not have unilateral and discretionary rights to accelerate settlement of financial instruments or gold sales
contracts, and we are not subject to any margin calls.
Through the combination of a strong balance sheet and positive operating cash flows, we have been able to
secure financing, as required, to fund our capital projects. We had three new mines start in 2005, with a
fourth scheduled to start production in first quarter 2006. The costs of construction for these projects were
financed through a combination of operating cash flows and the issuance of long-term debt financing. While we
consider our liquidity profile to be sound with no reasonably foreseeable trends, demands, commitments, events
or circumstances expected to prevent us from funding the capital needed to complete our projects and implement
our strategy, no assurance can be given that additional capital investments will not be required to be made at
these or other projects. If we are unable to generate enough cash to finance such additional capital
expenditures through operating cash flow and we are unable or choose not to issue common stock, we may be
required to issue additional indebtedness. Any additional indebtedness would increase our debt payment
obligations, and may negatively impact our results of operations.
Capital Resources
Adequate funding is in place or available for all our development projects. We plan to put in place project
financing for a portion of the expected construction cost of Pascua-Lama; however, if we are unable to do so
because of unforeseen political or other challenges, we expect to be able to fund the capital required through
a combination of existing capital resources and future operating cash flows. We may also invest capital in
Russia and Central Asia in 2006 to acquire interests in mineral properties as we develop our business unit
there. We expect that any capital required will be funded from a combination of our existing cash position and
operating cash flow in 2006.
The total estimated acquisition cost of Placer Dome is $10.1 billion of which approximately $1.3 billion is the
cash portion that is funded by drawing upon our $1 billion credit facility, with the balance from our cash
position. We expect to close the sale of certain Placer Dome operations to Goldcorp in the first half of 2006
and receive cash consideration of about $1.5 billion from Goldcorp that will be used to repay amounts borrowed,
with respect to the Placer Dome acquisition, on our $1 billion credit facility.
/T/
Capital Resources(1)
---------------------------------------------------------------------
($ millions)
For the years ended December 31 2005 2004 2003
---------------------------------------------------------------------
Opening capital resources $ 2,476 $ 1,970 $ 2,044
---------------------------------------------------------------------
New sources
---------------------------------------------------------------------
Operating cash flow 726 509 519
---------------------------------------------------------------------
New and increases to financing
facilities(2) 134 1,056 -
---------------------------------------------------------------------
3,336 3,535 2,563
---------------------------------------------------------------------
Allocations
---------------------------------------------------------------------
Growth capital(3) (789) (640) (106)
---------------------------------------------------------------------
Sustaining capital(3) (315) (184) (216)
---------------------------------------------------------------------
Dividends (118) (118) (118)
---------------------------------------------------------------------
Share buyback - (95) (154)
---------------------------------------------------------------------
Other (30) (22) 1
---------------------------------------------------------------------
Closing capital resources $ 2,084 $2,476 $ 1,970
---------------------------------------------------------------------
Components of closing capital
resources
---------------------------------------------------------------------
Cash and equivalents(5) $ 1,037 $ 1,398 $ 970
---------------------------------------------------------------------
Unutilized credit facilities(4),(5) 1,047 1,078 1,000
---------------------------------------------------------------------
Total $ 2,084 $2,476 $ 1,970
---------------------------------------------------------------------
(1) Capital resources include cash balances and sources of financing
that have been arranged but not utilized.
(2) In 2005, includes the $50 million Peruvian bond offering and
$84 million lease facility for Lagunas Norte. In 2004, includes
the $250 million Veladero project financing, $750 million bond
offering, and $56 million lease facility for Lagunas Norte.
(3) Growth capital represents capital invested in new projects to
bring new mines into production. Sustaining capital represents
ongoing capital required at existing mining operations. Sum of
growth and sustaining capital equals capital expenditures for
the year.
(4) Subsequent to December 31, 2005, we drew upon our $1 billion
credit facility to fund the Placer Dome acquisition. Amounts
drawn will be repaid upon closure of sales of specific Placer
Dome operations to Goldcorp.
(5) Excludes Placer Dome capital resources. At December 31, 2005,
Placer Dome had $880 million of cash and equivalents and $873
million of undrawn bank lines of credit available of which
$300 million was drawn subsequent to year end.
Credit Rating
At February 10, 2006 from major rating agencies:
---------------------------------------------------------------------
Standard and Poor's ("S&P") A-
Moody's Baa1
DBRS A
---------------------------------------------------------------------
/T/
In 2006, following the acquisition of Placer Dome, our ratings were reviewed and confirmed by Moody's and DBRS.
S&P lowered our rating from 'A' to 'A-', reflecting Placer Dome's lower rating. Our ability to access unsecured
debt markets and the related cost of debt financing is, in part, dependent upon maintaining an acceptable
credit rating. A deterioration in our credit rating would not adversely affect existing debt securities or the
terms of gold sales contracts, but could impact funding costs for any new debt financing. The key factors that
are important to our credit rating include the following: our market capitalization; the strength of our
balance sheet, including the amount of net debt and our debt-to-equity ratio; our net cash flow, including cash
generated by operating activities and expected capital expenditure requirements; the quantity of our gold
reserves; and our geo-political risk profile.
/T/
Financial Position
Key Balance Sheet Ratios
---------------------------------------------------------------------
As at December 31 2005 2004
---------------------------------------------------------------------
Non-cash working capital ($ millions)(1) $ 151 $ 141
---------------------------------------------------------------------
Net debt ($ millions)(2) $ 764 $ 288
---------------------------------------------------------------------
Net debt:equity ratio(3) 0.20:1 0.08:1
---------------------------------------------------------------------
Current ratio(4) 3.12:1 4.66:1
---------------------------------------------------------------------
(1) Represents current assets, excluding cash and equivalents, less
current liabilities.
(2) Represents long-term debt less cash and equivalents.
(3) Represents net debt divided by shareholders' equity.
(4) Represents current assets divided by current liabilities.
/T/
Non-cash working capital increased in 2005 mainly due to increases in inventory levels to support new mines
that began production. Capital expenditures exceeded operating cash flow in 2005, resulting in a higher net
debt position at the end of 2005. Lower cash balances, partly offset by higher inventory balances, caused our
current ratio to decrease at the end of 2005.
Shareholders' Equity
Outstanding Share Data
As at February 10, 2006, 827.7 million of our common shares, one special voting share and 1.4 million
exchangeable shares (exchangeable into 0.7 million of our common shares) were issued and outstanding. As at
February 10, 2006, options to purchase 20.2 million common shares were outstanding under our option plans, as
well as options to purchase 0.3 million common shares under certain option plans inherited by us in connection
with prior acquisitions. We intend to acquire the remaining 6% interest in Placer Dome through a compulsory
acquisition procedure that would involve the issuance of additional common shares. For further information
regarding the outstanding shares and stock options, please refer to the Financial Statements and our 2005
Management Information Circular and Proxy Statement.
Dividend Policy
In each of the last four years, we paid a total cash dividend of $0.22 per share - $0.11 in mid-June and $0.11
in mid-December. The amount and timing of any dividends is within the discretion of our Board of Directors. The
Board of Directors reviews the dividend policy semi-annually based on the cash requirements of our operating
assets, exploration and development activities, as well as potential acquisitions, combined with our current
and projected financial position.
Comprehensive Income
Comprehensive income consists of net income or loss, together with certain other economic gains and losses that
collectively are described as "other comprehensive income" or "OCI", and excluded from the income statement.
In 2005, the other comprehensive loss of $100 million mainly included gains of $23 million on hedge contracts
designated for future periods caused primarily by changes in currency exchange rates and fuel prices; offset by
reclassification adjustments totaling $134 million for gains on hedge contracts designated for 2005 that were
transferred to earnings in 2005; and a $8 million unrealized decrease in the fair value of investments.
Included in other comprehensive income at December 31, 2005 were unrealized pre-tax gains on currency hedge
contracts totaling $171 million, based on December 31, 2005 market foreign exchange rates. The related hedge
contracts are designated against operating costs and capital expenditures primarily over the next three years,
and are expected to help protect against the impact of strengthening of the Australian and Canadian dollar
against the US dollar. The hedge gains are expected to be recorded in earnings at the same time as the
corresponding hedged operating costs and amortization of capital expenditures are also recorded in earnings.
/T/
Contractual Obligations and Commitments(1)
---------------------------------------------------------------------
($ millions) Payments due
2011 and
At December there-
31, 2005 2006 2007 2008 2009 2010 after Total
---------------------------------------------------------------------
Long-term debt(1)
---------------------------------------------------------------------
Repayment of
principal $ 62 $ 589 $ 79 $ 67 $ 28 $ 894 $ 1,719
---------------------------------------------------------------------
Interest(1) 102 79 56 51 49 696 1,033
---------------------------------------------------------------------
Asset
retirement
obligations(2) 37 30 24 48 33 498 670
---------------------------------------------------------------------
Capital leases 19 23 19 19 16 1 97
---------------------------------------------------------------------
Operating
leases 13 13 13 14 14 9 76
---------------------------------------------------------------------
Royalty
arrangements
and other
long-term-
liabilities(3) 79 70 67 71 65 579 931
---------------------------------------------------------------------
Purchase
obligations for
supplies and
consumables 109 89 53 24 17 20 312
---------------------------------------------------------------------
Capital
commitments(4) 85 - - - - - 85
---------------------------------------------------------------------
Total $ 506 $ 893 $ 311 $ 294 $ 222 $ 2,697 $ 4,923
---------------------------------------------------------------------
(1) Excludes any Placer Dome obligations and commitments.
/T/
Contractual Obligations and Commitments
(1) Long-term Debt and Interest
Our debt obligations do not include any subjective acceleration clauses or other clauses that enable the holder
of the debt to call for early repayment, except in the event that we breach any of the terms and conditions of
the debt or for other customary events of default. The Bulyanhulu and Veladero financings are collateralized by
assets at the Bulyanhulu and Veladero mines, respectively. Other than this security, we are not required to
post any collateral under any debt obligations. The terms of our debt obligations would not be affected by a
deterioration in our credit rating. Projected interest payments on variable rate debt was based on interest
rates in effect at December 31, 2005. Interest is calculated on our long-term debt obligations using both fixed
and variable rates.
(2) Asset Retirement Obligations
Amounts presented in the table represent the undiscounted future payments for the expected cost of asset
retirement obligations.
(3) Royalties and Other Long-term Liabilities
Virtually all of the royalty arrangements give rise to obligations as we produce gold. In the event that we do
not produce gold at our mining properties, we have no payment obligation to the royalty holders. The amounts
disclosed are based on expected future gold production, using a gold price range assumption of $450-$475 per
ounce. The most significant royalty agreements are disclosed in note 6 to our Financial Statements. Based on
2005 production levels, an increase in market gold prices by $25 per ounce would result in an annual increase
in royalty payments by approximately $8 million.
Other long-term liabilities includes pension and post-retirement benefits funding in 2006. Funding beyond 2006
is not included in this table as it cannot be reasonably estimated given variable market conditions and
actuarial assumptions. In 2006, we expect to make contributions to pension and post-retirement benefits plans
totaling $6 million. Other long-term liabilities include derivative liabilities. Payments related to derivative
contracts cannot be reasonably estimated given variable market conditions. Refer to note 16C to the Financial
Statements.
(4) Capital Commitments
Purchase obligations for capital expenditures include only those items where binding commitments have been
entered into. Commitments at the end of 2005 mainly related to construction at our development projects.
Capital Expenditures Not Yet Committed
We expect to incur capital expenditures during the next five years for Barrick projects, Placer Dome acquired
projects and producing mines. The primary Barrick project is Pascua-Lama (refer to page 20 for further details)
and the significant Placer Dome projects include Pueblo Viejo, Cortez Hills and Donlin Creek. We are currently
in the process of reviewing the capital requirements for the acquired Placer Dome projects and producing mines.
Payments to Maintain Land Tenure and Mineral Property Rights
In the normal course of business, we are required to make annual payments to maintain title to certain of our
properties and to maintain our rights to mine gold at certain of our properties. If we choose to abandon a
property or discontinue mining operations, the payments relating to that property can be suspended, resulting
in our rights to the property lapsing. The validity of mining claims can be uncertain and may be contested.
Although we have attempted to acquire satisfactory title to our properties, some risk exists that some titles,
particularly title to undeveloped properties, may be defective.
Contingencies - Litigation
We are currently subject to various litigation as disclosed in note 24 to the Financial Statements, and we may
be involved in disputes with other parties in the future that may result in litigation. If we are unable to
resolve these disputes favorably, it may have a material adverse impact on our financial condition, cash flow
and results of operations.
Financial Instruments
We use a mixture of cash and long-term debt to maintain an efficient capital structure and ensure adequate
liquidity exists to meet the cash needs of our business. A discussion of our liquidity and capital structure
can be found on page 27. We use interest rate contracts to mitigate interest rate risk that is implicit in our
cash balances and outstanding long-term debt. In the normal course of business, we are inherently exposed to
currency and commodity price risk. We use currency and commodity hedging instruments to mitigate these inherent
business risks. We also hold certain derivative instruments that do not qualify for hedge accounting treatment.
These non-hedge derivatives are described in note 16 to our Financial Statements. For a discussion of certain
risks and assumptions that relate to the use of derivatives, including market risk, market liquidity risk and
credit risk, refer to notes 16E and 16F to our Financial Statements. For a discussion of the methods used to
value financial instruments, as well as any significant assumptions, refer to note 16D to our Financial
Statements.
/T/
Summary of Financial Instruments(1)
As at and for the year ended December 31, 2005
---------------------------------------------------------------------
Principal/ Amounts Not
Financial Notional Associated Amounts Recorded Recorded
Instrument Amount Risks in Earnings in Earnings
---------------------------------------------------------------------
Cash $1,037 - Interest Interest income less Nil
and million rate hedge gains on cash
equivalents - Credit hedging instruments
- 2005 - $32 million;
2004 - $6 million;
2003 - $13 million
---------------------------------------------------------------------
Investments $62 - Market Other income/expense - $12 million
in million 2005 $1 million gain; gain in OCI
available- 2004 $1 million gain;
for-sale 2003 $7 million loss
securities
---------------------------------------------------------------------
Long-term $1,721 - Interest Interest costs - 2005 - Fair value
debt million rate $7 million expensed greater than
($118 million carrying
capitalized); 2004 - value by $26
$19 million expensed million
($41 million capitalized)
; 2003 - $44 million
expensed ($5 million
capitalized)
---------------------------------------------------------------------
Hedging C$788 - Market/ Hedge gains in cost $171 million
instru- million Liquid- of sales, corporate gain in OCI
ments - A$2,213 ity administration and
currency million - Credit amortization - 2005 -
contracts $120 million; 2004 -
ARS 36 $112 million; 2003 -
million $65 million
---------------------------------------------------------------------
Cash $425 - Market/ Hedge gains/losses in $2 million
hedging million Liquid- interest income - 2005 loss in OCI
instru- ity - $6 million gain; 2004
ments - - Credit - $19 million gain; 2003
interest - $18 million gain
rate
contracts
---------------------------------------------------------------------
Debt $500 - Market/ Change in fair value rec- Nil
hedging million Liquid- orded in earnings - 2005
instru- ity - $13 million loss; 2004 -
ments - - Credit $2 million gain; 2003 - $
interest 9 million gain
rate
contracts
---------------------------------------------------------------------
Hedging Fuel - 2 - Market/ Hedge gains in cost of $38 million
instru- million Liquid- sales - 2005 - $10 gain in OCI
ments - barrels ity million; 2004 - $4
fuel and Propane - - Credit million; 2003 - $nil
propane 17
contracts million
gallons
---------------------------------------------------------------------
Non-hedge Various - Market/ Gains in other income/ Nil
deriv- Liquid- expense - 2005 - $6
atives ity million; 2004 - $5
- Credit million; 2003 - $71
million
---------------------------------------------------------------------
(1) Refer to pages 33 to 35 for information on gold and silver sales
contracts.
/T/
OFF BALANCE SHEET ARRANGEMENTS
Gold and Silver Sales Contracts
We have historically used gold and silver sales contracts as a means of selling a portion of our annual gold
and silver production. The contracting parties are bullion banks whose business includes entering into
contracts to purchase gold or silver from mining companies. Since 2001, we have been focusing on reducing the
level of outstanding gold and silver sales contracts. The terms of our fixed-price gold and silver sales
contracts enable us to deliver gold and silver whenever we choose over the primarily ten-year term of the
contracts. In 2005, we reduced our fixed-price gold sales contracts position by 1.0 million ounces through
delivery of 0.8 million ounces of our gold production and the conversion of 0.2 million ounces to floating spot
price contracts.
Project Gold Sales Contracts
In July 2004, we announced a decision to proceed with the Pascua-Lama project ("Pascua-Lama") subject to
receiving required permits and clarification of the applicable fiscal regimes from the governments of Argentina
and Chile.
In anticipation of building Pascua-Lama and in support of any related financing, we have 6.5 million ounces of
existing fixed-price gold sales contracts specifically allocated to Pascua-Lama (the "Project Gold Sales
Contracts"). The allocation of these contracts will help reduce gold price risk at Pascua-Lama and is expected
to help secure the financing for its construction. We expect the allocation of these contracts to eliminate any
requirement by lenders to add any incremental gold sales contracts in the future to support the financing of
Pascua-Lama. The forward sales prices on our Project Gold Sales Contracts have not been fully fixed, and thus
remain sensitive to long-term interest rates. For these contracts, increasing long-term interest rates in the
fourth quarter resulted in a higher expected realizable sales price for these contracts. If long-term interest
rates continue to rise, we anticipate the expected realizable sales price to increase.
As part of our Master Trading Agreements ("MTAs"), Project Gold Sales Contracts are not subject to any
provisions regarding any financial go-ahead decisions with construction, or any possible delay or change in the
projects.
/T/
Key Aspects of Pascua-Lama Gold Sales Contracts
(as of December 31, 2005)
---------------------------------------------------------------------
Expected delivery dates.(1) 2009-2018, the term of the expected
financing.
---------------------------------------------------------------------
Future estimated average $378/oz.(2)
realizable selling price.
---------------------------------------------------------------------
Mark-to-market value at ($1,453) million.(3)
December 31, 2005.
---------------------------------------------------------------------
(1) The contract termination dates are in 2016-2019 in most cases,
but we currently expect to deliver Pascua-Lama production against
these contracts starting in 2009, subject to the timing of
receipt of approvals of the environmental impact assessments, as
well as the resolution of other external issues, both of which
are largely beyond our control. Refer to page 20 for further
details.
(2) Upon delivery of production from 2009-2018, the term of expected
financing. Approximate estimated value based on current market
US dollar interest rates and on an average lease rate assumption
of 0.75%.
(3) At a spot gold price of $513 per ounce and market interest rates.
/T/
The allocation of 6.5 million ounces of gold sales contracts to Pascua-Lama involves: i) the identification of
contracts in quantities and for terms that mitigate gold price risk for the project during the term of the
expected financing (contracts were chosen where the existing termination dates are spread between the targeted
first year of production and the expected retirement of financing for the project); ii) the segregation of
these contracts from the remaining non-project gold sales contracts (the "Corporate Gold Sales Contracts"); and
iii) the eventual settlement of proceeds from these contracts for the benefit of production.
Through allocation of these gold sales contracts to Pascua-Lama, we significantly reduce capital risk. It
protects the gold price during the term of the forecasted financing, while leaving the remaining reserves fully
levered to spot gold prices. The contracts represent just over 35% of the 18.3 million ounces of gold reserves
at Pascua-Lama. These contracts do not impact any of the 684.7 million ounces of silver contained in gold
reserves at Pascua-Lama.
Corporate Gold Sales Contracts and Floating Spot-Price Gold Sales Contracts
Fixed-price Corporate Gold Sales Contracts, which at December 31, 2005 totaled 6.0 million ounces, represent
approximately one year of Barrick's expected future gold production (excluding Placer Dome) and approximately
8.5% of our proven and probable reserves, in each case excluding Pascua-Lama and Placer Dome. At December 31,
2005, we had floating spot-price gold sales contracts under which we are committed to deliver 0.7 million
ounces of gold over the next year at spot prices, less an average fixed-price adjustment of $127 per ounce.
These floating spot-price contracts were previously fixed-price contracts, for which, under the price-setting
mechanisms of the MTAs, we elected to receive a price based on the market gold spot price at the time of
delivery adjusted based on the difference between the spot price and the contract price at the time of such
election.
/T/
Key Aspects of Corporate Gold Sales Contracts
(as of December 31, 2005)
---------------------------------------------------------------------
Current termination date of contracts. 2015 in most cases.
---------------------------------------------------------------------
Average estimated realizable selling price $458/oz.(1)
in 2015.
---------------------------------------------------------------------
Mark-to-market value at December 31, 2005.
Corporate Gold Sales Contracts. ($1,277) million.(2)
Floating Spot-Price Gold Sales Contracts. ($89) million.(2)
---------------------------------------------------------------------
(1) Approximate estimated value based on current market US dollar
interest rates and an average lease rate assumption of 0.75%.
Accelerating gold deliveries would likely lead to reduced
contango that would otherwise have built up over time. Barrick
may choose to settle any gold sales contract in advance of this
termination date at any time, at its discretion. Historically,
delivery has occurred in advance of the contractual termination
date.
(2) At a spot gold price of $513 per ounce, and market interest
rates.
/T/
In January 2006, we acquired the Pueblo Viejo development project ("Pueblo Viejo") as part of the Placer Dome
acquisition. Once the sale of certain Placer Dome operations to Goldcorp closes, we will have a 60% interest in
the project. In anticipation of financing our share of this project, subsequent to year end we allocated 3.0
million ounces of our Corporate Gold Sales Contracts to this project. This allocation does not impact any of
the 40% interest in Pueblo Viejo to be owned by Goldcorp.
We have an obligation to deliver gold by the termination date (currently 2015 in most cases). However, because
we typically fix the price of gold under our gold sales contracts to a date that is earlier than the
termination date of the contract (referred to as the "interim price-setting date"), the actual realized price
on the contract termination date depends upon the actual gold market forward premium ("contango") between the
interim price-setting date and the termination date.
Therefore, the $458/oz price estimate could change over time due to a number of factors, including but not
limited to: US dollar interest rates, gold lease rates, spot gold prices, and extensions of the termination
date. This price, which is an average for the total Corporate Gold Sales Contract position, is not necessarily
representative of the prices that may be realized each quarter for actual deliveries into gold sales contracts,
in particular, if we choose to settle any gold sales contract in advance of the termination date (which we have
the right to do at our discretion). If we choose to accelerate gold deliveries, this would likely lead to
reduced contango that would otherwise have built up over time (and therefore a lower realized price).
The gold market forward premium, or contango, is typically closely correlated with the difference between US
dollar interest rates and gold lease rates. An increase or decrease in US dollar interest rates would generally
lead to a corresponding increase or decrease in contango, and therefore an increase or decrease in the
estimated future price of the contract at the termination date. Furthermore, the greater the time period
between the interim price-setting date and the termination date, the greater the sensitivity of the final
realized price to US dollar interest rates.
A short-term spike in gold lease rates would not have a material negative impact on us because we are not
significantly exposed under our fixed-price gold sales contracts to short-term gold lease rate variations. A
prolonged rise in gold lease rates could result in lower contango (or negative contango, i.e. "backwardation").
Gold lease rates have historically tended to be low, and any spikes short-lived, because of the large amount of
gold available for lending relative to demand.
As a result of the Placer Dome acquisition, Barrick's gold sales contracts increased to 20 million ounces on a
pro forma basis as at December 31, 2005. Since year end, Placer Dome's gold hedge program has been reduced and
simplified with all outstanding sold call options eliminated. As of February 22, 2006, the combined gold sales
contracts totaled 18.5 million ounces, a reduction of 1.5 million ounces since year-end 2005. Of this total,
9.5 million ounces are allocated as Project Gold Sales Contracts in support of the Pascua-Lama and Pueblo Viejo
development projects. The remaining 9.0 million ounces of Corporate Gold Sales Contracts represent 8% of total
reserves excluding Pascua-Lama and Pueblo Viejo. Further reductions may be expected as we remain committed to
reducing our gold sales contracts in this favorable gold price environment.
/T/
Fixed-Price Silver Sales Contracts
(as of December 31, 2005)
---------------------------------------------------------------------
Millions of silver ounces 15
---------------------------------------------------------------------
Current termination date of silver sales
contracts 2015 in most cases.
---------------------------------------------------------------------
Average estimated realizable selling $7.40/oz.(1)
price at 2015 termination date
---------------------------------------------------------------------
Mark-to-market value at December 31, 2005 ($43) million.(2)
---------------------------------------------------------------------
(1) Approximate estimated value based on current market contango of
2.5%. Accelerating silver deliveries could potentially lead to
reduced contango that would otherwise have built up over time.
Barrick may choose to settle any silver sales contract in
advance of this termination date at any time, at its discretion.
Historically, delivery has occurred in advance of the contractual
termination date.
(2) At a spot silver price of $8.83 per ounce.
/T/
We also have floating spot-price silver sales contracts under which we are committed to deliver 7.5 million
ounces of silver over the next ten years at spot prices, less an average fixed-price adjustment of $1.25 per
ounce. These floating spot-price contracts were previously fixed-price contracts, for which, under the price-
setting mechanisms of the MTAs, we elected to receive a price based on the market silver spot price at the time
of delivery adjusted by the difference between the spot price and the contract price at the time of such
election.
Key Terms of Gold and Silver Sales Contracts
In all of our MTAs, which govern the terms of gold and silver sales contracts with our 19 counterparties, the
following applies:
- The counterparties do not have unilateral and discretionary "right to break" provisions.
- There are no credit downgrade provisions.
- We are not subject to any margin calls - regardless of the price of gold or silver.
- We have the right to settle our gold and silver sales contracts on two days notice at any time during the
life of the contracts, or keep these forward gold and silver sales contracts outstanding for up to 15 years.
- At our option, we can sell gold or silver at the market price or the contract price, whichever is higher, up
to the termination date of the contracts (currently 2015 in most cases).
The MTAs with our counterparties do provide for early close out of certain transactions in the event of a
material adverse change in our ability or our principal hedging subsidiary's ability to perform our or its gold
and silver delivery and other obligations under the trading agreements and related parent guarantees or a lack
of gold or silver market, and for customary events of default such as covenant breaches, insolvency or
bankruptcy. The principal financial covenants are:
- We must maintain a minimum consolidated net worth of at least $2 billion; it was $3.9 billion at year end.
The MTAs exclude unrealized mark-to-market valuations in the calculation of consolidated net worth.
- We must maintain a maximum long-term debt to consolidated net worth ratio of 2:1; it was 0.5:1 at year end.
In most cases, under the terms of the MTAs, the period over which we are required to deliver gold is extended
annually by one year, or kept "evergreen", regardless of the intended delivery dates, unless otherwise notified
by the counterparty. This means that, with each year that passes, the termination date of most MTAs is extended
into the future by one year.
As spot gold prices increase or decrease, the value of our gold mineral reserves and amount of potential
operating cash inflows generally increases or decreases. The unrealized mark-to-market loss on our fixed-price
forward gold sales contracts also increases or decreases. The mark-to-market value represents the cancellation
value of these contracts based on current market levels, and does not represent an immediate economic
obligation for payment by us. Our obligations under the gold forward sales contracts are to deliver an agreed
upon quantity of gold at a contracted price by the termination date of the contracts (currently 2015 in most
cases). Gold sales contracts are not recorded on our balance sheet. The economic impact of these contracts is
reflected in our Financial Statements within gold sales based on selling prices under the contracts at the time
we record revenue from the physical delivery of gold and silver under the contracts.
/T/
Fair Value of Derivative Positions
---------------------------------------------------------------------
As at December 31, 2005 Unrealized
($ millions) Gain/(Loss)
---------------------------------------------------------------------
Corporate Gold Sales Contracts $ (1,277)
---------------------------------------------------------------------
Pascua-Lama Gold Sales Contracts (1,453)
---------------------------------------------------------------------
Floating Spot-Price Gold Sales Contracts (89)
---------------------------------------------------------------------
Silver Sales Contracts (43)
---------------------------------------------------------------------
Floating Spot-Price Silver Sales Contracts (9)
---------------------------------------------------------------------
Foreign currency contracts 128
---------------------------------------------------------------------
Interest rate contracts 30
---------------------------------------------------------------------
Fuel contracts 42
---------------------------------------------------------------------
$ (2,671)
---------------------------------------------------------------------
/T/
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management has discussed the development and selection of our critical accounting estimates with the Audit
Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure relating to such
estimates in conjunction with its review of this MD&A. The accounting policies and methods we utilize determine
how we report our financial condition and results of operations, and they may require management to make
estimates or rely on assumptions about matters that are inherently uncertain.
Our financial condition and results of operations are reported using accounting policies and methods prescribed
by US GAAP. In certain cases, US GAAP allows accounting policies and methods to be selected from two or more
alternatives, any of which might be reasonable yet result in our reporting materially different amounts. We
exercise judgment in selecting and applying our accounting policies and methods to ensure that, while US GAAP
compliant, they reflect our judgment of an appropriate manner in which to record and report our financial
condition and results of operations.
Accounting Policy Changes in 2005
This section includes a discussion of accounting changes that were adopted in our 2005 Financial Statements.
Emerging Issues Task Force Issue No. 04-6, Accounting for Stripping Costs Incurred During Production in the
Mining Industry ("EITF 04-6")
In 2005, we adopted EITF 04-6, which relates to the accounting for stripping costs in the production stage at a
mine. The new accounting rules require the actual stripping costs incurred each period be reflected in the cost
of ore mined for the same period, and will likely lead to greater period-to-period volatility in total cash
costs. Previously, stripping costs were deferred and amortized based on a life-of-mine stripping ratio that
smoothed the costs over time. Results for periods prior to 2005 were not restated in accordance with the
transition rules of EITF 04-6. Cost of sales and related total cash costs per ounce statistics for 2004 and
prior periods have not been restated, and are therefore not comparable to current-year amounts. The impact of
this change in comparison to 2004 was to increase net income for 2005 by $44 million ($0.08 per share) and
decrease cost of sales for 2005 by $64 million ($12 per ounce lower total cash costs). Results for 2005 also
include a $6-million post-tax credit ($0.01 per share) to reflect the cumulative effect of the policy for
periods prior to January 1, 2005.
/T/
Impact of EITF 04-6 on Total Cash Costs Per Ounce Statistics
---------------------------------------------------------------------
Three months
ended Year ended
December 31, December 31,
2005 2005
(dollars per ounce) Increase (decrease) Increase (decrease)
---------------------------------------------------------------------
Goldstrike open pit $ (12) $ (12)
---------------------------------------------------------------------
Round Mountain 1 16
---------------------------------------------------------------------
Hemlo 19 11
---------------------------------------------------------------------
Pierina (45) (37)
---------------------------------------------------------------------
Lagunas Norte (96) (66)
---------------------------------------------------------------------
Kalgoorlie 67 9
---------------------------------------------------------------------
Plutonic - (17)
---------------------------------------------------------------------
Lawlers 9 8
---------------------------------------------------------------------
Tulawaka 11 48
---------------------------------------------------------------------
Total cash costs per ounce $ (22) $ (12)
---------------------------------------------------------------------
/T/
Future Accounting Policy Changes
This section includes a discussion of future accounting changes that may have a significant impact on our
Financial Statements. On January 1, 2006, we adopted FASB Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations ("FIN 47") and FASB No. 151, Inventory Costs ("FAS 151"). We do not expect that
the adoption of FIN 47 or FAS 151 will have a material effect on our Financial Statements, and therefore a
detailed discussion of these accounting changes has not been included.
FAS 123R, Share-Based Payment, a Revision to FAS 123 and a Replacement of APB 25 and FAS 148
FAS 123R includes in its scope our stock options, Restricted Share Units (RSUs) and Deferred Share Units
(DSUs). The adoption of FAS 123R will not significantly change how we account for RSUs and DSUs. Historically
we accounted for stock options granted to employees using an intrinsic value method. We recorded compensation
cost for stock options based on the excess of the market price of the stock option at the grant date of an
award over the exercise price. Historically, the exercise price for stock options has equaled the market price
of stock at the grant date, resulting in no compensation cost. FAS 123R requires the cost of all share-based
payment transactions with employees be recognized as an expense starting in our 2006 fiscal year.
FAS 123R permits two possible transition methods: modified prospective or modified retrospective. Under both
methods the cost of share-based payments will be recorded in 2006, but the modified retrospective method
requires restatement of prior year comparative amounts, whereas the modified prospective method does not. Under
either method, we expect to record an expense of about $25 million in 2006 for unvested stock options granted
through December 31, 2005. Under the modified retrospective method we would restate our income statement for
prior periods to reflect a compensation expense of $29 million in 2004 and $26 million in 2005 and an
adjustment to opening 2004 retained earnings of $183 million for years prior to 2004.
Exposure Draft, Accounting for Uncertain Tax Positions
On July 14, 2005, the Financial Accounting Standards Board ("FASB") issued an exposure draft and later issued
some amendments of a proposed Interpretation, Accounting for Uncertain Tax Positions - an Interpretation of
FASB Statement No. 109. The proposed Interpretation would require companies to recognize the best estimate of
an uncertain tax position only if it is more likely than not of being sustained on audit by the taxation
authorities. Subsequently, the tax benefit would be derecognized (by either recording a tax liability or
decreasing a tax asset) when the more likely than not threshold is no longer met and it is more likely than not
that the tax position will not be sustained.
The proposed interpretation would be effective starting in 2007 and treated as a change in accounting policy.
It would require companies to assess all uncertain tax positions and only those meeting the more likely than
not threshold at the transition date would continue to be recognized. The difference between the amount
previously recognized and the amount recognized after applying the proposed Interpretation would be recorded as
a cumulative-effect adjustment in the 2007 income statement (restatement is not permitted). The comment period
ended on September 12, 2005. Subsequent to this date FASB has issued and continues to issue redeliberations of
certain aspects of the exposure draft. We are presently evaluating the impact of this exposure draft on our
Financial Statements.
Critical Accounting Estimates and Judgments
Certain accounting estimates have been identified as being "critical" to the presentation of our financial
condition and results of operations because they require us to make subjective and/or complex judgments about
matters that are inherently uncertain; where there is a reasonable likelihood that materially different amounts
could be reported under different conditions or using different assumptions and estimates.
Reserve Estimates Used to Measure Amortization of Property, Plant and Equipment
We record amortization expense based on the estimated useful economic lives of long-lived assets. Changes in
reserve estimates are generally calculated at the end of each year and cause amortization expense to increase
or decrease prospectively. The estimate that most significantly affects the measurement of amortization is
quantities of proven and probable gold reserves, because we amortize a large portion of property, plant and
equipment using the units-of-production method. The estimation of quantities of gold reserves, in accordance
with the principles in Industry Guide No. 7, issued by the US Securities and Exchange Commission ("SEC") is
complex, requiring significant subjective assumptions that arise from the evaluation of geological,
geophysical, engineering and economic data for a given ore body. This data could change over time as a result
of numerous factors, including new information gained from development activities, evolving production history
and a reassessment of the viability of production under different economic conditions. Changes in data and/or
assumptions could cause reserve estimates to substantially change from period to period. Actual gold production
could differ from expected gold production based on reserves, and an adverse change in gold or silver prices
could make a reserve uneconomic to mine. Variations could also occur in actual ore grade and gold and silver
recovery rates from estimates.
A key trend that could reasonably impact reserve estimates is rising market gold prices, because the gold price
assumption is closely related to the trailing three-year average market price. As this assumption rises, this
could result in an upward revision to reserve estimates as material not previously classified as a reserve
becomes economic at higher gold prices. Following the recent trend in market gold prices over the last three
years, the gold price assumption used to measure reserves has also been rising. The gold price assumption was
$400 per ounce in 2005 (2004: $375 per ounce; 2003: $325 per ounce).
The impact of a change in reserve estimates is generally more significant for mines near the end of the mine
life because the overall impact on amortization is spread over a shorter time period. Also, amortization
expense is more significantly impacted by changes in reserve estimates at underground mines than open-pit mines
due to the following factors:
- Underground development costs incurred to access ore at underground mines are significant and amortized using
the units-of-production method; and
- Reserves at underground mines are often more sensitive to gold price assumptions and changes in production
costs. Production costs at underground mines are impacted by factors such as dilution, which can significantly
impact mining and processing costs per ounce.
/T/
Impact of Historic Changes in Reserve Estimates on Amortization
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004
($ millions,
except reserves Reserves Amortization Reserves Amortization
in millions increase increase increase increase
of contained oz)(decrease)(1) (decrease)(decrease)(1) (decrease)
---------------------------------------------------------------------
Goldstrike Open
Pit 2.1 $ (5) 1.5 $ (3)
---------------------------------------------------------------------
Goldstrike
Underground 0.1 (4) 0.2 (4)
---------------------------------------------------------------------
Round Mountain 0.4 (1) 0.2 (1)
---------------------------------------------------------------------
Lawlers 0.1 (2) - -
---------------------------------------------------------------------
Eskay Creek (0.1) 6 (0.1) 5
---------------------------------------------------------------------
Pierina 0.3 (22) 0.3 (10)
---------------------------------------------------------------------
Hemlo (0.2) 2 (0.1) 1
---------------------------------------------------------------------
Plutonic 0.2 (1) 0.5 (2)
---------------------------------------------------------------------
Kalgoorlie (0.2) - 0.9 (1)
---------------------------------------------------------------------
Darlot 0.1 - - -
---------------------------------------------------------------------
Marigold 0.1 (1) 0.1 (1)
---------------------------------------------------------------------
Bulyanhulu 0.1 - (0.4) 1
---------------------------------------------------------------------
Total 3.0 (28) 3.1 (15)
---------------------------------------------------------------------
(1) Each year we update our reserve estimates as at the end of the
year as part of our normal business cycle. Reserve changes
presented were calculated at the beginning of the applicable
fiscal year and are in millions of contained ounces.
/T/
Impairment Assessments of Investments
Each reporting period we review all available-for-sale securities whose fair value at the end of period is
below cost to determine whether an other-than-temporary impairment has occurred. We consider all relevant facts
or circumstances in this assessment, particularly: the length of time and extent to which fair value has been
less than the carrying amount; the financial condition and near term prospects of the investee, including any
specific events that have impacted its fair value; both positive and negative evidence that the carrying amount
is recoverable within a reasonable period of time; and our ability and intent to hold the investment for a
reasonable period of time sufficient for an expected recovery of the fair value up to or beyond the carrying
amount. Changes in the values of these investments are caused by market factors beyond our control and could be
significant, and the amount of any impairment charges could materially impact earnings. In 2005, we reviewed
two investments that were impaired, and after concluding that the impairments were other-than-temporary, we
recorded an impairment charge of $16 million (2004: $5 million, 2003: $11 million).
Impairment Assessments of Operating Mines, Development Projects and Exploration Stage Properties
We review and test the carrying amounts of assets when events or changes in circumstances suggest that the
carrying amount may not be recoverable. We group assets at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and liabilities. We review each mine and development
project for recoverability by comparing the total carrying value of the assets of that mine or project to the
expected future cash flows associated with that mine or project. If there are indications that an impairment
may have occurred, we prepare estimates of expected future cash flows for each group of assets. Expected future
cash flows are based on a probability-weighted approach applied to potential outcomes.
Estimates of expected future cash flow reflect:
- Estimated sales proceeds from the production and sale of recoverable ounces of gold contained in proven and
probable reserves;
- Expected future commodity prices and currency exchange rates (considering historical and current prices,
price trends and related factors);
- Expected future operating costs and capital expenditures to produce proven and probable gold reserves based
on mine plans that assume current plant capacity, but exclude the impact of inflation;
- Expected cash flows associated with value beyond proven and probable reserves, which includes the expected
cash outflows required to develop and extract the value beyond proven and probable reserves; and
- Environmental remediation costs excluded from the measurement of asset retirement obligations.
We record a reduction of a group of assets to fair value as a charge to earnings if the discounted expected
future cash flows are less than the carrying amount. We generally estimate fair value by discounting the
expected future cash flows using a discount factor that reflects the risk-free rate of interest for a term
consistent with the period of expected cash flows.
Expected future cash flows are inherently uncertain and could materially change over time. They are
significantly affected by reserve estimates, together with economic factors such as gold and silver prices,
other commodity and consumables costs and currency exchange rates, estimates of costs to produce reserves and
future sustaining capital. If a significant adverse change in the market gold price occurred that caused us to
revise the price assumptions downwards, the conclusions on the impairment tests could change, subject to the
effect of changes in other factors and assumptions. The assessment and measurement of impairment excludes the
impact of derivatives designated in a cash flow hedge relationship for future cash flows arising from operating
mines and development projects.
Because of the significant capital investment that is required at many mines, if an impairment occurs, it could
materially impact earnings. Due to the long-life nature of many mines, the difference between total estimated
undiscounted net cash flows and fair value can be substantial. Therefore, although the value of a mine may
decline gradually over multiple reporting periods, the application of impairment accounting rules could lead to
recognition of the full amount of the decline in value in one period. Due to the highly uncertain nature of
future cash flows, the determination of when to record an impairment charge can be very subjective. We make
this determination using available evidence taking into account current expectations for each mining property.
For acquired exploration-stage properties, the purchase price is capitalized, but post-acquisition exploration
expenditures are expensed. The future economic viability of exploration-stage properties largely depends upon
the outcome of exploration activity, which can take a number of years to complete for large properties. We
monitor the results of exploration activity over time to assess whether an impairment may have occurred. The
measurement of any impairment is made more difficult because there is not an active market for exploration
properties, and because it is not possible to use discounted cash flow techniques due to the very limited
information that is available to accurately model future cash flows. In general, if an impairment occurs at an
exploration-stage property, it would probably have minimal value and most of the acquisition cost may have to
be written down. Impairment charges are recorded in other income/expense and impact earnings in the year they
are recorded. Prospectively, the impairment could also impact the calculation of amortization of an asset.
In 2004, we completed impairment tests for the Cowal project, the Eskay Creek mine and various Peruvian
exploration-stage properties. For Cowal, an impairment test was completed, incorporating upward revisions to
estimated capital and operating costs for the project and the impact of the US dollar exchange rate on
Australian dollar expenditures, measured at market prices. On completion of this test in 2004, we concluded
that the project was not impaired. On completion of the impairment test for Eskay Creek, we concluded that the
mine was impaired, and we recorded a pre-tax impairment charge of $58 million. On completion of the exploration
program for 2005 and updating assessments of future plans, we concluded that a group of Peruvian exploration-
stage properties were impaired at the end of 2004 and we recorded a pre-tax impairment charge of $67 million.
Throughout 2005, we updated our impairment assessments for the Eskay Creek mine and Cowal project and we
concluded that they were not impaired at the end of 2005.
Production Start Date
We assess each mine construction project to determine when a mine moves into production stage. The criteria
used to assess the start date are determined based on the unique nature of each mine construction project such
as the complexity of a plant or its location. We consider various relevant criteria to assess when the mine is
substantially complete and ready for its intended use and moved into production stage. Some of the criteria
considered would include, but, are not limited to, the following:
- The level of capital expenditures compared to construction cost estimates
- Completion of a reasonable period of testing of mine plant and equipment
- Ability to produce gold in saleable form (within specifications)
- Ability to sustain ongoing production of gold
In 2005, we determined the production start dates for three new mines: Tulawaka, Lagunas Norte and Veladero.
When a mine construction project moves into the production stage, the capitalization of certain mine
construction costs ceases and costs are either capitalized to inventory or expensed, except for capitalizable
costs related to property, plant and equipment additions or improvements, underground mine development or
reserve development.
Fair Value of Asset Retirement Obligations (AROs)
AROs arise from the acquisition, development, construction and normal operation of mining property, plant and
equipment, due to government controls and regulations that protect the environment and public safety on the
closure and reclamation of mining properties. We record the fair value of an ARO in our Financial Statements
when it is incurred and capitalize this amount as an increase in the carrying amount of the related asset. At
operating mines, the increase in an ARO is recorded as an adjustment to the corresponding asset carrying amount
and results in a prospective increase in amortization expense. At closed mines, any adjustment to an ARO is
charged directly to earnings.
The fair values of AROs are measured by discounting the expected cash flows using a discount factor that
reflects the credit-adjusted risk-free rate of interest. We prepare estimates of the timing and amounts of
expected cash flows when an ARO is incurred, which are updated to reflect changes in facts and circumstances,
or if we are required to submit updated mine closure plans to regulatory authorities. In the future, changes in
regulations or laws or enforcement could adversely affect our operations; and any instances of noncompliance
with laws or regulations that result in fines or injunctions or delays in projects, or any unforeseen
environmental contamination at, or related to, our mining properties could result in us suffering significant
costs. We mitigate these risks through environmental and health and safety programs under which we monitor
compliance with laws and regulations and take steps to reduce the risk of environmental contamination
occurring. We maintain insurance for some environmental risks, however, for some risks coverage cannot be
purchased at a reasonable cost. Our coverage may not provide full recovery for all possible causes of loss. The
principal factors that can cause expected cash flows to change are: the construction of new processing
facilities; changes in the quantities of material in reserves and a corresponding change in the life of mine
plan; changing ore characteristics that ultimately impact the environment; changes in water quality that impact
the extent of water treatment required; and changes in laws and regulations governing the protection of the
environment. In general, as the end of the mine life becomes nearer, the reliability of expected cash flows
increases, but earlier in the mine life, the estimation of an ARO is inherently more subjective. Significant
judgments and estimates are made when estimating the fair value of AROs. Expected cash flows relating to AROs
could occur over periods up to 40 years and the assessment of the extent of environmental remediation work is
highly subjective. Considering all of these factors that go into the determination of an ARO, the fair value of
AROs can materially change over time.
At our operating mines, we continued to record AROs based on disturbance of the environment over time. It is
reasonably possible that circumstances could arise during or by the end of the mine life that will require
material revisions to AROs. In particular, the extent of water treatment can have a material effect on the fair
value of AROs, and the expected water quality at the end of the mine life, which is the primary driver of the
extent of water treatment, can change significantly. We periodically prepare updated studies for our mines,
following which it may be necessary to adjust the fair value of AROs. The period of time over which we have
assumed that water quality monitoring and treatment will be required has a significant impact on AROs at closed
mines. The amount of AROs recorded reflects the expected cost, taking into account the probability of
particular scenarios. The difference between the upper end of the range of these assumptions and the lower end
of the range can be significant, and consequently changes in these assumptions could have a material effect on
the fair value of AROs and future earnings in a period of change.
At one closed mine, the principal uncertainty that could impact the fair value of the ARO is the manner in
which a tailings facility will need to be remediated. In measuring the ARO, we have concluded that there are
two possible methods that could be used. We have recorded the ARO using the more costly method until such time
that the less costly method can be proven as technically feasible and approved.
In 2005, we recorded increases in ARO estimates of $91 million (2004: $68 million; 2003: $10 million) of which
$47 million of this increase (2004: $14 million; 2003: nil) related to new AROs at development projects and
mines that commenced production during 2005. A further $29 million (2004: $32 million; 2003: nil) relates to
updates of the assessment of the extent of water treatment and other assumptions at our operating mines. We
recorded increases in AROs of $15 million at our closed mines, which were charged to earnings (2004: $22
million; 2003: $10 million).
/T/
---------------------------------------------------------------------
AROs at December 31, 2005 ($ millions)
---------------------------------------------------------------------
Operating mines $ 280
---------------------------------------------------------------------
Closed mines 154
---------------------------------------------------------------------
Development projects 12
---------------------------------------------------------------------
Total $ 446
---------------------------------------------------------------------
/T/
Deferred Tax Assets and Liabilities
Measurement of Temporary Differences
We are periodically required to estimate the tax basis of assets and liabilities. Where applicable tax laws and
regulations are either unclear or subject to varying interpretations, it is possible that changes in these
estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded
in our Financial Statements. Changes in deferred tax assets and liabilities generally have a direct impact on
earnings in the period of changes. The most significant such estimate is the tax basis of certain Australian
assets following elections in 2004 under new tax regimes in Australia. These elections resulted in the
revaluation of certain assets in Australia for income tax purposes. Part of the revalued tax basis of these
assets was estimated based on a valuation completed for tax purposes. This valuation is under review by the
Australian Tax Office ("ATO") and the amount finally accepted by the ATO may differ from the assumption used to
measure deferred tax balances at the end of 2004.
Valuation Allowances
Each period, we evaluate the likelihood of whether some portion or all of each deferred tax asset will not be
realized. This evaluation is based on historic and future expected levels of taxable income, the pattern and
timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax
planning initiatives. Levels of future taxable income are affected by, among other things, market gold prices,
production costs, quantities of proven and probable gold reserves, interest rates and foreign currency exchange
rates. If we determine that it is more likely than not (a likelihood of more than 50%) that all or some portion
of a deferred tax asset will not be realized, then we record a valuation allowance against the amount we do not
expect to realize. Changes in valuation allowances are recorded as a component of income tax expense or
recovery for each period. The most significant recent trend impacting expected levels of future taxable and
valuation allowances has been rising gold prices. A continuation of this trend could lead to the release of
some of the valuation allowances recorded, with a corresponding effect on earnings in the period of release.
In 2005, we released valuation allowances totaling $32 million, which mainly included amounts totaling $31
million in Argentina, relating to the effect of the higher gold price environment and start-up of production at
Veladero in 2005. We released valuation allowances totaling $5 million in 2004 and $62 million in 2003. In
2004, the release was as a consequence of an election to consolidate our Australian operations into one tax
group. Valuation allowances released in 2003 mainly included: $21 million in North America following a
corporate reorganization of certain subsidiaries that enabled us to utilize certain previously unrecognized tax
assets; $16 million in Australia realized in 2003 due to an increase in taxable income from higher gold prices;
and $15 million in Argentina after the approval to begin construction of our new Veladero mine and
classification of mineralization as a proven and probable reserve.
The Placer Dome acquisition may cause us to reconsider that some of our deferred tax assets, to which valuation
allowances have been applied, are now more likely than not to be realized. If we determine that, as a direct
result of the Placer Dome acquisition, some or all of the valuation allowances can be released, any amounts
that we release may be reflected as an adjustment to goodwill in the purchase price allocation.
/T/
---------------------------------------------------------------------
Valuation allowances at December 31 ($ millions) 2005 2004
---------------------------------------------------------------------
United States $ 209 $ 195
---------------------------------------------------------------------
Chile 124 129
---------------------------------------------------------------------
Argentina 46 75
---------------------------------------------------------------------
Canada 63 73
---------------------------------------------------------------------
Tanzania 204 146
---------------------------------------------------------------------
Australia 2 3
---------------------------------------------------------------------
Other 8 8
---------------------------------------------------------------------
$ 656 $ 629
---------------------------------------------------------------------
/T/
United States: most of the valuation allowances relate to the full amount of Alternative Minimum Tax credits,
which have an unlimited carry-forward period. Increasing levels of future taxable income due to higher gold
selling prices and other factors and circumstances may result in our becoming a regular taxpayer under the US
regime, which may cause us to release some, or all, of the valuation allowance on the Alternative Minimum Tax
credits.
Chile and Argentina: the valuation allowances relate to the full amount of tax assets in subsidiaries that do
not have any present sources of gold production or taxable income. In the event that these subsidiaries have
sources of taxable income in the future, we may release some or all of the allowances.
Canada: substantially all of the valuation allowances relate to capital losses that will only be utilized if
any capital gains are realized.
Tanzania: considering the local fiscal regime applicable to mining companies and expected levels of future
taxable income from the Bulyanhulu and Tulawaka mines, a valuation allowance exists against a portion of the
deferred tax assets. If we conclude that expected levels of future taxable income from Bulyanhulu and Tulawaka
will be higher, we may release some or all of the valuation allowance.
Stock-Based Compensation
We calculate and disclose in our Financial Statements pro-forma compensation expense for employee stock
options. Commencing in first quarter 2006, we will record compensation expense in earnings for employee stock
options, based on the estimated fair market value of employee stock options on their grant date. The most
significant assumptions involving judgment that affect a stock option's fair value include, but are not limited
to: expected volatility, expected term and expected exercise behavior of option holders.
We determine expected future volatility by taking into consideration both historical volatility of our US
dollar share price and the implied volatility of our US dollar market traded stock options. Under the Black-
Scholes valuation model, the term assumption takes into consideration expected rates of employee turnover and
represents the estimated average length of time stock options remain outstanding before they are either
exercised or forfeited. Under the Lattice valuation model, the expected term assumption is derived from the
option valuation model and is in part based on expected exercise behavior of option holders based on multiple
share price paths. When reviewing the historical behavior of option holders, we segregate the population into
groups with similar characteristics.
Stock option expense is impacted by estimated forfeiture rates for stock options. We estimate forfeiture rates
by considering trends in historical forfeiture rates. If actual forfeiture rates differ from estimated rates,
we adjust our stock option expense to reflect revised expectations. For assumptions used in stock option
valuation, we apply any updated assumptions to the valuation of future grants. Our option fair value has
changed at each grant date as we update our historical data used to calculate specific assumptions, namely; the
expected volatility and expected term of the option. With each grant date, we incorporate the current market
stock price and interest rates into our valuation model, both of these assumptions change on an ongoing basis.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information contained or incorporated by reference in this Year End Report 2005, including any
information as to our future financial or operating performance, constitutes "forward-looking statements". All
statements, other than statements of historical fact, are forward-looking statements. The words "believe",
"expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may",
"will", "schedule" and similar expressions identify forward-looking statements. Forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are
inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and
unknown factors could cause actual results to differ materially from those projected in the forward-looking
statements. Such factors include, but are not limited to: fluctuations in the currency markets (such as the
Canadian and Australian dollars versus the US dollar); fluctuations in the spot and forward price of gold or
certain other commodities (such as silver, copper, diesel fuel and electricity); changes in US dollar interest
rates or gold lease rates that could impact the mark-to-market value of outstanding derivative instruments and
ongoing payments/receipts under interest rate swaps and variable rate debt obligations; risks arising from
holding derivative instruments (such as credit risk, market liquidity risk and mark-to-market risk); changes in
national and local government legislation, taxation, controls, regulations and political or economic
developments in Canada, the United States, Dominican Republic, Australia, Papua New Guinea, Chile, Peru,
Argentina, South Africa, Tanzania, Russia or Barbados or other countries in which we do or may carry on
business in the future; business opportunities that may be presented to, or pursued by, us;
our ability to successfully integrate acquisitions, including our recent acquisition of Placer Dome; operating
or technical difficulties in connection with mining or development activities; the speculative nature of gold
exploration and development, including the risks of obtaining necessary licenses and permits; diminishing
quantities or grades of reserves; adverse changes in our credit rating; and contests over title to properties,
particularly title to undeveloped properties. In addition, there are risks and hazards associated with the
business of gold exploration, development and mining, including environmental hazards, industrial accidents,
unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of
inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and
contingencies can affect our actual results and could cause actual results to differ materially from those
expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that
forward-looking statements are not guarantees of future performance. All of the forward-looking statements made
in this Year End Report 2005 are qualified by these cautionary statements. Specific reference is made to
Barrick's most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities
regulatory authorities for a discussion of some of the factors underlying forward-looking statements.
We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result
of new information, future events or otherwise, except to the extent required by applicable laws.
GLOSSARY OF TECHNICAL TERMS
AUTOCLAVE: Oxidation process in which high temperatures and pressures are applied to convert refractory
sulphide mineralization into amenable oxide ore.
BACKFILL: Primarily waste sand or rock used to support the roof or walls after removal of ore from a stope.
BY-PRODUCT: A secondary metal or mineral product recovered in the milling process such as copper and silver.
CONCENTRATE: A very fine, powder-like product containing the valuable ore mineral from which most of the waste
mineral has been eliminated.
CONTAINED OUNCES: Represents ounces in the ground before reduction of ounces not able to be recovered by the
applicable metallurgical process.
CONTANGO: The positive difference between the spot market gold price and the forward market gold price. It is
often expressed as an interest rate quoted with reference to the difference between inter-bank deposit rates
and gold lease rates.
DEVELOPMENT: Work carried out for the purpose of opening up a mineral deposit. In an underground mine this
includes shaft sinking, crosscutting, drifting and raising. In an open pit mine, development includes the
removal of overburden.
DILUTION: The effect of waste or low-grade ore which is unavoidably included in the mined ore, lowering the
recovered grade.
DORE: Unrefined gold and silver bullion bars usually consisting of approximately 90 percent precious metals
that will be further refined to almost pure metal.
EXPLORATION: Prospecting, sampling, mapping, diamond-drilling and other work involved in searching for ore.
GRADE: The amount of metal in each ton of ore, expressed as troy ounces per ton or grams per tonne for precious
metals and as a percentage for most other metals.
Cut-off grade: the minimum metal grade at which an orebody can be economically mined (used in the calculation
of ore reserves).
Mill-head grade: metal content of mined ore going into a mill for processing.
Recovered grade: actual metal content of ore determined after processing.
Reserve grade: estimated metal content of an orebody, based on reserve calculations.
HEAP LEACHING: A process whereby gold is extracted by "heaping" broken ore on sloping impermeable pads and
continually applying to the heaps a weak cyanide solution which dissolves the contained gold. The gold-laden
solution is then collected for gold recovery.
HEAP LEACH PAD: A large impermeable foundation or pad used as a base for ore during heap leaching.
LIBOR: The London Inter-Bank Offered Rate for deposits.
MILL: A processing facility where ore is finely ground and thereafter undergoes physical or chemical treatment
to extract the valuable metals.
MINERAL RESERVE: See page 89 - "Summary Gold Mineral Reserves and Mineral Resources."
MINERAL RESOURCE: See page 89 - "Summary Gold Mineral Reserves and Mineral Resources."
MINING CLAIM: That portion of applicable mineral lands that a party has staked or marked out in accordance with
applicable mining laws to acquire the right to explore for and exploit the minerals under the surface.
MINING RATE: Tons of ore mined per day or even specified time period.
OPEN PIT: A mine where the minerals are mined entirely from the surface.
ORE: Rock, generally containing metallic or non-metallic minerals, which can be mined and processed at a
profit.
ORE BODY: A sufficiently large amount of ore that can be mined economically.
OUNCES: Troy ounces of a fineness of 999.9 parts per 1,000 parts.
RECLAMATION: The process by which lands disturbed as a result of mining activity are modified to support
beneficial land use. Reclamation activity may include the removal of buildings, equipment, machinery and other
physical remnants of mining, closure of tailings storage facilities, leach pads and other mine features, and
contouring, covering and re-vegetation of waste rock and other disturbed areas.
RECOVERY RATE: A term used in process metallurgy to indicate the proportion of valuable material physically
recovered in the processing of ore. It is generally stated as a percentage of the material recovered compared
to the total material originally present.
REFINING: The final stage of metal production in which impurities are removed from the molten metal.
ROASTING: The treatment of ore by heat and air, or oxygen enriched air, in order to remove sulphur, carbon,
antimony or arsenic.
STRIPPING: Removal of overburden or waste rock overlying an ore body in preparation for mining by open pit
methods. Expressed as the total number of tons mined or to be mined for each ounce of gold.
TAILINGS: The material that remains after all economically and technically recoverable precious metals have
been removed from the ore during processing.
/T/
Consolidated Statements of Income
Barrick Gold Corporation
For the years ended December 31,
(in millions of United States dollars, except per share data)
(Unaudited)
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
Gold sales (notes 4 and 5) $ 2,350 $ 1,932 $ 2,035
---------------------------------------------------------------------
Costs and expenses
Cost of sales(1) (note 6) 1,214 1,047 1,069
Amortization (note 4) 427 452 522
Corporate administration 71 71 73
Exploration, development
and business development 141 141 137
---------------------------------------------------------------------
1,853 1,711 1,801
---------------------------------------------------------------------
Other (income) expense
Interest income (38) (25) (31)
Equity in investees (note 11) 6 - -
Interest expense (note 16B) 7 19 44
Impairment of long-lived assets (note 7A) - 139 5
Other (note 7B) 67 43 (6)
---------------------------------------------------------------------
42 176 12
---------------------------------------------------------------------
Income before income taxes and other items 455 45 222
Income tax (expense) recovery (note 8) (60) 203 (5)
---------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles 395 248 217
Cumulative effect of changes in
accounting principles (note 2E) 6 - (17)
---------------------------------------------------------------------
Net income for the year $ 401 $ 248 $ 200
---------------------------------------------------------------------
Earnings per share data (note 9):
Income before cumulative effect of
changes in accounting principles
Basic $ 0.74 $ 0.47 $ 0.40
Diluted $ 0.73 $ 0.46 $ 0.40
Net income
Basic $ 0.75 $ 0.47 $ 0.37
Diluted $ 0.75 $ 0.46 $ 0.37
---------------------------------------------------------------------
(1) Exclusive of amortization (note 6).
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flow
Barrick Gold Corporation
For the years ended December 31,
(in millions of United States dollars) (Unaudited)
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 401 $ 248 $ 200
Amortization (note 4) 427 452 522
Deferred income tax recovery
(notes 8 and 19) (30) (225) (49)
Inmet litigation settlement (note 7B) - - (86)
Impairment of long-lived assets (note 7A) - 139 5
Gains on sale of long-lived assets
(note 7B) (5) (36) (36)
Other items (note 10) (67) (69) (37)
---------------------------------------------------------------------
Net cash provided by operating
activities $ 726 509 519
---------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment
Capital expenditures (note 4) (1,104) (824) (322)
Sales proceeds 8 43 40
Cash receipt from Kabanga transaction
(note 7B) 15 - -
Purchase of equity method investments
(note 11) (58) (40) (46)
Available-for-sale securities (note 11)
Purchases (31) (7) (14)
Sales proceeds 10 9 8
Other investing activities (20) (2) -
---------------------------------------------------------------------
Net cash used in investing activities (1,180) (821) (334)
---------------------------------------------------------------------
FINANCING ACTIVITIES
Capital stock
Proceeds from shares issued on
exercise of stock options 92 49 29
Repurchased for cash (note 20A) - (95) (154)
Long-term debt (note 16B)
Proceeds 179 973 -
Repayments (59) (41) (23)
Dividends (note 20A) (118) (118) (118)
Other financing activities (1) (28) -
---------------------------------------------------------------------
Net cash provided by (used in)
financing activities 93 740 (266)
---------------------------------------------------------------------
Effect of exchange rate changes on
cash and equivalents - - 7
Net (decrease) increase in cash
and equivalents (361) 428 (81)
Cash and equivalents at beginning
of year (note 16A) 1,398 970 1,044
---------------------------------------------------------------------
Cash and equivalents at end of year
(note 16A) $ 1,037 $ 1,398 $ 970
---------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Balance Sheets
Barrick Gold Corporation
At December 31,
(in millions of United States dollars) (Unaudited)
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------
ASSETS
Current assets
Cash and equivalents (note 16A) $ 1,037 $ 1,398
Accounts receivable (note 12) 54 58
Inventories (note 12) 402 215
Other current assets (note 12) 255 288
---------------------------------------------------------------------
1,748 1,959
Available-for-sale securities (note 11) 62 61
Equity method investments (note 11) 138 86
Property, plant and equipment (note 13) 4,146 3,391
Capitalized mining costs (note 2E) - 226
Non-current ore in stockpiles (note 12) 251 65
Other assets (note 14) 517 499
---------------------------------------------------------------------
Total assets $ 6,862 $ 6,287
---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 386 $ 335
Current part of long-term debt (note 16B) 80 31
Other current liabilities (note 15) 94 54
---------------------------------------------------------------------
560 420
Long-term debt (note 16B) 1,721 1,655
Asset retirement obligations (note 17) 409 334
Other long-term obligations (note 18) 208 165
Deferred income tax liabilities (note 19) 114 139
---------------------------------------------------------------------
Total liabilities 3,012 2,713
---------------------------------------------------------------------
Shareholders' equity
Capital stock (note 20) 4,222 4,129
Deficit (341) (624)
Accumulated other comprehensive income
(loss) (note 21) (31) 69
---------------------------------------------------------------------
Total shareholders' equity 3,850 3,574
---------------------------------------------------------------------
Contingencies and commitments
(notes 8 and 13D)
---------------------------------------------------------------------
Total liabilities and shareholders' equity $ 6,862 $ 6,287
---------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Shareholders' Equity
Barrick Gold Corporation
For the years ended December 31,
(in millions of United States dollars) (Unaudited)
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
Common shares (number in millions)
At January 1 534 535 542
Issued on exercise of stock
options (note 22A) 4 3 2
Repurchased (note 20A) - (4) (9)
---------------------------------------------------------------------
At December 31 538 534 535
---------------------------------------------------------------------
Common shares
At January 1 $ 4,129 $ 4,115 $ 4,148
Issued on exercise of stock
options (note 22A) 93 49 34
Repurchased (note 20A) - (35) (67)
---------------------------------------------------------------------
At December 31 $ 4,222 $ 4,129 $ 4,115
---------------------------------------------------------------------
Deficit
At January 1 $ (624) $ (694) $ (689)
Net income 401 248 200
Dividends (note 20A) (118) (118) (118)
Adjustment on repurchase of
common shares (note 20A) - (60) (87)
---------------------------------------------------------------------
At December 31 $ (341) $ (624) $ (694)
---------------------------------------------------------------------
Accumulated other comprehensive
income (loss) (note 21) $ (31) $ 69 $ 60
---------------------------------------------------------------------
Total shareholders' equity at
December 31 $ 3,850 $ 3,574 $ 3,481
---------------------------------------------------------------------
Consolidated Statements of Comprehensive Income
Barrick Gold Corporation
For the years ended December 31,
(in millions of United States dollars)(Unaudited)
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
Net income $ 401 $ 248 $ 200
Other comprehensive income (loss),
net of tax (note 21) (100) 9 185
---------------------------------------------------------------------
Comprehensive income $ 301 $ 257 $ 385
---------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
/T/
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Barrick Gold Corporation. Tabular dollar amounts in millions of United States dollars, unless otherwise shown.
References to C$, A$, EUR and ARS are to Canadian dollars, Australian dollars, Euros, and Argentinean pesos,
respectively.
1. NATURE OF OPERATIONS
Barrick Gold Corporation ("Barrick" or the "Company") engages in the production and sale of gold from
underground and open-pit mines, including related activities such as exploration and mine development. Our
operations are mainly located in North America, South America, Australia, Africa and Russia/Central Asia. Our
gold is sold into the world market.
2. SIGNIFICANT ACCOUNTING POLICIES
A Basis of Preparation
These financial statements have been prepared under United States generally accepted accounting principles ("US
GAAP"). To ensure comparability of financial information, certain prior-year amounts have been reclassified to
conform with the current year presentation.
B Consolidation
These financial statements reflect consolidation of entities in which we have a controlling financial interest.
The usual condition for a controlling financial interest is ownership of a majority of the voting interests of
an entity. A controlling financial interest may also exist through arrangements that do not involve voting
interests, where an entity is a variable interest entity ("VIE"). Intercompany balances and transactions are
eliminated on consolidation.
A VIE is an entity that either lacks enough equity investment at risk to permit the entity to finance its
activities without additional subordinated financial support from other parties; has equity owners who are
unable to make decisions about the entity; or has equity owners that do not have the obligation to absorb the
entity's expected losses or the right to receive the entity's expected residual returns. VIEs can arise from a
variety of contractual arrangements or other legal structures.
Where a VIE exists, the variable interest holder who is the primary beneficiary consolidates the VIE. The
primary beneficiary is the entity that, after evaluating all expected transactions between the VIE and the
variable interest holders, expects to absorb a majority of the expected losses of the VIE, receive a majority
of the residual returns of the VIE, or both.
We hold a 70% interest in an unincorporated joint venture that owns the Tulawaka mine. This joint venture was
originally formed to share in the risks and rewards of exploring for gold and developing any mines on a
significant land position in Tanzania. Until June 2004, we used the proportionate consolidation method for our
70% joint venture interest. In June 2004, upon entering into an agreement to finance the other joint venture
partner's share of mine construction costs, we concluded that the joint venture had become a VIE and that we
are the primary beneficiary. From June 2004 onwards, we began consolidating 100% of the joint venture,
recording a non-controlling interest for the interest held by the other joint venture partner. The carrying
value of assets that are collateral for the VIEs obligations are property, plant and equipment of $63 million
and working capital of $24 million. The creditors of the joint venture have recourse only to the assets of the
joint venture and not to any other assets of Barrick.
We hold our interests in the Round Mountain, Hemlo, Marigold and Kalgoorlie mines through unincorporated joint
ventures under which we share joint control of operating, investing and financing decisions with the other
joint venture partners. We use the proportionate consolidation method to account for our interests in these
unincorporated joint ventures. For further information refer to note 25.
C Foreign Currency Translation
The functional currency of all our operations is the US dollar. We translate non-US dollar balances into US
dollars as follows:
- non-monetary assets and liabilities using historical rates;
- monetary assets and liabilities using closing rates with translation gains and losses recorded in earnings;
and
- income and expenses using average exchange rates, except for expenses that relate to non-monetary assets and
liabilities measured at historical rates.
D Use of Estimates
The preparation of these financial statements requires us to make estimates and assumptions. The most
significant ones are: quantities of proven and probable gold reserves; the value of mineralized material beyond
proven and probable reserves; future costs and expenses to produce proven and probable reserves; future
commodity prices and foreign currency exchange rates; the future cost of asset retirement obligations; the
amounts of contingencies; and assumptions used in the accounting for employee stock options such as volatility,
expected term and forfeiture rates for unvested options. Using these estimates and assumptions, we make various
decisions in preparing the financial statements including:
- the treatment of mine development costs as either an asset or an expense;
- whether long-lived assets are impaired, and if so, estimates of the fair value of those assets and any
corresponding impairment charge;
- our ability to realize deferred income tax assets;
- the useful lives of long-lived assets and the measurement of amortization;
- the fair value of asset retirement obligations;
- the likelihood of loss contingencies occurring and the amount of any potential loss;
- whether investments are impaired; and
- the amount of stock option expense included in pro forma stock option disclosures.
As the estimation process is inherently uncertain, actual future outcomes could differ from present estimates
and assumptions, potentially having material future effects on our financial statements.
/T/
E Accounting Changes
Cumulative Effect of Accounting Changes on Earnings
---------------------------------------------------------------------
Earnings increase (decrease)
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Adoption of FAS 143(1) $ - $ - $ 4
Underground mine development costs(2) - - (21)
Adoption of EITF 04-6(3) 6 - -
---------------------------------------------------------------------
Total $ 6 $ - $(17)
---------------------------------------------------------------------
(1) On adoption of FAS 143 on January 1, 2003, we recorded an
increase in property, plant and equipment of $39 million; an
increase in other long-term obligations of $32 million; and an
increase in deferred income tax liabilities of $3 million; as
well as a $4 million credit in earnings for the cumulative effect
of this change.
(2) On January 1, 2003, we changed our accounting policy for
amortization of underground mine development costs to exclude
estimates of future underground development costs. On January 1,
2003, we recorded a decrease in property, plant and equipment of
$19 million; an increase in deferred income tax liabilities of
$2 million; and a $21 million charge to earnings for the
cumulative effect of this change.
(3) In second quarter 2005, we adopted EITF 04-6 and changed our
accounting policy for stripping costs incurred in the production
phase. Prior to adopting EITF 04-6, we capitalized stripping
costs incurred in the production phase, and we recorded
amortization of the capitalized costs as a component of the cost
of inventory produced each period. Under EITF 04-6, stripping
costs are recorded directly as a component of the cost of
inventory produced each period. Using an effective date of
adoption of January 1, 2005, we recorded a decrease in
capitalized mining costs of $226 million; an increase in the
cost of inventory of $232 million; and a $6 million credit to
earnings for the cumulative effect of this change. For the year
ended December 31, 2005, the effect of adopting EITF 04-6
compared to the prior policy was an increase in net income of
$44 million ($0.08 per share), excluding the cumulative effect
on prior periods.
/T/
FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain
Investments
FSP FAS 115-1 and FAS 124-1 was issued in November 2005 to provide further guidance to determine when an
investment is considered impaired, whether the impairment is other than temporary, and the measurement of an
impairment loss. We prospectively adopted this FSP in fourth quarter 2005. Our accounting policy for assessing
the impairment of investments is described in note 11. The adoption of FSP FAS 115-1 and FAS 124-1 in 2005 had
no effect on our financial statements.
FIN 47, Accounting for Conditional Asset Retirement Obligations (AROs)
FIN 47 was issued in March 2005 and is effective for our 2005 fiscal year. It relates to the accounting for a
legal obligation to perform an asset retirement activity, when the timing or method of settlement is
conditional on a future event, which may not be within our control. Under FIN 47, a liability for the fair
value of a conditional ARO is recorded if the fair value can be reasonably estimated. FIN 47 was issued because
of diversity in practice in applying FAS 143. Some entities recorded AROs prior to the retirement of an asset,
while other entities recorded the ARO only when it was either probable that the asset would be retired or when
the asset was actually retired. The adoption of FIN 47 in 2005 had no significant effect on the amount of AROs
recorded in our financial statements.
F Accounting Developments
FAS 123R, Accounting for Stock-Based Compensation
FAS 123R is applicable to transactions in which an entity exchanges its equity instruments for goods and
services. It focuses primarily on transactions in which an entity obtains employee services in share-based
payment transactions. The principal reason for issuing FAS 123R was to address concerns of users of financial
statements, including institutional and individual investors that using an intrinsic value method results in
financial statements that do not faithfully represent the economic effect of the receipt and consumption of
employee services in exchange for equity instruments. FAS 123R addresses these concerns by requiring an entity
to recognize the cost of employee services received in share-based payment transactions, thereby reflecting the
economic consequences of those transactions in the financial statements. A further reason was to improve the
comparability of reported financial information by eliminating alternative accounting methods. By requiring the
fair-value-based method for all public entities, FAS 123R eliminates an alternative accounting method;
consequently, similar economic transactions will be accounted for similarly. FAS 123R requires that the fair
value of such equity instruments be recorded as an expense as services are performed. Equity instruments
included under the scope of FAS 123R are our stock options, restricted share units (RSUs) and deferred share
units (DSUs). Prior to FAS 123R, a company could elect to account for the cost of employee stock options using
an intrinsic value approach based on the excess of the market price at the date of grant over the exercise
price, and provide pro forma disclosures of the effect of accounting for employee stock options using a fair
value approach. The adoption of FAS 123R will not have a significant impact on how we account for RSUs and
DSUs. We intend to adopt FAS 123R for our first quarter 2006 financial statements. FAS 123R permits different
transition methods including retroactive adjustment of prior periods as far back as 1995 to give effect to the
fair-value-based method of accounting for awards granted in those prior periods; or a modified prospective
application beginning in 2006. For further information see note 22.
FAS 151, Inventory Costs
FAS 151 specifies the general principles applicable to the pricing and allocation of certain costs to
inventory. FAS 151 is the result of a broader effort by the Financial Accounting Standards Board (FASB) to
improve the comparability of cross-border financial reporting by working with the International Accounting
Standards Board (IASB) toward development of a single set of high-quality accounting standards. As part of that
effort, the FASB and the IASB identified opportunities to improve financial reporting by eliminating certain
narrow differences between their existing accounting standards. The accounting for inventory costs, in
particular, abnormal amounts of idle facility expense, freight, handling costs, and spoilage, is one such
narrow difference that the FASB decided to address by issuing FAS 151. As currently worded in ARB 43, Chapter
4, the term "abnormal" was not defined and its application could lead to unnecessary noncomparability of
financial reporting. FAS 151 eliminates that term. Under FAS 151, abnormal amounts of idle facility expense,
freight, handling costs and wasted materials are recognized as current period charges rather than capitalized
to inventory. FAS 151 also requires that the allocation of fixed production overhead to the cost of inventory
be based on the normal capacity of production facilities. FAS 151 will be effective beginning in first quarter
2006.
FAS 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FAS 3
FAS 154 relates to the accounting for and reporting of a change in accounting principle and applies to all
voluntary changes in accounting principles. The reporting of corrections of an error by restating previously
issued financial statements is also addressed by this statement. FAS 154 applies to authoritative
pronouncements in the event they do not include specific transition provisions. When an authoritative
pronouncement includes specific transition provisions, those provisions should be followed. FAS 154 requires
retrospective application to prior periods' financial statements of changes in accounting principle, unless the
period-specific effects or cumulative effects of an accounting change are impracticable to determine, in which
case the new accounting principle is required to be applied to the assets and liabilities as of the earliest
period practicable, with a corresponding adjustment made to opening retained earnings. Prior to FAS 154, most
accounting changes were recorded effective at the beginning of the year of change, with the cumulative effect
at the beginning of the year of change recorded as a charge or credit to earnings in the period a change was
adopted. FAS 154 will be effective for accounting changes and corrections of errors occurring in 2006 onwards.
FAS 154 does not change the transition provisions of any existing accounting pronouncements, including those
that are in the transition phase as of the effective date of FAS 154.
Exposure Draft, Accounting for Uncertain Tax Positions
In July 2005, the FASB issued an exposure draft on Accounting for Uncertain Tax Positions - an Interpretation
of FASB Statement No. 109. The interpretation has been developed because of diversity in practice for
accounting for uncertain tax positions. Some entities record tax benefits for uncertain tax positions as they
are filed on the income tax return, while others use either gain contingency accounting or a probability
threshold.
The exposure draft requires companies to record the best estimate of the benefits of an uncertain tax position
only if it is probable of being sustained on audit by the taxing authority based solely on the technical merits
of the position. Under the draft Interpretation, benefits from tax positions that previously failed to meet the
recognition threshold would be recognized in any subsequent period in which that threshold is met. Previously
recognized tax benefits from positions that no longer meet the more-likely-than-not recognition threshold would
be de-recognized by recording an income tax liability or eliminating a deferred tax asset in the period in
which it is more likely than not that the tax position will not be sustained. The requirement to assess the
need for a valuation allowance for deferred tax assets based on the sufficiency of future taxable income would
be unchanged by the final Interpretation. The final Interpretation will also provide guidance on disclosure,
accrual of interest and penalties, and accounting in interim periods and transition. In November 2005, the FASB
decided to change the initial recognition threshold proposed in the exposure draft from "probable" to "more-
likely-than-not". The FASB expects to issue a final interpretation in 2006 that would be effective for our
fiscal 2007 financial statements. After the final interpretation is issued, we intend to complete our
assessment of the impact on our financial statements.
G Changes in Estimates
Gold Mineral Reserves
At the end of each fiscal year we update estimates of proven and probable gold mineral reserves at each mineral
property. Following the update, we prospectively revise calculations of amortization of property, plant and
equipment beginning in the first quarter of the next fiscal year. The effect of changes in reserve estimates at
the end of 2004 on amortization expense for the fiscal year ended December 31, 2005 was a decrease of $28
million (2004 - $15 million decrease; 2003 - $14 million decrease).
Asset Retirement Obligations (AROs)
Each period we update cost estimates for AROs at each of our mineral properties to reflect new events, changes
in circumstances and any new information that is available. The changes in these cost estimates generally have
a corresponding impact on the fair value of the ARO. For closed mines any change in the fair value of AROs is
included as a charge or credit within environmental remediation costs in other expense. An expense of $15
million was recorded in 2005 for changes in cost estimates for AROs at closed mines (2004 - $22 million
expense; 2003 - $10 million expense).
Tax Valuation Allowances
For a description of changes in valuation allowances, refer to note 8.
/T/
H Other Significant Accounting Policies
---------------------------------------------------------------------
Note Page
---------------------------------------------------------------------
---------------------------------------------------------------------
Business combinations 3 49
Segment information 4 55
Revenue and gold sales contracts 5 57
Cost of sales 6 58
Other (income) expense 7 59
Income tax (recovery) expense 8 60
Earnings per share 9 61
Supplemental cash flow information 10 62
Investments 11 62
Accounts receivable, inventories and
other current assets 12 64
Property, plant and equipment 13 65
Other assets 14 67
Other current liabilities 15 67
Financial instruments 16 67
Asset retirement obligations 17 74
Other long-term obligations 18 74
Deferred income taxes 19 74
Capital stock 20 75
Other comprehensive income (loss) 21 76
Stock-based compensation 22 77
Post-retirement benefits 23 79
Litigation and claims 24 81
Joint ventures 25 82
---------------------------------------------------------------------
/T/
3. BUSINESS COMBINATIONS
A Acquisition of Placer Dome Inc. ("Placer Dome")
Placer Dome Offer and Acceptance
On October 31, 2005 we announced a proposed acquisition of Placer Dome. In early 2006, we offered to acquire
all of the outstanding common shares of Placer Dome for either US$22.50 in cash, or 0.8269 of a Barrick common
share plus US$0.05 in cash per Placer Dome common share, subject in each case to pro ration of a maximum cash
amount of $1,344 million. Funding for the maximum cash amount will be from our $1 billion credit and guarantee
agreement, with any excess from our existing cash position. By February 3, 2006, 419 million common shares of
Placer Dome had been validly deposited to our offer. We took up and accepted for payment all of such shares,
which represented about 94% of the common shares of Placer Dome. For the common shares tendered by February 3,
2006, the aggregate cash consideration was US$1,161 million and the aggregate number of Barrick common shares
issued was 304 million shares.
Placer Dome is one of the world's largest gold mining companies, and produced 3.6 million ounces of gold and
359 million pounds of copper in 2005 (unaudited). It has 12 producing mines based in North America, South
America, Africa and Australia/New Guinea, and four projects that are in various stages of
exploration/development. Its most significant mines are Cortez in the United States, Zaldivar in Chile, Porgera
in New Guinea, North Mara in Tanzania and South Deep in South Africa. The most significant projects are Cortez
Hills and Donlin Creek in the United States, Pueblo Viejo in the Dominican Republic and Cerro Casale in Chile.
We plan to sell Placer Dome's Canadian mines to Goldcorp Inc. ("Goldcorp"), as well as certain other interests
in mineral properties. Placer Dome had a gold hedge position totaling 7.2 million ounces at the date of
acquisition. Furthermore, Placer Dome has gold lease rate swaps where the obligation was expressed in ounces.
We plan to focus on reducing this acquired hedge position over time, consistent with the plans for our existing
gold hedge position.
We believe that the business combination between ourselves and Placer Dome is a unique opportunity to create a
Canadian-based leader in the global gold mining industry. This business combination strengthens our position,
including in respect of reserves, production, growth opportunities, and balance sheet strength.
Accounting for the Placer Dome Acquisition
The Placer Dome acquisition will be accounted for as a purchase business combination, with Barrick as the
accounting acquirer. We secured control of Placer Dome on January 19, 2006, which is the accounting acquisition
date with the results of operations of Placer Dome consolidated from January 20, 2006. Assuming 100% of the
outstanding common shares of Placer Dome are acquired, the purchase cost is estimated at $10.1 billion,
including all the consideration issued in the form of cash, Barrick common shares, and direct costs related to
the acquisition.
/T/
---------------------------------------------------------------------
Value of 322.8 million Barrick common shares at $27.14
per share $ 8,761
Cash 1,344
Transaction costs 25
---------------------------------------------------------------------
$ 10,130
---------------------------------------------------------------------
/T/
The measurement of the purchase consideration will be based on a Barrick common share price of $27.14,
representing the average closing price on the New York Stock Exchange for the two days prior to and two days
after the public announcement of our final offer for Placer Dome.
The purchase cost will be allocated to the underlying assets acquired and liabilities assumed based upon their
estimated fair values at the date of acquisition. We will determine the estimated fair values based on
independent appraisals, discounted cash flows, quoted market prices, and estimates made by management. To the
extent that the purchase cost exceeds the fair value of the net identifiable tangible and intangible assets
acquired, such excess will be allocated to goodwill. The following table summarizes the current allocation of
the Placer Dome purchase cost to assets and liabilities. It reflects only certain limited fair value
adjustments for identifiable assets and liabilities acquired, including an adjustment for the fair value of
derivatives at acquisition. The purchase price allocation is preliminary and subject to adjustment following
completion of the valuation process and analysis of tax effects. The difference between the cost of acquisition
and the values of net assets acquired has been presented as "unallocated purchase price".
/T/
Condensed Balance Sheet at Acquisition (1)
---------------------------------------------------------------------
Cash $ 880
Other current assets 738
Property, plant and equipment 2,371
Goldcorp assets 298
Other assets 696
Unallocated purchase price 8,652
---------------------------------------------------------------------
Total assets 13,635
---------------------------------------------------------------------
Current liabilities 522
Goldcorp liabilities 77
Long-term debt 1,107
Other long-term obligations 1,799
---------------------------------------------------------------------
Total liabilities 3,505
---------------------------------------------------------------------
Net assets acquired $ 10,130
---------------------------------------------------------------------
/T/
(1)For the purposes of presenting a summary of assets and liabilities
acquired, the balance sheet of Placer Dome at December 31, 2005
has been used as a proxy for the balance sheet on January 19,
2006. We do not expect any material differences between the
balance sheet at January 19, 2006 and the balance sheet at
December 31, 2005.
B Sale of Operations to Goldcorp
Goldcorp has agreed, subject to conditions to acquire from us, all of Placer Dome's Canadian properties and
operations (other than Placer Dome's offices in Vancouver and Toronto), including all mining, reclamation and
exploration properties, Placer Dome's interest in the La Coipa mine in Chile, 40% of Placer Dome's interest in
the Pueblo Viejo project in the Dominican Republic, certain related assets and, at the option of Goldcorp, our
share in Agua de la Falda S.A., which includes our interest in the Jeronimo project (collectively, the
"Goldcorp Assets"). Goldcorp will be responsible for all liabilities relating solely to the Goldcorp Assets,
including employment commitments and environmental, closure and reclamation liabilities (collectively, the
"Goldcorp Liabilities").
The estimated sales proceeds from Goldcorp are about $1,500 million, subject to certain adjustments on closing
that are defined in the sale agreement. The results of operations will be consolidated into Barrick until the
closing of the sale of operations to Goldcorp. On closing of the sale, the assets and liabilities relating to
those operations, as well as a portion of the unallocated purchase price, will be removed from our balance
sheet. We do not expect to record a significant gain or loss on closing of the sale. At December 31, 2005, the
carrying amount of assets was about $298 million and liabilities was about $77 million relating to the
operations that will be sold to Goldcorp.
/T/
C Pro Forma Information (Unaudited)
Pro Forma Consolidated Statement of Income
---------------------------------------------------------------------
For year ended December 31, 2005
($ millions
of US dollars,
except per
share data
in dollars)
Pro Forma Pro Forma
Consolidated Adjustments
Barrick before for sale
As reported Pro Forma sale of of certain Pro Forma
-------------- purchase certain operations Consoli-
Placer adjust- operations to to Goldcorp dated
Barrick Dome ments(1) Goldcorp (2) Barrick
---------------------------------------------------------------------
Sales $ 2,350 $1,978 $ 4,328 $ (251)(e) $4,077
---------------------------------------------------------------------
Costs
and
expenses
Cost of
sales(3) 1,214 1,271 2,485 (177)(e) 2,308
Amortiz-
ation 427 264 691 (35)(e) 656
Corporate
adminis-
tration 71 68 139 139
Explor-
ation,
develop-
ment and
business
develop-
ment 141 178 319 (28)(e) 291
---------------------------------------------------------------------
1,853 1,781 3,634 (240) 3,394
---------------------------------------------------------------------
Other
(income)
expense
Interest
income (38) (44) (5) (a) (87) (87)
Equity in
investees 6 (4) 2 4 (e) 6
Interest
expense 7 92 48 (b) 147 (49) (b) 98
Impairment
of long-
lived
assets - -
Other 67 40 (21) (c) 86 86
---------------------------------------------------------------------
42 84 22 148 (45) 103
---------------------------------------------------------------------
Income
before
income
taxes
and other
items 455 113 (22) 546 34 580
Income tax
expense (60) (21) 10 (d) (71) (14) (f) (85)
Minority
interest - 2 2 2
---------------------------------------------------------------------
Income
before
cumulative
effect of
changes
in accou-
nting
princip-
les 395 94 (12) 477 20 497
Cumulative
effect of
changes
in accou-
nting
princip-
les, net
of tax 6 (14) (8) (8)
---------------------------------------------------------------------
Net
income $ 401 $ 80 $ (12) $ 469 $ 20 $ 489
---------------------------------------------------------------------
Earnings
per share
data:
Net income
Basic
and
dilu-
ted $ 0.75 $ 0.18 $ 0.57
---------------------------------------------------------------------
(1) Adjustments to reflect certain estimated effects of purchase
accounting.
(2) Adjustments to reflect the estimated effects of the sale of
certain Placer Dome operations to Goldcorp.
(3) Exclusive of amortization.
Pro Forma Consolidated Balance Sheet
---------------------------------------------------------------------
As at December 31, 2005
($ millions
of US dollars)
Pro Forma Pro Forma
consolidated adjustments
Barrick before for sale
As reported Pro Forma sale of of certain Pro Forma
-------------- purchase certain operations Consoli-
Placer adjust- operations to to Goldcorp dated
Barrick Dome ments(1) Goldcorp (2) Barrick
---------------------------------------------------------------------
Assets
Current
assets
Cash and
equiva-
lents $ 1,037 $ 880 152(g) $ 2,069 $ 1,500(t)
(1,344)(u) $2,225
Restricted
cash 150 150 150
Accounts
receiv-
able 54 152 206 (6)(v) 200
Invento-
ries 402 310 712 (25)(v) 687
Other
current
assets 255 157 412 412
---------------------------------------------------------------------
1,748 1,649 152 3,549 125 3,674
Available
-for-sale
securities 62 22 84 84
Equity
method
invest-
ments 138 33 171 (33)(v) 138
Property,
plant
and
equip-
ment 4,146 2,592 6,738 (221)(v) 6,517
Capital-
ized
mining
costs - 240 (240)(h) - -
Non-cur-
rent ore
in stock-
piles 251 63 314 (11)(v) 303
Other
assets 517 641 (17)(i) 1,141 (2)(v) 1,139
Goodwill - 454 (454)(j) - -
Unallo-
cated
purchase
price - - 8,500(k) 8,500 (1,279)(w) 7,221
---------------------------------------------------------------------
Total
assets 6,862 5,694 7,941 20,497 (1,421) 19,076
---------------------------------------------------------------------
Liabilites
and
Share-
holders'
Equity
Current
liabil-
ities
Accounts
payable 386 305 25(l) 716 (24)(v) 692
Short-
term debt - - 1,344(m) 1,344 (1,344)(u) -
Current
portion
of long-
term
debt 80 152 232 232
Other
current
liabil-
ities 94 89 183 183
---------------------------------------------------------------------
560 546 1,369 2,475 (1,368) 1,107
Long-
term
debt 1,721 1,107 2,828 2,828
Asset
retire-
ment
obligat-
ions 409 294 703 (21)(v) 682
Other
long-
term
oblig-
ations 208 260 1,051(n) 1,519 (32)(v) 1,487
Deferred
income
tax
liabil-
ities 114 247 361 361
---------------------------------------------------------------------
Total
liabil-
ities 3,012 2,454 2,420 7,886 (1,421) 6,465
---------------------------------------------------------------------
Share-
holders'
equity
Capital
stock 4,222 2,555 152(g)
(2,707)(o)
8,761(p) 12,983 12,983
Retained
earnings
(deficit)(341) 624 (624)(q) (341) (341)
Accumu-
lated
other
compre-
hensive
Income (31) (12) 12(r) (31) (31)
Contrib-
uted
surplus - 73 (73)(s) - -
---------------------------------------------------------------------
Total
share-
holders'
equity 3,850 3,240 5,521 12,611 12,611
---------------------------------------------------------------------
Total
liabil-
ities and
share-
holders'
equity $6,862 $5,694 7,941 $20,497 $(1,421) $19,076
---------------------------------------------------------------------
(1) Adjustments to reflect certain estimated effects of purchase
accounting.
(2) Adjustments to reflect the estimated effects of the sale of
certain Placer Dome operations to Goldcorp.
/T/
Basis of Presentation
This unaudited pro forma consolidated financial statement information has been prepared by us for illustrative
purposes only to show the effect of the acquisition of Placer Dome by Barrick. The unaudited pro forma
consolidated statement information assumes that Barrick will acquire all of Placer Dome's outstanding shares
and exchange any outstanding Placer Dome stock options for equivalent Barrick stock options. The unaudited pro
forma consolidated financial statement information assumes that all in-the-money Placer Dome stock options will
be exercised and included in the outstanding Placer Dome shares to be acquired by Barrick. Barrick has entered
into an agreement with Goldcorp that will result in the sale of certain operations and projects of Placer Dome,
including the Canadian operations, the La Coipa mine and a 40% interest in the Pueblo Viejo project. Barrick
will receive about $1,500 million in cash from Goldcorp for the sale of these operations (assuming no
adjustments are required). This unaudited pro forma consolidated financial statement information assumes that
there will be no tax consequences to Barrick for the sale of these operations to Goldcorp. Pro forma
adjustments for the assumed effect of the sale of these operations to Goldcorp on the results of operations of
Barrick have been reflected in this unaudited pro forma consolidated financial statement information.
The unaudited pro forma consolidated financial statement information is not intended to be indicative of the
results that would actually have occurred, or the results expected in future periods, had the events reflected
herein occurred on the dates indicated. Actual amounts recorded upon finalization of purchase price adjustments
and subsequent sale of certain Placer Dome operations to Goldcorp will likely differ from those recorded in
this unaudited pro forma consolidated financial statement information. Any potential synergies that may be
realized and integration costs that may be incurred have been excluded from the unaudited pro forma financial
statement information, including Placer Dome transaction costs and amounts payable under change of control
agreements to certain members of management that are estimated at a combined total of $93 million. The
information prepared is only a summary.
In preparing the unaudited pro forma consolidated financial statement information, an initial review was
undertaken to identify Placer Dome accounting policy differences where the impact was potentially material and
could be reasonably estimated. Further accounting policy differences may be identified. In particular, we
adopted EITF 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry, effective
January 1, 2005, whereas Placer Dome has not yet adopted EITF 04-6. Estimates concerning the impact of Placer
Dome applying EITF 04-6 in the unaudited pro forma consolidated financial statement information have not yet
been finalized and no adjustment has been recorded. The effects on the Placer Dome mines of adopting EITF 04-6
could be significant.
The unaudited pro forma consolidated statement of income for the year ended December 31, 2005 has been prepared
from the statements of income for each of Barrick and Placer Dome for the period after giving pro forma effect
to the acquisition of Placer Dome by Barrick and subsequent sale of certain operations to Goldcorp as if both
transactions had occurred on January 1, 2005 based on the assumptions below.
The unaudited pro forma consolidated balance sheet as at December 31, 2005 has been prepared from the
consolidated balance sheets of Barrick and Placer Dome as at December 31, 2005, after giving pro forma effect
to the acquisition of Placer Dome by Barrick and subsequent sale of certain operations to Goldcorp as if both
transactions had occurred on December 31, 2005 based on the assumptions below.
Pro Forma Assumptions and Adjustments
The acquisition of Placer Dome will be accounted for using the purchase method of accounting. Certain
adjustments have been reflected in this unaudited pro forma consolidated statement of income to illustrate the
effects of purchase accounting and to reflect the impact of the sale of certain Placer Dome operations to
Goldcorp, where the impact could be reasonably estimated. In 2006, we will complete an exercise to value the
identifiable assets and liabilities acquired, including any goodwill that may arise in the acquisition.
On December 31, 2005, Placer Dome had certain convertible debt and stock options outstanding, which if
converted/exercised would result in an increase in Placer Dome common shares outstanding by approximately 22.7
million shares. This unaudited pro forma consolidated financial statement information reflects the issuance by
Placer Dome of approximately 10.1 million shares on exercise of in-the-money stock options of Placer Dome at
December 31, 2005, but excludes the impact of 12.6 million potential shares that could theoretically be issued
due to the conversion/exercise of Placer Dome's convertible debt and other stock options.
We have not yet determined the fair value of all identifiable assets and liabilities acquired, the amount of
the purchase price that may be allocated to goodwill, or the complete impact of applying purchase accounting on
the income statement. Therefore, after reflecting the pro forma purchase adjustments identified to date, the
excess of the purchase consideration over the adjusted book values of Placer Dome's assets and liabilities has
been presented as "unallocated purchase price". In 2006, the fair value of all identifiable assets and
liabilities acquired as well as any goodwill arising upon the acquisition will be determined. On completion of
valuations, with a corresponding adjustment to the historic carrying amounts of property, plant and equipment,
or on recording of any finite life intangible assets on acquisition, these adjustments will impact the
measurement of amortization recorded in our consolidated income statement for periods after the date of
acquisition. We estimate that a $100 million adjustment to the carrying amount of property, plant and equipment
of Placer Dome would result in a corresponding adjustment to amortization expense in the pro forma statement of
income by approximately $6 million for the year ended December 31, 2005. No pro forma adjustments have been
reflected for any changes in deferred tax assets or liabilities that would result from recording Placer Dome's
identifiable assets and liabilities at fair value as the process of estimating the fair value of identifiable
assets and liabilities is not complete.
Pro Forma Adjustments
The unaudited pro forma consolidated statement of income reflects the following adjustments as if the
acquisition of 100% of Placer Dome and subsequent sale of certain operations to Goldcorp had occurred on
January 1, 2005:
(a) An increase in interest income by $5 million for the year ended December 31, 2005 to reflect interest
income earned on the cash proceeds generated by the assumed exercise of Placer Dome stock options.
(b) An increase in interest expense by $48 million for the year ended December 31, 2005 to reflect the interest
costs (net of amounts that would have been capitalized to Barrick development projects) relating to the cash
component of the Offer that will be financed through temporary credit facilities. A decrease in interest
expense by $49 million for the year ended December 31, 2005 to reflect the assumed avoidance of interest on the
temporary financing for the cash component of the Offer assuming the repayment of such financing from the
receipt of cash proceeds from the sale of certain Placer Dome operations to Goldcorp.
(c) A decrease in other expense by $21 million to de-recognize non-recurring transaction costs recorded by
Placer Dome relating to the Barrick offer.
(d) A credit to tax expense of $10 million for the year ended December 31, 2005 to reflect the tax effect of
the pro forma purchase adjustments in (a) through (c).
(e) Adjustments to de-recognize the revenues and expenses for the year ended December 31, 2005 relating to the
Placer Dome operations that will be sold to Goldcorp.
(f) Adjustments to de-recognize income tax expense for the operations that will be sold to Goldcorp for the
year ended December 31, 2005 and to record the tax effect of other pro forma adjustments relating to the sale
of certain Placer Dome operations to Goldcorp.
The unaudited pro forma consolidated balance sheet reflects the following adjustments as if the acquisition of
100% of Placer Dome and subsequent sale of certain operations to Goldcorp had occurred on December 31, 2005:
(g) An increase in cash and equivalents by $152 million with a corresponding increase in Placer Dome's capital
stock, to reflect the proceeds received by Placer Dome on exercise of 10.1 million in-the-money Placer Dome
stock options.
(h) A reduction in capitalized mining costs by $240 million to de-recognize this asset of Placer Dome, which
will not be recorded as a separate identifiable asset on acquisition.
(i) A reduction in other assets by $17 million to de-recognize deferred debt issue costs of Placer Dome that
will not be recorded as a separate identifiable asset on acquisition.
(j) The de-recognition of goodwill of $454 million that was recorded by Placer Dome for previous business
combinations.
(k) An adjustment of $8,500 million to reflect the unallocated purchase price.
(l) An increase in accounts payable by $25 million to record estimated transaction costs relating to the
acquisition of Placer Dome.
(m) An increase in short-term debt by $1,344 million to reflect temporary financing by Barrick for the cash
component of the Offer.
(n) An increase in other long-term obligations by $1,051 million to record the estimated fair value of Placer
Dome's metal sales contracts at December 31, 2005.
(o) A reduction in capital stock of $2,707 million to de-recognize Placer Dome's historic capital stock
(including the adjustment for the assumed exercise of in-the-money stock options).
(p) An increase in capital stock by $8,761 million to record the value of common shares of Barrick issued in
respect of the assumed share component of the Offer.
(q) An adjustment of $624 million to de-recognize Placer Dome's historic retained earnings.
(r) An adjustment of $12 million to de-recognize Placer Dome's historic accumulated other comprehensive income.
(s) An adjustment of $73 million to de-recognize Placer Dome's historic contributed surplus.
(t) An increase in cash and equivalents by $1,500 million to record the assumed cash receipts by Barrick for
the sale of the Placer Dome operations to Goldcorp.
(u) A decrease in cash and equivalents by $1,344 and a corresponding decrease in short-term debt to reflect the
assumed repayment of the temporary financing used to fund the cash component of the Offer upon the receipt of
the cash proceeds from Goldcorp relating to the sale of certain Placer Dome operations.
(v) Adjustments to de-recognize the estimated carrying amount of the Placer Dome assets and liabilities
included in the Placer Dome operations that will be sold to Goldcorp.
(w) A reduction in the unallocated purchase price by $1,279 million to adjust for the unallocated purchase
price relating to the sale of Placer Dome operations to Goldcorp.
/T/
Pro Forma Earnings Per Share
---------------------------------------------------------------------
For the year ended December 31, 2005
(millions of shares or US dollars, except per share data in dollars)
---------------------------------------------------------------------
Actual weighted average number of Barrick
common shares outstanding 536
Assumed number of Barrick common shares
issued to Placer Dome shareholders 323
---------------------------------------------------------------------
Pro forma weighted average number of Barrick
common shares outstanding 859
---------------------------------------------------------------------
Pro forma net income $ 489
---------------------------------------------------------------------
Pro forma earnings per share - basic $ 0.57
---------------------------------------------------------------------
Pro forma weighted average number of Barrick
common shares outstanding 859
Dilutive effect of stock options 2
---------------------------------------------------------------------
Pro forma weighted average number of Barrick
common shares outstanding - diluted 861
---------------------------------------------------------------------
Pro forma earnings per share - diluted $ 0.57
---------------------------------------------------------------------
/T/
D Summary Historical Placer Dome Financial Information (Unaudited)
While there are publicly-traded shares of Placer Dome outstanding, we are required to present certain summary
consolidated financial information relating to Placer Dome. This information has been prepared on a historical
cost basis in accordance with the US GAAP accounting policies of Placer Dome, which in certain respects differ
from the accounting policies of Barrick.
/T/
---------------------------------------------------------------------
For the years ended December 31 2005 2004
Income statement information
Total revenues $ 1,978 $ 1,888
Net income $ 80 $ 284
Balance sheet information
Current assets $ 1,649 $ 1,636
Non-current assets 4,045 3,908
Current liabilities 546 453
Non-current liabilities 1,908 1,927
---------------------------------------------------------------------
Net assets $ 3,240 $ 3,164
---------------------------------------------------------------------
/T/
E Acquisition of Mineral Interest in Pakistan
On February 14, 2006, we entered into an agreement with Antofagasta plc ("Antofagasta") to acquire 50% of
Tethyan Copper Company's ("Tethyan") Reko Diq project and associated mineral interests in Pakistan in the event
that Antofagasta is successful in its bid to acquire Tethyan. Upon successful completion of the bid, we will
reimburse Antofagasta approximately $100 million in cash for 50% of the acquisition, including the claw-back
right to be acquired/extinguished from BHP Billiton who have a right to claw back a material interest in
certain Tethyan's mineral interests.
4. SEGMENT INFORMATION
Our operations are managed on a regional basis. Our four regional business units are North America,
Australia/Africa, South America and Russia/Central Asia. Financial information for each of our mines and our
exploration group is reviewed regularly by our chief operating decision maker.
Segment income for operating segments comprises segment revenues less segment operating costs and segment
amortization in the format that internal management reporting is presented to the chief operating decision
maker. For internal management reporting purposes, we measure segment revenues and income using the average
consolidated realized gold selling price for each period. Segment expenses represent our internal presentation
of costs incurred to produce gold at each operating mine, and exclude the following costs that we do not
allocate to operating segments: environmental remediation costs at closed mines; regional business unit
overhead; amortization of corporate assets; business development costs; administration costs; impairments of
long-lived assets; other income/expense; and the costs of financing their activities. Segment expenses for
development projects and the exploration group represent expensed exploration, mine development and mine start-
up costs.
/T/
Income Statement Information
---------------------------------------------------------------------
Segment
Gold sales Segment expenses(1) income (loss)
---------------------------------------------------------------------
For the
years
ended
Dec.31 2005 2004 2003 2005 2004 2003 2005 2004 2003
---------------------------------------------------------------------
Gold-
strike $ 877 $ 745 $ 813 $ 510 $ 478 $ 533 $ 217 $ 118 $ 120
Round
Mountain 164 148 139 93 85 68 54 46 51
Eskay
Creek 72 112 130 8 9 18 38 52 65
Other
producing
mines 136 135 148 84 79 90 32 34 33
---------------------------------------------------------------------
North
America 1,249 1,140 1,230 695 651 709 341 250 269
---------------------------------------------------------------------
Kalgoor-
lie 177 183 153 101 109 88 56 54 45
Plutonic 109 122 120 66 69 62 33 42 48
Bulyanhulu 129 135 109 108 96 74 (13) 5 (2)
Other
producing
mines 165 101 91 97 60 55 37 27 24
Cowal - - - 9 1 - (9) (1) -
---------------------------------------------------------------------
Australia/
Africa 580 541 473 381 335 279 104 127 115
---------------------------------------------------------------------
Pierina 273 251 332 87 72 79 114 72 87
Lagunas
Norte 248 - - 62 12 29 157 (12) (29)
Veladero - - - 5 5 18 (5) (5) (18)
Pascua-
Lama - - - 6 4 - (6) (4) -
Other - - - - 3 - - (3) -
---------------------------------------------------------------------
South
America 521 251 332 160 96 126 260 48 40
---------------------------------------------------------------------
Exploration
group - - - 109 96 67 (109) (96) (67)
---------------------------------------------------------------------
Segment
total $2,350 $1,932 $2,035 $1,345 $1,178 $1,181 $596 $329 $357
---------------------------------------------------------------------
(1) In 2005, we revised our internal definition of segment expenses
to include accretion expense. Segment information for all the
years presented reflects this change in the measurement of
segment expenses.
Geographic Information
---------------------------------------------------------------------
Assets Gold sales
---------------------------------------------------------------------
For the years
ended Dec.31 2005 2004 2005 2004 2003
---------------------------------------------------------------------
United States $ 1,991 $ 1,976 $ 1,073 $ 911 $ 970
Canada 531 406 176 229 260
---------------------------------------------------------------------
North America 2,522 2,382 1,249 1,140 1,230
---------------------------------------------------------------------
Australia 1,010 838 401 406 364
Tanzania 787 774 179 135 109
---------------------------------------------------------------------
Australia/Africa 1,797 1,612 580 541 473
---------------------------------------------------------------------
Peru 675 811 521 251 332
Argentina 1,001 645 - - -
Chile 222 120 - - -
---------------------------------------------------------------------
South America 1,898 1,576 521 251 332
---------------------------------------------------------------------
Other 645 717 - - -
---------------------------------------------------------------------
$ 6,862 $ 6,287 $ 2,350 $ 1,932 $ 2,035
---------------------------------------------------------------------
Reconciliation of Segment Income
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Segment income $ 596 $ 329 $ 357
Other expenses at
producing mines - 8 (8)
Amortization of
corporate assets (18) (27) (25)
Business development costs (10) (18) (17)
Corporate administration (71) (71) (73)
Equity in investees (6) - -
Interest income 38 25 31
Interest expense (7) (19) (44)
Impairment of long-lived
assets - (139) (5)
Other income (expense) (67) (43) 6
---------------------------------------------------------------------
Income before income taxes
and other items $ 455 $ 45 $ 222
---------------------------------------------------------------------
Asset Information
---------------------------------------------------------------------
Segment capital
Segment assets Amortization(1) expenditures
---------------------------------------------------------------------
For the years
ended Dec.31 2005 2004 2005 2004 2003 2005 2004 2003
---------------------------------------------------------------------
Goldstrike $ 1,395 $ 1,290 $ 150 $ 149 $ 160 $ 162 $ 72 $ 51
Round Mountain 52 67 17 17 20 1 5 6
Eskay Creek 66 91 26 51 47 2 7 5
East Archimedes 36 - - - - 35 - -
Other operating
segments 82 91 20 22 25 18 20 18
---------------------------------------------------------------------
North
America 1,631 1,539 213 239 252 218 104 80
---------------------------------------------------------------------
Plutonic 106 92 10 11 10 20 15 44
Kalgoorlie 354 277 20 20 20 12 10 14
Cowal 412 130 - - - 258 73 24
Bulyanhulu 574 566 34 34 37 37 46 36
Tulawaka 80 70 15 - - 8 48 1
Other operating
segments 93 89 16 14 12 18 12 21
---------------------------------------------------------------------
Australia/
Africa 1,619 1,224 95 79 79 353 204 140
---------------------------------------------------------------------
Pierina 236 269 72 107 166 20 8 17
Lagunas Norte 384 220 29 - - 141 182 4
Veladero 783 443 - - - 266 284 68
Pascua-Lama 389 286 - - - 98 35 9
---------------------------------------------------------------------
South
America 1,792 1,218 101 107 166 525 509 98
---------------------------------------------------------------------
Segment total 5,042 3,981 409 425 497 1,096 817 318
Cash and
equivalents 1,037 1,398 - - - - - -
Other items
not allocated
to segments 783 908 18 27 25 8 7 4
---------------------------------------------------------------------
Enterprise total $6,862 $6,287 $427 $452 $522 $1,104 $824 $322
---------------------------------------------------------------------
(1) Includes amortization on assets under capital lease.
5. REVENUE AND GOLD SALES CONTRACTS
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Gold bullion sales
Spot market sales $ 1,940 $ 1,111 $ 426
Gold sales contracts 300 709 1,504
---------------------------------------------------------------------
2,240 1,820 1,930
Concentrate sales 110 112 105
---------------------------------------------------------------------
$ 2,350 $ 1,932 $ 2,035
---------------------------------------------------------------------
/T/
We record revenue when the following conditions are met: persuasive evidence of an arrangement exists; delivery
and transfer of title have occurred under the terms of the arrangement; the price is fixed or determinable; and
collectability is reasonably assured.
Bullion Sales
We record revenue from gold and silver bullion sales at the time of physical delivery, which is also the date
that title to the gold or silver passes. The sales price is fixed at the delivery date based on either the
terms of gold sales contracts or the gold spot price. Incidental revenues from the sale of by-products such as
silver are classified within cost of sales.
At December 31, 2005, we had fixed-price gold sales contracts with various customers for a total of 12.5
million ounces of future gold production and floating-price gold sales contracts for 0.7 million ounces. In
2005, we allocated 6.5 million ounces of fixed-price gold sales contracts specifically to Pascua-Lama. The
allocation of these contracts will help reduce gold price risk at Pascua-Lama and will help secure financing
for its construction. In addition to the gold sales contracts allocated to Pascua-Lama, we have 6 million
ounces of Corporate gold sales contracts that we intend to settle through delivery of future gold production
from our operating mines and development projects, excluding Pascua-Lama. The terms of the contracts are
governed by master trading agreements (MTAs) that we have in place with the customers. The contracts have final
delivery dates primarily over the next 10 years, but we have the right to settle these contracts at any time
over this period. Contract prices are established at inception through to an interim date. If we do not deliver
at this interim date, a new interim date is set. The price for the new interim date is determined in accordance
with the MTAs which have contractually agreed price adjustment mechanisms based on the market gold price. The
MTAs have both fixed and floating price mechanisms. The fixed-price mechanism represents the market price at
the start date (or previous interim date) of the contract plus a premium based on the difference between the
forward price of gold and the current market price. If at an interim date we opt for a floating price, the
floating price represents the spot market price at the time of delivery of gold adjusted based on the
difference between the previously fixed price and the market gold price at that interim date. The final
realized selling price under a contract primarily depends upon the timing of the actual future delivery date,
the market price of gold at the start of the contract and the actual amount of the premium of the forward price
of gold over the spot price of gold for the periods that fixed selling prices are set. The mark-to-market value
of the fixed-price gold sales contracts (at December 31, 2005) was negative $1,453 million for the Pascua-Lama
gold sales contracts and negative $1,277 million for the Corporate gold sales contracts.
The difference between the forward price of gold and the current market price, referred to as contango, can be
expressed as a percentage that is closely correlated to the difference between US dollar interest rates and
gold lease rates. Historically short-term gold lease rates have been lower than longer-term rates. We use gold
lease rate swaps to achieve a more economically optimal term structure for gold lease rates implicit in
contango. Under the swaps we receive a fixed gold lease rate, and pay a floating gold lease rate, on a notional
1 million ounces of gold spread from 2005 to 2013. The swaps are associated with fixed-price gold sales
contracts with expected delivery dates beyond 2006. Lease rate swaps are classified as non-hedge derivatives
(note 16C) and had a fair value of $66 million at December 31, 2005 (2004 - $74 million).
Floating spot price sales contracts were previously fixed-price forward sales contracts for which, in
accordance with the terms of our MTAs, we have elected to receive floating spot gold and silver prices,
adjusted based on the difference between the spot price and the contract price at the time of such election.
Floating prices were elected for these contracts so that we could economically regain spot gold price leverage
under the terms of delivery into these contracts. Furthermore, floating price mechanisms were elected for these
contracts at a time when the then current market price was higher than the fixed price in the contract. The
mark-to-market value of these contracts (at December 31, 2005) was negative $89 million, which equates to an
average reduction to the future spot sales price of approximately $127 per ounce, when we deliver gold at spot
prices against these contracts.
At December 31, 2005, one customer made up 11% of the ounces committed under gold bullion sales contracts.
Concentrate Sales
Our Eskay Creek and Bulyanhulu mines produce gold in concentrate form. Our Pascua-Lama mine will also produce
gold in concentrate form. Under the terms of concentrate sales contracts with independent smelting companies,
gold sales prices are set on a specified future date after shipment based on market prices. We record revenues
under these contracts at the time of shipment, which is also when title passes to the smelting companies, using
forward market gold prices on the expected date that final sales prices will be fixed. Variations between the
price recorded at the shipment date and the actual final price set under the smelting contracts are caused by
changes in market gold prices, and result in an embedded derivative in the accounts receivable. The embedded
derivative is recorded at fair value each period until final settlement occurs, with changes in fair value
classified as a component of revenue. The notional amount typically outstanding is between ten and fifteen
thousand ounces.
/T/
6. COST OF SALES
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Cost of goods sold(1) $ 1,265 $ 1,128 $ 1,118
By-product revenues(2) (132) (146) (114)
Royalty expense 63 53 50
Mining taxes 18 12 15
---------------------------------------------------------------------
$ 1,214 $ 1,047 $ 1,069
---------------------------------------------------------------------
(1) Cost of goods sold includes accretion expense at producing mines
of $11 million (2004 - $11 million; 2003 - $10 million). The cost
of inventory sold in the period reflects all components
capitalized to inventory, except that, for presentation purposes
the component of inventory cost relating to amortization of
property, plant and equipment is classified in the income
statement under "amortization". Some companies present this
amount under "cost of sales". The amount presented in
amortization rather than cost of sales was $409 million in 2005;
$425 million in 2004 and $497 million in 2003. In 2004, cost of
goods sold includes the reversal of $15 million of accrued costs
on resolution of the Peruvian tax assessment (see note 8).
(2) We use silver sales contracts to sell a portion of silver
produced as a by-product. Silver sales contracts have similar
delivery terms and pricing mechanisms as gold sales contracts.
At December 31, 2005, we had fixed-price commitments to deliver
14.8 million ounces of silver at an average price of $5.92 per
ounce and floating spot price silver sales contracts for 7.5
million ounces over periods primarily of up to 10 years. The
mark-to-market on silver sales contracts (at December 31, 2005)
was negative $52 million.
/T/
Royalties
Certain of our properties are subject to royalty arrangements based on mineral production at the properties.
The most significant royalties are at the Goldstrike and Bulyanhulu mines and the Pascua-Lama and Veladero
projects. The primary type of royalty is a net smelter return (NSR) royalty. Under this type of royalty we pay
the holder an amount calculated as the royalty percentage multiplied by the value of gold production at market
gold prices less third-party smelting, refining and transportation costs. Most Goldstrike production is subject
to an NSR or net profits interest (NPI) royalty. The highest Goldstrike royalties are a 5% NSR and a 6% NPI
royalty. Bulyanhulu is subject to an NSR-type royalty of 3%. Pascua-Lama gold production from the areas located
in Chile is subject to a gross proceeds sliding scale royalty, ranging from 1.5% to 10%, and a 2% NSR on copper
production. For areas located in Argentina, Pascua-Lama is subject to a 3% NSR on extraction of all gold,
silver and other minerals. Production at Veladero is subject to a 3.75% NSR on extraction of all gold, silver
and other minerals. Production at Lagunas Norte is subject to a 2.51% NSR on extraction of all gold and other
minerals.
Royalty expense is recorded at the time of sale of gold production, measured using the applicable royalty
percentage for NSR royalties or estimates of NPI amounts.
/T/
7. OTHER (INCOME) EXPENSE
A Impairment of Long-lived Assets
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Eskay Creek(1) $ - $ 58 $ -
Peruvian exploration properties(2) - 67 -
Other - 14 5
---------------------------------------------------------------------
$ - $ 139 $ 5
---------------------------------------------------------------------
(1) The asset group that comprises the Eskay Creek mine was tested
for impairment effective December 31, 2004. The principal factors
that caused us to test this asset group for impairment included:
downward revisions to proven and probable reserves; the impact
of the continued strengthening of the C$ against the US$ and
upward revisions to expected asset retirement costs in the fourth
quarter of 2004. An impairment charge of $58 million was
recorded, which represents the amount by which the carrying
amount of the asset group exceeds its estimated fair value. Fair
value was estimated using the method described in note 13C.
(2) At the end of 2004, upon completion of the exploration program
for the year, we assessed the results and updated our future
plans for various exploration properties in Peru that were
originally acquired through the Arequipa acquisition in 1996.
We concluded that the results and future potential did not
merit any further investment for these properties. The assets
were tested for impairment, and an impairment charge of $67
million was recorded that reflects the amounts by which their
carrying amounts exceed their estimated fair values. The fair
value of this group of assets was judged to be minimal due to
the unfavorable results of exploration work on the properties.
B Other
---------------------------------------------------------------------
For the years ended Dec. 31 2005 2004 2003
---------------------------------------------------------------------
Non-hedge derivative gains (note 16C) $ (6) $ (5) $ (71)
Gains on sale of mining property,
plant and equipment(1) (5) (36) (36)
Gains on sale of investments (note 11) (17) (6) (4)
Gain on Kabanga transaction (15) - -
Environmental remediation costs(2) 28 36 48
Accretion expense at closed mines
(note 17) 10 7 7
Impairment charges on investments
(note 11) 16 5 11
World Gold Council fees 10 9 10
Inmet settlement - - 16
Legal costs for major litigation 8 5 3
Currency translation (gains) losses (3) 1 (2)
Pension expense (note 23B) 1 - 4
Peruvian tax assessment - (6) -
Severance at closed mines - 4 -
Other items(3) 40 29 8
---------------------------------------------------------------------
$ 67 $ 43 $ (6)
---------------------------------------------------------------------
(1) In 2005, we sold some land positions in Australia. In 2004 we
sold various mining properties, including the Holt-McDermott mine
in Canada and certain land positions around our inactive mine
sites in the United States. In 2003 we sold various mining
properties, including several land positions around inactive
mine sites in the United States, as well as the East Malartic
Mill and Bousquet mine in Canada. The majority of these land
positions were fully amortized in prior years and therefore any
proceeds generate gains on sale, before selling costs and taxes.
(2) Includes costs at development projects and closed mines and
changes in the expected costs of AROs at closed mines.
(3) Includes certain costs incurred at regional business units that
are not direct or indirect production costs.
/T/
Kabanga Transaction
In April 2005, we finalized a joint-venture agreement with Falconbridge Limited ("Falconbridge") for the
Kabanga nickel deposit and related concessions located in Tanzania. Under the terms of the agreement,
Falconbridge acquired a 50% indirect joint venture interest for $15 million cash and a funding commitment and
has agreed to be the operator of the joint venture. On closing of the transaction with Falconbridge we recorded
a gain of $15 million.
Over the next several years, Falconbridge will fund and conduct a further $50 million work plan that will
include additional exploration and infill drilling, and technical work to update the resource model for Kabanga
and bring the project towards feasibility. Falconbridge has initiated the establishment of a dedicated team in
Tanzania to coordinate and advance the work plan. After expenditures of $50 million, Falconbridge will decide
on whether to proceed with the project. If Falconbridge proceeds with the project, they will fund the next $95
million of any project development expenditures to advance the Kabanga project. Thereafter, Falconbridge and
Barrick will share equally in joint-venture revenues and expenditures. Until Falconbridge has fully funded its
commitment under the agreement, we are not obligated to share in any revenues and expenditures and none of the
expenditures on the project will be recorded in our financial statements.
Environmental Remediation Costs
During the production phases of a mine, we incur and expense the cost of various activities connected with
environmental aspects of normal operations, including compliance with and monitoring of environmental
regulations; disposal of hazardous waste produced from normal operations; and operation of equipment designed
to reduce or eliminate environmental effects. In limited circumstances, costs to acquire and install plant and
equipment are capitalized during the production phase of a mine if the costs are expected to mitigate risk or
prevent future environmental contamination from normal operations.
When a contingent loss arises from the improper use of an asset, a loss accrual is recorded if the loss is
probable and reasonably estimable. Amounts recorded are measured on an undiscounted basis, and adjusted as
further information develops or if circumstances change. Recoveries of environmental remediation costs from
other parties are recorded as assets when receipt is deemed probable.
Inmet Settlement
In November 2003, we paid Inmet C$111 million (US$86 million), in full settlement of the Inmet litigation. The
settlement resulted in an expense of US$14 million in fourth quarter 2003, combined with post-judgment interest
of $2 million in the first nine months of 2003.
/T/
8. INCOME TAX EXPENSE (RECOVERY)
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Current
Canada $ (3) $ 19 $ 40
International 93 24 14
---------------------------------------------------------------------
$ 90 $ 43 $ 54
---------------------------------------------------------------------
Deferred
Canada $ (15) $ (26) $ (32)
International 22 7 45
---------------------------------------------------------------------
$ 7 $ (19) $ 13
---------------------------------------------------------------------
Income tax expense before elements
below(1) $ 97 $ 24 $ 67
Outcome of tax uncertainties - (141) -
Change in tax status in Australia (5) (81) -
Net release of beginning of year
valuation allowances (32) (5) (62)
---------------------------------------------------------------------
Total expense (recovery) $ 60 $ (203) $ 5
---------------------------------------------------------------------
(1) All amounts are deferred tax items except for a $21 million
portion of the $141 million recovery on resolution of the
Peruvian tax assessment in 2004, which is a current tax item.
/T/
Outcome of Tax Uncertainties
Peruvian Tax Assessment
On September 30, 2004, the Tax Court of Peru issued a decision in our favor in the matter of our appeal of a
2002 income tax assessment of $32 million, excluding interest and penalties. The 2002 income tax assessment
related to a tax audit of our Pierina Mine for the 1999 and 2000 fiscal years. The assessment mainly related to
the validity of a revaluation of the Pierina mining concession, which affects its tax basis. Under the
valuation proposed by the Peruvian tax agency, SUNAT, the tax basis of the Pierina mining concession would have
changed from what we previously assumed with a resulting increase in current and deferred income taxes. The
full life-of-mine effect on current and deferred income tax liabilities totaling $141 million, was fully
recorded at December 31, 2002, as well as other related costs of about $21 million ($15 million post-tax).
In January 2005, we received confirmation in writing that there would be no appeal of the September 30, 2004
Tax Court of Peru decision. The confirmation concluded the administrative and judicial appeals process with
resolution in Barrick's favor. In 2004, we recorded a $141 million reduction in current and deferred income tax
liabilities and a $21 million reduction in other accrued costs in 2004, $15 million of which is classified in
cost of sales and $6 million of which is classified in other (income) expense. Notwithstanding the favorable
Tax Court decision we received in 2004 on the 1999 to 2000 revaluation matter, on audit, SUNAT has reassessed
us on the same issue for 2001 to 2003. We and our advisors believe that the audit reassessment has no merit,
that we will prevail, and accordingly no provision has been booked.
Changes in Tax Status in Australia
A tax law was enacted in Australia in 2002 that allows wholly owned groups of companies resident in Australia
to elect to be treated as a single entity and to file consolidated tax returns. This regime is elective and the
election is irrevocable. Under certain circumstances, the rules governing the election allow for a choice to
reset the tax cost basis of certain assets within a consolidated group. Our election, which was effective for
our 2004 fiscal year, resulted in an estimated upward revaluation of the tax basis of our assets in Australia,
by $110 million, with a corresponding $33 million adjustment to deferred taxes. In 2005, based on additional
facts and refinements, the adjustment was increased by $5 million.
Also in 2004, we filed an election to use the US dollar as the functional currency for Australian tax
calculations and tax returns, whereas previously the Australian dollar was used. Prior to this election, the
favorable impact of changes in the tax basis of non-monetary assets caused by changes in the US$:A$ exchange
rate were not recorded, as their realization was not certain. The election in 2004 created certainty about the
realization of these favorable tax temporary differences and resulted in our recognition of these as deferred
tax assets amounting to $48 million. The impact of the change in tax status was to increase the amount of
deductible temporary differences relating to non-monetary assets by $48 million.
Release of Beginning of Year Valuation Allowances
In 2005, we released valuation allowances totaling $31 million in Argentina, relating to the effect of the
higher gold price environment and the anticipated commencement of sales in 2006. We released valuation
allowances of $2 million in Canada reflecting utilization of capital losses.
In 2004, we released valuation allowances totaling $5 million relating to the consolidated tax return election
in Australia. Valuation allowances released in 2003 mainly included: $21 million in North America following a
corporate reorganization of certain subsidiaries that enabled us to utilize certain previously unrecognized tax
assets; $16 million in Australia realized in 2003 due to an increase in taxable income from higher gold prices;
and $15 million in Argentina after the approval to begin construction of our new Veladero mine and
classification of mineralization as a proven and probable reserve.
/T/
Reconciliation to Canadian Federal Rate
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
At 38% statutory federal rate $ 173 $ 17 $ 84
Increase (decrease) due to:
Allowances and special tax deductions(1) (92) (70) (47)
Impact of foreign tax rates(2) (51) (5) (42)
Expenses not tax-deductible 9 10 11
Release of beginning of year valuation
allowances (32) (5) (62)
Impact of changes in tax status in
Australia (5) (81) -
Valuation allowances set up against
current year tax losses 59 65 53
Outcome of tax uncertainties - (141) -
Mining taxes 1 5 9
Other items (2) 2 (1)
---------------------------------------------------------------------
Income tax expense (recovery) $ 60 $ (203) $ 5
---------------------------------------------------------------------
(1) We are able to claim certain allowances and tax deductions unique
to extractive industries that result in a lower effective tax
rate.
(2) We operate in multiple foreign tax jurisdictions that have tax
rates different than the Canadian federal rate.
/T/
Income Tax Returns
Our income tax returns for the major jurisdictions where we operate have been fully examined through the
following years: Canada - 2001, United States - 2001, and Peru - 2003.
/T/
9. EARNINGS PER SHARE
---------------------------------------------------------------------
For the years ended Dec.31 ($ millions,
except shares in millions and per share
amounts in dollars) 2005 2004 2003
---------------------------------------------------------------------
Income before cumulative effect of changes
in accounting principles $ 395 $ 248 $ 217
Cumulative effect of changes in
accounting principles 6 - (17)
---------------------------------------------------------------------
Income available to common stockholders $ 401 $ 248 $ 200
---------------------------------------------------------------------
Weighted average shares outstanding
Basic 536 533 539
Effect of dilutive stock options 2 1 -
---------------------------------------------------------------------
Diluted 538 534 539
---------------------------------------------------------------------
Earnings per share
Income before cumulative effect of
changes in accounting principles
Basic $0.74 $0.47 $0.40
Diluted $0.73 $0.46 $0.40
Net income
Basic $0.75 $0.47 $0.37
Diluted $0.75 $0.46 $0.37
---------------------------------------------------------------------
/T/
Earnings per share is computed by dividing net income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution
that could occur if additional common shares are assumed to be issued under securities that entitle their
holders to obtain common shares in the future. The number of additional shares for inclusion in diluted
earnings per share calculations is determined using the treasury stock method, whereby stock options, whose
exercise price is less than the average market price of our common shares, are assumed to be exercised and the
proceeds are used to repurchase common shares at the average market price for the period. The incremental
number of common shares issued under stock options and repurchased from proceeds is included in the calculation
of diluted earnings per share.
On January 19, 2006 and February 3, 2006, together, we issued 304 million shares to acquire a 94% interest in
the outstanding common shares of Placer Dome. We intend to acquire the remaining 6% interest through a
compulsory acquisition procedure.
/T/
10. OPERATING CASH FLOW - OTHER ITEMS
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Income statement items:
Currency translation (gains) losses $ (3) $ 1 $ 5
(Gains) losses on investments (note 11) (17) (6) (4)
Gain on Kabanga transaction (15) - -
Impairment charges on investments 16 5 11
Accounting changes (note 2E) (6) - 17
Equity in investee (6) - -
Accretion expense (note 17) 21 18 17
Non-hedge derivative gains (note 16C) (6) (5) (71)
Inmet litigation (note 7B) - - 16
ARO charges at closed mines (note 17) 15 22 10
Amortization of debt issue costs 2 3 1
Write-downs of inventory (note 12) 15 9 3
Changes in:
Accounts receivable 4 (2) 3
Inventories (151) (51) (1)
Capitalized mining costs - 9 37
Goods and services taxes (16) (68) (14)
Accounts payable 80 4 4
Other assets and liabilities - (8) (75)
Other items - - 4
---------------------------------------------------------------------
Other net operating activities $ (67) $ (69) $ (37)
---------------------------------------------------------------------
Operating cash flow includes net
receipts (payments) for:
Asset retirement obligations $ (30) $ (33) $ (40)
Income taxes (80) (45) (111)
Pension plan contributions (20) (22) (23)
Interest (112) (57) (48)
---------------------------------------------------------------------
11. INVESTMENTS
Available-for-sale Securities
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Fair Gains in Fair Gains in
value OCI value OCI
---------------------------------------------------------------------
Benefit plans:(1)
Fixed-income securities $ 4 $ - $ 11 $ -
Equity securities 17 1 19 10
Other investments:
Equity securities(2) 38 11 29 11
Restricted cash 3 - 2 -
---------------------------------------------------------------------
$ 62 $ 12 $ 61 $ 21
---------------------------------------------------------------------
(1) Under various benefit plans for certain former Homestake
executives, a portfolio of marketable fixed-income and equity
securities are held in a rabbi trust that is used to fund
obligations under the plans.
(2) At December 31, 2005, there were no available-for-sale securities
in an unrealized loss position.
/T/
Available-for-sale securities are recorded at fair value with unrealized gains and losses recorded in other
comprehensive income ("OCI"). Realized gains and losses are recorded in earnings when investments mature or on
sale, calculated using the average cost of securities sold. If the fair value of an investment declines below
its carrying amount, we undertake an assessment of whether the impairment is other-than-temporary. We consider
all relevant facts or circumstances in this assessment, particularly: the length of time and extent to which
fair value has been less than the carrying amount; the financial condition and near-term prospects of the
investee, including any specific events that have impacted its fair value; both positive and negative evidence
that the carrying amount is recoverable within a reasonable period of time; and our ability and intent to hold
the investment for a reasonable period of time sufficient for an expected recovery of the fair value up to or
beyond the carrying amount. We record in earnings any unrealized declines in fair value judged to be other than
temporary. Total proceeds from the sale of investments were $10 million in 2005 (2004 - $9 million; 2003 - $8
million).
/T/
Gains (Losses) on Investments Recorded in Earnings
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Realized on sale
Gains $ 17 $ 6 $ 5
Losses - - (1)
---------------------------------------------------------------------
17 6 4
Impairment charges (16) (5) (11)
---------------------------------------------------------------------
$ 1 $ 1 $ (7)
---------------------------------------------------------------------
/T/
Investment in Celtic Resources Holdings PLC ("Celtic")
On January 5, 2005, we completed a subscription for 3,688,191 units of Celtic for a price of $7.562 per unit
for a total cost of $30 million. Each unit consisted of one ordinary share of Celtic and one-half of one share
purchase warrant. On June 1, 2005, the number of warrants held increased under the terms of the subscription
agreement by 922,048 warrants to 2,766,143 warrants. Each whole warrant entitles us to acquire one ordinary
share of Celtic for $7.562, expiring on December 31, 2007. We allocated $25 million to the ordinary shares and
$5 million to the share purchase warrants based on their relative fair values at acquisition. At December 31,
2005, we held a 9% combined direct and indirect interest in Celtic's outstanding common shares. The investment
in common shares is classified as an available-for-sale security. In the second half of 2005, the fair value of
the investment in common shares declined below cost and at the end of 2005 we concluded that the impairment was
"other-than-temporary" and recorded a $12 million impairment charge. We concluded that the share purchase
warrants are derivative instruments as defined by FAS 133. The warrants, which are classified as non-hedge
derivatives, are recorded at their estimated fair value in the balance sheet with changes in fair value
recorded in non-hedge derivative gains/losses. The fair value of the share purchase warrants was $0.5 million
at December 31, 2005.
At the time of the initial subscription, Celtic granted us the right to acquire 50% of any interest in any
mineral property in Kazakhstan that Celtic acquires in the future for a period of 12 months after any such
acquisition for an amount equal to 50% of the cost to Celtic of its interest in the mineral property. No such
rights have been exercised since the initial subscription.
/T/
Equity Method Investments
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------
Fair Carrying Fair Carrying
value(1) amount value(1) amount
Highland Gold Mining PLC $ 134 $ 131 $ 75 $ 86
Diamondex Resources Ltd. 6 7 - -
---------------------------------------------------------------------
$ 140 $ 138 $ 75 $ 86
---------------------------------------------------------------------
(1) Based on the closing market stock price.
/T/
Under the equity method we record our equity share of the income or loss of equity investees each period. On
acquisition of an equity investment the underlying identifiable assets and liabilities of an equity investee
are recorded at fair value and the income or loss of equity investees is based on these fair values. If the
cost of any equity investment exceeds the total amount of the fair value of identifiable assets and
liabilities, any excess is accounted for in a manner similar to goodwill, with the exception that an annual
goodwill impairment test is not required. The carrying amount of each investment in an equity investee is
evaluated for impairment using the same method as an available-for-sale security.
Highland Gold Mining PLC ("Highland")
We hold a 20% interest in Highland that was acquired for cash in three tranches: 11.1 million common shares for
a cost of $46 million in 2003; 9.3 million common shares for a cost of $40 million in 2004; and 11 million
common shares in 2005 for a cost of $50 million.
Following the increase in our ownership to 20% in 2005, we re-evaluated the accounting method used for this
investment and concluded that the equity method is the most appropriate. Previously the investment was
classified as an available-for-sale security. We have recorded our equity share of income or loss of Highland
each period based on our actual ownership interest for the period from fourth quarter 2003. Under a transition
to equity accounting, US GAAP requires financial statements for prior periods to be revised to reflect the
equity accounting treatment.
The difference between the cost of our investment in Highland and the underlying historic cost of net assets
was $108 million at April 30, 2005. After finalizing valuations for the assets and liabilities of Highland in
fourth quarter 2005, the difference between the cost of our investment and the underlying fair value of assets
and liabilities, representing goodwill, was $85 million. On completion of the valuations, we revised our equity
pick up to reflect accounting based on the fair values of Highland's assets and liabilities.
We have participation agreements with Highland, under which we have the right to participate for up to 50% in
any acquisition made by Highland in Russia, with a similar right for Highland on any acquisition made by us in
certain regions in Russia, excluding Irkutsk. We have a right of first refusal with respect to any third-party
investment in Highland's Mayskoye property in the Chukotka region, Russia, and we plan to pursue discussions
with Highland regarding Mayskoye.
On June 29, 2005, we entered into a purchase agreement with Highland pursuant to which we purchased a 50%
interest in the Taseevskoye deposit ("Taseevskoye"). The purchase price was $13 million. Highland currently
holds Taseevskoye through a subsidiary that owns other assets and liabilities. Highland has agreed to
restructure the ownership of Taseevskoye into a separate Russian company. In connection with the purchase,
Highland issued to us a warrant which entitles us to apply the purchase price as payment for an equivalent
number of Highland shares, based on a price of $3.10 per share, subject to adjustment under certain
circumstances, if Highland does not restructure the ownership of Taseevskoye prior to June 1, 2006.
During the period between the signing of the Taseevskoye purchase agreement and the time that the ownership of
Taseevskoye is restructured, we agreed to fund our proportionate share of any expenditures relating to
Taseevskoye. Highland agreed to deliver to us a warrant that entitles us to apply the amount of interim
expenditures paid by us as payment for an equivalent number of Highland shares based on a price of $3.10 per
share, subject to adjustment in certain circumstances, if Highland does not complete the restructuring by June
1, 2006. By December 31, 2005, we had funded interim expenditures totaling $0.5 million, and we had received a
warrant for the same amount.
Diamondex Resources Limited ("Diamondex")
We completed a subscription for 11,111,111 units of Diamondex for $8 million in 2005. Each unit consists of one
ordinary share of Diamondex and one share purchase warrant. We hold a 14% interest in the outstanding common
shares of Diamondex (25% assuming exercise of the share purchase warrants). We allocated the cost as follows:
$7 million to the ordinary shares and $1 million to the share purchase warrants. We record our equity share of
the income or loss of Diamondex each period based on our total 14% interest in outstanding common shares.
/T/
12. ACCOUNTS RECEIVABLE, INVENTORIES AND OTHER CURRENT ASSETS
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Accounts receivable
Amounts due from concentrate sales $ 18 $ 29
Other receivables 36 29
---------------------------------------------------------------------
$ 54 $ 58
---------------------------------------------------------------------
Inventories
Ore in stockpiles(1) $ 360 $ 107
Ore on leach pads 34 17
Gold in process 47 33
Gold dore/bullion 32 20
Gold concentrate 47 21
Mine operating supplies 133 82
---------------------------------------------------------------------
653 280
Non-current ore in stockpiles(2) (251) (65)
---------------------------------------------------------------------
$ 402 $ 215
---------------------------------------------------------------------
Other current assets
Derivative assets (note 16C) $ 128 $ 165
Taxes recoverable 101 104
Prepaid expenses 23 17
Other 3 2
---------------------------------------------------------------------
$ 255 $ 288
---------------------------------------------------------------------
(1) Effective January 1, 2005, an amount of $232 million was
reclassified to ore in stockpiles from capitalized mining costs
in connection with our adoption of EITF 04-6. See note 2E.
(2) Ore that we do not expect to process in the next 12 months is
classified in non-current ore in stockpiles.
/T/
Inventories
Material extracted from our mines is classified as either ore or waste. Ore represents material that can be
mined, processed into a saleable form, and sold at a profit. Ore is recorded as an asset that is classified
within inventory at the point it is extracted from the mine. Ore is accumulated in stockpiles that are
subsequently processed into gold in a saleable form under a mine plan that takes into consideration optimal
scheduling of production of our reserves, present plant capacity, and the market price of gold. Gold in process
represents gold in the processing circuit that has not completed the production process, and is not yet in a
saleable form.
Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of
contained ounces or pounds (based on assay data) and the estimated metallurgical recovery rates (based on the
expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to a
stockpile based on relative values of material stockpiled and processed using current mining costs incurred up
to the point of stockpiling the ore, including applicable overhead, depreciation, depletion and amortization
relating to mining operations, and removed at each stockpile's average cost per recoverable unit.
The recovery of gold from certain oxide ores is achieved through the heap leaching process. Our Pierina,
Lagunas Norte, and Veladero mines all are using a heap leaching process. Under this method, ore is placed on
leach pads where it is treated with a chemical solution, which dissolves the gold contained in the ore. The
resulting "pregnant" solution is further processed in a plant where the gold is recovered. For accounting
purposes, costs are added to ore on leach pads based on current mining costs, including applicable
depreciation, depletion and amortization relating to mining operations. Costs are removed from ore on leach
pads as ounces are recovered based on the average cost per recoverable ounce of gold on the leach pad.
Estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the leach
pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data)
and a recovery percentage (based on ore type). In general, leach pads recover between 50% and 95% of the
recoverable ounces in the first year of leaching, declining each year thereafter until the leaching process is
complete.
Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of
ore placed on pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the
leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the
metallurgical balancing process is constantly monitored and estimates are refined based on actual results over
time. Historically, our operating results have not been materially impacted by variations between the estimated
and actual recoverable quantities of gold on its leach pads. At December 31, 2005 and 2004, the weighted-
average cost per recoverable ounce of gold on leach pads was $164 and $153 per ounce (unaudited), respectively.
Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do
not result in write-downs to net realizable value are accounted for on a prospective basis.
The ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded. Based
on current mine plans, we expect to place the last ton of ore on our current leach pads at dates ranging from
2007 to 2021 (unaudited). Including the estimated time required for residual leaching, rinsing and reclamation
activities, we expect that our leaching operations will terminate within approximately six years (unaudited)
following the date that the last ton of ore is placed on the leach pad.
The current portion of ore inventory on leach pads is determined based on estimates of the quantities of gold
at each balance sheet date that we expect to recover during the next 12 months.
/T/
Significant Ore in Stockpiles
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Goldstrike
Ore that requires roasting $ 182 $ 23
Ore that requires autoclaving 98 17
Kalgoorlie 53 46
---------------------------------------------------------------------
/T/
At Goldstrike, we expect to fully process the autoclave stockpile by 2008 (unaudited) and the roaster stockpile
by 2023 (unaudited). At Kalgoorlie, we expect to fully process the stockpile by 2016 (unaudited).
We record gold in process, gold dore and gold in concentrate form at average cost, less provisions required to
reduce inventory to market value. Average cost is calculated based on the cost of inventory at the beginning of
a period, plus the cost of inventory produced in a period. Costs capitalized to inventory include direct and
indirect materials and consumables; direct labor; repairs and maintenance; utilities; amortization of property,
plant and equipment; stripping costs; and local mine administrative expenses. Costs are removed from inventory
and recorded in cost of sales and amortization expense based on the average cost per ounce of gold in
inventory.
Mine operating supplies are recorded at purchase cost, less provisions to reduce slow-moving and obsolete
supplies to market value. We recorded provisions to reduce the cost of slow moving and obsolete supplies
inventory to market value as follows: 2005 - $12 million in cost of sales and $3 million in expensed
development costs; 2004 - $9 million in cost of sales; 2003 - $3 million in cost of sales.
/T/
13. PROPERTY, PLANT AND EQUIPMENT
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Acquired mineral properties and capitalized
mine development costs $ 4,792 $ 4,489
Buildings, plant and equipment(1) 4,124 3,289
---------------------------------------------------------------------
8,916 7,778
Accumulated amortization(2) (4,770) (4,387)
---------------------------------------------------------------------
$ 4,146 $ 3,391
---------------------------------------------------------------------
(1) Includes $122 million (2004 - $44 million) of assets under
capital leases.
(2) Includes $18 million (2004 - $1 million) of accumulated
amortization for assets under capital leases.
/T/
A Acquired Mineral Properties and Capitalized Mine Development Costs
Exploration and Development Stage Properties
We capitalize the cost of acquisition of land and mineral rights. The cost is allocated between proven and
probable reserves and mineralization not considered proven and probable reserves at the date of acquisition,
based on relative fair values. If we later establish that some mineralization meets the definition of proven
and probable gold reserves, we classify a portion of the capitalized acquisition cost as relating to reserves.
After acquisition, various factors can affect the recoverability of the capitalized cost of land and mineral
rights, particularly the results of exploration drilling. The length of time between the acquisition of land
and mineral rights and when we undertake exploration work varies based on the prioritization of our exploration
projects and the size of our exploration budget. If we conclude that the carrying amount of land and mineral
rights is impaired, we reduce this carrying amount to estimated fair value through an impairment charge.
We capitalize costs incurred at development projects that meet the definition of an asset after mineralization
is classified as proven and probable gold reserves (as defined by United States reporting standards). Before
classifying mineralization as proven and probable gold reserves, costs incurred at development projects are
considered exploration costs and are expensed as incurred. Effective May 1, 2004, we determined that
mineralization at Lagunas Norte met the definition of proven and probable reserves for United States reporting
purposes. Following this determination, we began capitalizing costs that meet the definition of an asset at
Lagunas Norte prospectively for future periods. At new mines, the cost of start-up activities such as
recruiting and training is expensed as incurred.
At December 31, 2005 the following assets were in an exploration, development or construction stage and
amortization of the capitalized costs had not yet begun.
/T/
---------------------------------------------------------------------
Targeted timing of
Carrying amount at production start-up
Dec.31, 2005 (unaudited)
---------------------------------------------------------------------
Development projects
Cowal $ 406 2006
East Archimedes 35 2007
Pascua-Lama 340 2009
Buzwagi exploration project 102 -
---------------------------------------------------------------------
Total $ 883
---------------------------------------------------------------------
/T/
In 2005, amortization of property, plant and equipment at our Tulawaka, Lagunas Norte, and our Veladero mines
began after the mines moved from construction into the production phase. Amortization also began in 2005 at the
Nevada Power Plant that was built to supply power for the Goldstrike mine as it moved from construction into
the production phase.
Interest cost is considered an element of the historical cost of an asset when a period of time is necessary to
prepare it for its intended use. We capitalize interest costs to assets under development or construction while
activities are in progress. We stop capitalizing interest costs when construction of an asset is substantially
complete and it is ready for its intended use. We measure the amount capitalized based on cumulative
capitalized costs, exclusive of the impact, if any, of impairment charges on the carrying amount of an asset.
Producing Mines
We start amortizing capitalized mineral property acquisition and mine development costs when production begins.
Amortization is calculated using the "units-of-production" method, where the numerator is the number of ounces
produced and the denominator is the estimated recoverable ounces of gold contained in proven and probable
reserves.
During production at underground mines, we incur development costs to build new shafts, drifts and ramps that
will enable us to physically access ore underground. The time over which we will continue to incur these costs
depends on the mine life, and in some cases could be up to 25 years. These underground development costs are
capitalized as incurred. Costs incurred and capitalized to enable access to specific ore blocks or areas of the
mine, and which only provide an economic benefit over the period of mining that ore block or area, are
attributed to earnings using the units-of-production method where the denominator is estimated recoverable
ounces of gold contained in proven and probable reserves within that ore block or area. If capitalized
underground development costs provide an economic benefit over the entire mine life, the costs are attributed
to earnings using the units-of-production method, where the denominator is the estimated recoverable ounces of
gold contained in total accessible proven and probable reserves.
B Buildings, Plant and Equipment
We record buildings, plant and equipment at cost. We capitalize costs that extend the productive capacity or
useful economic life of an asset. Costs incurred that do not extend the productive capacity or useful economic
life of an asset are considered repairs and maintenance and expensed as incurred. We amortize the capitalized
cost of assets less any estimated residual value, using the straight-line method over the estimated useful
economic life of the asset based on their expected use in our business. The longest estimated useful economic
life for buildings and equipment at ore processing facilities is 25 years and for mining equipment is 15 years.
In the normal course of our business, we have entered into certain leasing arrangements whose conditions meet
the criteria for the leases to be classified as capital leases. For capital leases, we record an asset and an
obligation at an amount equal to the present value at the beginning of the lease term of minimum lease payments
over the lease term. In the case of all our leasing arrangements, there is transfer of ownership of the leased
assets to us at the end of the lease term and therefore we amortize these assets on a basis consistent with our
other owned assets.
C Impairment Evaluations - Operating Mines and Development Projects
We review and test the carrying amounts of assets when events or changes in circumstances suggest that the
carrying amount may not be recoverable. We group assets at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and liabilities. For operating mines and development
projects, all assets are included in one group. If there are indications that an impairment may have occurred,
we prepare estimates of expected future cash flows for each group of assets. Expected future cash flows are
based on a probability-weighted approach applied to potential outcomes.
Estimates of expected future cash flow reflect:
- Estimated sales proceeds from the production and sale of recoverable ounces of gold contained in proven and
probable reserves;
- Expected future commodity prices and currency exchange rates (considering historical and current prices,
price trends and related factors);
- Expected future operating costs and capital expenditures to produce proven and probable gold reserves based
on mine plans that assume current plant capacity, and exclude the impact of inflation;
- Expected cash flows associated with value beyond proven and probable reserves, which includes the expected
cash outflows required to develop and extract the value beyond proven and probable reserves; and
- Environmental remediation costs excluded from the measurement of asset retirement obligations.
We record a reduction of a group of assets to fair value as a charge to earnings if expected future cash flows
are less than the carrying amount. We estimate fair value by discounting the expected future cash flows using a
discount factor that reflects the risk-free rate of interest for a term consistent with the period of expected
cash flows.
D Capital Commitments
At December 31, 2005, we had capital commitments of $85 million that principally relate to construction
activities at our development projects.
/T/
14. OTHER ASSETS
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Derivative assets (note 16C) $ 177 $ 257
Goods and services taxes recoverable 46 50
Deferred income tax assets (note 19) 141 97
Debt issue costs 35 38
Deferred share-based compensation (note 22B) 13 5
Other 105 52
---------------------------------------------------------------------
$ 517 $ 499
---------------------------------------------------------------------
/T/
Debt Issue Costs
Additions to debt issue costs in 2005 of $4 million principally relate to new debt financings put in place
during the year. Amortization of debt issue costs is calculated using the interest method over the term of each
debt obligation, and classified as a component of interest cost.
/T/
15. OTHER CURRENT LIABILITIES
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Asset retirement obligations (note 17) $ 37 $ 33
Derivative liabilities (note 16C) 42 11
Post-retirement benefits (note 23) 6 2
Deferred revenue 8 5
Other 1 3
---------------------------------------------------------------------
$ 94 $ 54
---------------------------------------------------------------------
/T/
16. FINANCIAL INSTRUMENTS
Financial instruments include cash; evidence of ownership in an entity; or a contract that imposes an
obligation on one party and conveys a right to a second entity to deliver/receive cash or another financial
instrument. Information on certain types of financial instruments is included elsewhere in these financial
statements as follows: accounts receivable - note 12; investments - note 11; restricted share units - note 22B.
A Cash and Equivalents
Cash and equivalents include cash, term deposits and treasury bills with original maturities of less than 90
days.
/T/
B Long-term Debt
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
At At At
Dec. Pro- Repay- Dec. Pro- Repay- Dec. Pro- Repay-
31 ceeds ments 31 ceeds ments 31 ceeds ments
---------------------------------------------------------------------
7 1/2%
deben-
tures(1) $ 490 $ - $ - $ 495 $ - $ - $ 501 $ - $ -
5 4/5%
notes(2) 397 - - 397 397 - - - -
4 7/8%
notes(3) 348 - - 348 348 - - - -
Veladero
financing(4) 237 39 - 198 198 - - - -
Bulyanhulu
financing(5) 119 - 31 150 - 24 174 - 23
Variable-rate
bonds(6) 63 - - 63 - 17 80 - -
Capital
leases 4 - 1 5 - - 5 - -
Peru lease
facilities
First
facility(7) 76 73 27 30 30 - - - -
Second
facility(8) 17 17 - - - - - - -
Peruvian
bonds(9) 50 50 - - - - - -
---------------------------------------------------------------------
1,801 179 59 1,686 973 41 760 - 23
Less:
current
part (80) - - (31) - - (41) - -
---------------------------------------------------------------------
$ 1,721 $ 179 $ 59 $1,655 $ 973 $ 41 $ 719 $ - $ 23
---------------------------------------------------------------------
(1) The 7 1/2% debentures have a principal amount of $500 million
and mature on May 1, 2007. The debentures have been designated
in a fair value hedge relationship and consequently the carrying
amount at December 31, 2005 represents the estimated fair value
at each balance sheet date.
(2) On November 12, 2004, we issued $400 million of debentures at a
$3 million discount that mature on November 15, 2034.
(3) On November 12, 2004, we issued $350 million of debentures at a
$2 million discount that mature on November 15, 2014.
(4) One of our wholly owned subsidiaries, Minera Argentina Gold S.A.
in Argentina has a variable-rate limited recourse amortizing
loan facility for $250 million. We have guaranteed the loan
until completion occurs, after which it will become
non-recourse. The loan is insured for political risks by
branches of the Canadian and German governments.
(5) One of our wholly owned subsidiaries, Kahama Mining Corporation
Ltd. in Tanzania, has a variable-rate recourse amortizing loan
for $119 million. The loan is insured for political risks
equally by branches of the Canadian government and the World
Bank. In second quarter 2005, the terms of the financing were
amended, with the lender having recourse in return for a
reduction in the spread over Libor on the financing, and the
loan convenants were also simplified.
(6) Certain of our wholly owned subsidiaries have issued
variable-rate, tax-exempt bonds of $25 million (due 2029) and
$38 million (due 2032) for a total of $63 million.
(7) By December 31, 2005, a total of $103 million had been drawn
down under a $110 million build to suit facility held by one of
our wholly owned subsidiaries, Minera Barrick Misquichilca
(MBM). We repaid $23 million on September 30, 2005, with the
remaining $80 million repayable in 20 equal quarterly
installments of $4 million commencing in fourth quarter 2005.
The lease facility has an implied interest rate of Libor plus
2.5% for the first 12 installments and Libor plus 2.6% for the
last 8 installments.
(8) In 2005, MBM finalized a second build to suit lease facility for
$30 million, which is being used to finance the extension of the
leach pad at the Lagunas Norte mine.
(9) In second quarter 2005, MBM issued $50 million of public debt
securities in the Peruvian capital markets. The net proceeds
were used to partially fund the construction of the Lagunas
Norte mine. The securities bear interest at Libor plus 1.72%,
and mature in 2013.
(10) We have a credit and guarantee agreement with a group of banks
(the "Lenders"), which requires the Lenders to make available to
us a credit facility of up to $1 billion or the equivalent
amount in Canadian currency. The credit facility, which is
unsecured, matures in April 2010 and has an interest rate of
Libor plus 0.27% to 0.35% when used, and an annual fee of 0.08%.
As at December 31, 2005, we had not drawn any amounts under the
credit facility. In first quarter 2006, we drew down $1 billion
under this credit facility to fund a portion of the cash
consideration for the acquisition of Placer Dome - see note 3A.
---------------------------------------------------------------------
For the years ended Dec.31
-------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
Effec- Effec- Effec-
Interest tive Interest tive Interest tive
cost rate(1) cost rate(1) cost rate(1)
---------------------------------------------------------------------
7 1/2% debentures $ 41 8.2% $ 31 6.1% $ 31 6.1%
5 4/5% notes 24 6.0% 3 6.0% - -
4 7/8% notes 18 5.0% 2 5.0% - -
Veladero financing 20 8.6% 4 7.5% - -
Bulyanhulu financing 10 7.5% 14 8.0% 15 7.7%
Variable-rate bonds 1 2.3% 1 1.2% 1 1.1%
Peruvian bonds 2 5.0% - - - -
Peru lease facilities 5 6.0% - - - -
Australia capital
leases 1 7.1% - - - -
Other interest 3 5 2
---------------------------------------------------------------------
125 6.9% 60 6.0% 49 6.2%
Less: interest
capitalized (118) (41) (5)
---------------------------------------------------------------------
$ 7 $ 19 $ 44
---------------------------------------------------------------------
Cash interest paid $ 112 $ 57 $ 48
Amortization of
debt issue costs 2 3 1
Hedge (gains) losses 5 (2) (1)
Increase (decrease)
in interest accruals 6 2 1
---------------------------------------------------------------------
Interest cost $ 125 $ 60 $ 49
---------------------------------------------------------------------
(1) The effective rate includes the stated interest rate under the
debt agreement, amortization of debt issue costs, and the impact
of interest rate contracts designated in a hedging relationship
with long-term debt.
Scheduled Debt Repayments
---------------------------------------------------------------------
2010 and
2006 2007 2008 2009 thereafter
---------------------------------------------------------------------
7 1/2% debentures $ - $ 500 $ - $ - $ -
5 4/5% notes - - - - 400
4 7/8% notes - - - - 350
Veladero financing 28 55 45 50 59
Bulyanhulu financing 34 34 34 17 -
Variable-rate bonds - - - - 63
Peruvian bonds - - - - 50
---------------------------------------------------------------------
$ 62 $ 589 $ 79 $ 67 $ 922
---------------------------------------------------------------------
Minimum payments under
capital leases $ 19 $ 23 $ 19 $ 19 $ 17
---------------------------------------------------------------------
/T/
C Use of Derivative Instruments ("Derivatives") in Risk Management
In the normal course of business, our assets, liabilities and forecasted transactions are impacted by various
market risks including:
/T/
Item Impacted by
- Cost of sales
- Consumption of diesel fuel - Prices of diesel fuel
and propane and propane
- Local currency denominated - Currency exchange rates -
expenditures US dollar versus A$, C$, and
ARS
- Administration costs in local - Currency exchange rates -
currencies US dollar versus A$ and C$
- Capital expenditures in local - Currency exchange rates -
currencies US dollar versus A$, C$, ARS,
and EUR
- Interest earned on cash - US dollar interest rates
- Fair value of fixed-rate debt - US dollar interest rates
/T/
Under our risk management policy we seek to mitigate the impact of these market risks to control costs and
enable us to plan our business with greater certainty. The timeframe and manner in which we manage these risks
varies for each item based upon our assessment of the risk and available alternatives for mitigating risk. For
these particular risks, we believe that derivatives are an effective means of managing risk.
The primary objective of the hedging elements of our derivative positions is that changes in the values of
hedged items are offset by changes in the values of derivatives. Most of the derivatives we use meet the FAS
133 hedge effectiveness criteria and are designated in a hedge accounting relationship. Some of the derivative
positions are effective in achieving our risk management objectives but they do not meet the strict FAS 133
hedge effectiveness criteria, and they are classified as "non-hedge derivatives".
Our use of derivatives is based on established practices and parameters, which are subject to the oversight of
the Finance Committee of the Board of Directors. A Compliance Function independent of the Corporate Treasury
Group monitors derivative transactions and has responsibility for recording and accounting for derivatives.
Accounting Policy for Derivatives
We record derivatives on the balance sheet at fair value except for gold and silver sales contracts, which are
excluded from the scope of FAS 133, because the obligations will be met by physical delivery of our gold and
silver production and they meet the other requirements set out in paragraph 10(b) of FAS 133. In addition, our
past sales practices, productive capacity and delivery intentions are consistent with the definition of a
normal sales contract. Accordingly, we have elected to designate our gold and silver sales contracts as "normal
sales contracts" with the result that the principles of FAS 133 are not applied to them. Instead we apply
revenue recognition accounting principles as described in note 5.
On the date we enter into a derivative that is accounted for under FAS 133, we designate it as either a hedging
instrument or a non-hedge derivative. A hedging instrument is designated in either:
- a fair value hedge relationship with a recognized asset or liability; or
- a cash flow hedge relationship with either a forecasted transaction or the variable future cash flows arising
from a recognized asset or liability.
At the inception of a hedge, we formally document all relationships between hedging instruments and hedged
items, including the related risk-management strategy. This documentation includes linking all hedging
instruments to either specific assets and liabilities, specific forecasted transactions or variable future cash
flows. It also includes the method of assessing retrospective and prospective hedge effectiveness. In cases
where we use regression analysis to assess prospective effectiveness, we consider regression outputs for the
coefficient of determination (R-squared), the slope coefficient and the t-statistic to assess whether a hedge
is expected to be highly effective. Each period, using a dollar offset approach, we retrospectively assess
whether hedging instruments have been highly effective in offsetting changes in the fair value of hedged items
and we measure the amount of any hedge ineffectiveness. We also assess each period whether hedging instruments
are expected to be highly effective in the future. If a hedging instrument is not expected to be highly
effective, we stop hedge accounting prospectively. In this case accumulated gains or losses remain in OCI until
the hedged item affects earnings. We also stop hedge accounting prospectively if:
- a derivative is settled;
- it is no longer highly probable that a forecasted transaction will occur; or
- we de-designate a hedging relationship.
If we conclude that it is probable that a forecasted transaction will not occur in the originally specified
time frame, or within a further two-month period, gains and losses accumulated in OCI are immediately
transferred to earnings. In all situations when hedge accounting stops, a derivative is classified as a non-
hedge derivative prospectively. Cash flows from derivative transactions are included under operating
activities, except for derivatives designated as a cash flow hedge of forecasted capital expenditures, which
are included under investing activities.
Changes in the fair value of derivatives each period are recorded as follows:
- Fair value hedges: recorded in earnings as well as changes in fair value of the hedged item.
- Cash flow hedges: recorded in OCI until earnings are affected by the hedged item, except for any hedge
ineffectiveness which is recorded in earnings immediately.
- Non-hedge derivatives: recorded in earnings.
/T/
Summary of Derivatives at Dec.31, 2005(1)
---------------------------------------------------------------------
Fair
Accounting value
Notional amount by classification by (US$
term to maturity notional amount millions)
------------------------ --------------------- ---------
Cash Fair
Within 2 to 5 flow value Non-
1 year years Total hedge hedge Hedge
------------------------------------- --------------------- ---------
US dollar
interest
rate
contracts
Receive-fixed
swaps
(millions) $ - $ 975 $ 975 $ 425 $ 500 $ 50 $ (21)
Pay-fixed
swaps
(millions) - 125 125 - - 125 (13)
------------------------------------- --------------------- ---------
Net notional
position $ - $ 850 $ 850 $ 425 $ 500 $ (75) $ (34)
------------------------------------- --------------------- ---------
Currency
contracts
C$:US$
contracts
(C$
millions) C$ 297 C$ 491 C$ 788 C$ 788 C$ - C$ -(2) $ 68
A$:US$
contracts
(A$
millions) A$ 537 A$ 1,676 A$ 2,213 A$2,212 A$ - A$ -(1) 61
ARS: US$
contracts
(ARS
millions) 36 - 36 36 - - (1)
---------------------------------------------------------------------
Commodity
contracts
WTI
contracts
(thousands
of barrels) 476 1,417 1,893 1,502 - 391 $ 40
MOPS
contracts
(thousands
of barrels) 121 - 121 121 - - (1)
Propane
contracts
(millions
of gallons) 17 - 17 17 - - 4
---------------------------------------------------------------------
(1) Excludes gold sales contracts (see note 5), gold lease rate swaps
(see note 5) and Celtic Resources share purchase warrants (see
note 11).
(2) $62 million of non-hedge currency contracts were economically
closed out by entering into offsetting positions, albeit with
differing counterparties.
/T/
US Dollar Interest Rate Contracts
Cash Flow Hedges - Cash Balances
Receive-fixed swaps have been designated against the first $425 million of our cash balances as a hedge of the
variability of forecasted interest receipts on the balances caused by changes in Libor.
Each period the effective portion of changes in the fair value of the swaps, which relates to future interest
receipts, is recorded in OCI. Also, as interest is received and recorded in earnings, an amount equal to the
difference between the fixed-rate interest earned on the swaps and the variable-rate interest earned on cash is
recorded in earnings as a component of interest income.
Fair Value Hedges
Receive-fixed swaps totaling $500 million have been designated against the 7 1/2% debentures as a hedge of the
variability in the fair value of the debentures caused by changes in Libor. We have concluded that the hedges
are 100% effective under FAS 133, because the critical terms (including: notional amount, maturity date,
interest payment and underlying interest rate - i.e. Libor) of the swaps and the debentures are the same.
Changes in fair value of the swaps, together with an equal corresponding change in fair value of the
debentures, caused by changes in Libor, are recorded in earnings each period. Also, as interest payments on the
debentures are recorded in earnings, an amount equal to the difference between the fixed-rate interest received
under the swap less the variable-rate interest paid under the swap is recorded in earnings as a component of
interest costs.
Non-hedge Contracts
We use gold lease rate swaps as described in note 5. The valuation of gold lease rate swaps is impacted by
market US dollar interest rates. Our non-hedge pay-fixed swap position mitigates the impact of changes in US
dollar interest rates on the valuation of gold lease rate swaps.
Currency Contracts
Cash Flow Hedges
Currency contracts totaling C$788 million, A$2,213 million, and ARS$36 million have been designated against
forecasted local currency denominated expenditures as a hedge of the variability of the US dollar amount of
those expenditures caused by changes in currency exchange rates. Hedged items are identified as the first
stated quantity of dollars of forecasted expenditures in a future month. For a C$547 million and A$2,065
million portion of the contracts, we have concluded that the hedges are 100% effective under FAS 133 because
the critical terms (including notional amount and maturity date) of the hedged items and currency contracts are
the same. For the remaining C$241 million and A$147 million portions, prospective and retrospective hedge
effectiveness is assessed using the hypothetical derivative method under FAS 133. The prospective test involves
comparing the effect of a theoretical shift in forward exchange rates on the fair value of both the actual and
hypothetical derivative. The retrospective test involves comparing the effect of historic changes in exchange
rates each period on the fair value of both the actual and hypothetical derivative using a dollar offset
approach. The effective portion of changes in fair value of the currency contracts is recorded in OCI until the
forecasted expenditure impacts earnings. For expenditures capitalized to the cost of inventory, this is upon
sale of inventory, and for capital expenditures, this is when amortization of the capital assets is recorded in
earnings.
If it is probable that a hedged item will no longer occur in the originally specified time frame or within a
further two-month period, the accumulated gains or losses in OCI for the associated currency contract are
reclassified to earnings immediately. The identification of which currency contracts are associated with these
hedged items uses a last-in, first-out ("LIFO") approach, based on the order in which currency contracts were
originally designated in a hedging relationship.
Commodity Contracts
Cash Flow Hedges
Commodity contracts totaling 2,014 thousand barrels of diesel fuel and 17 million gallons of propane have been
designated against forecasted purchases of the commodities for expected consumption at our mining operations.
The contracts act as a hedge of the impact of variability in market prices on the cost of future commodity
purchases. Hedged items are identified as the first stated quantity in millions of barrels/gallons of
forecasted purchases in a future month. Prospective and retrospective hedge effectiveness is assessed using the
hypothetical derivative method under FAS 133. The prospective test is based on regression analysis of the month-
on-month change in fair value of both the actual derivative and a hypothetical derivative caused by actual
historic changes in commodity prices over the last three years. The retrospective test involves comparing the
effect of historic changes in commodity prices each period on the fair value of both the actual and
hypothetical derivative using a dollar offset approach. The effective portion of changes in fair value of the
commodity contracts is recorded in OCI until the forecasted transaction impacts earnings. The cost of commodity
consumption is capitalized to the cost of inventory, and therefore this is upon the sale of inventory.
If it is probable that a hedged item will no longer occur in the originally specified time frame, or within a
further two-month period, the accumulated gains or losses in OCI for the associated commodity contract are
reclassified to earnings immediately. The identification of which commodity contracts are associated with these
hedged items uses a LIFO approach, based on the order in which commodity contracts were originally designated
in a hedging relationship.
Non-hedge Contracts
Non-hedge fuel contracts are used to mitigate the risk of oil price changes on consumption at the Pierina,
Eskay Creek and Lagunas Norte mines. On completion of regression analysis, we concluded that the contracts do
not meet the "highly effective" criterion in FAS 133 due to currency and basis differences between contract
prices and the prices charged to the mines by oil suppliers. Despite not qualifying as an accounting hedge, the
contracts protect the Company to a significant extent from the effects of oil price changes.
/T/
Derivative Assets and Liabilities
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------
At Jan.1 $ 359 $ 337
Derivatives settled (183) (120)
Change in fair value of:
Non-hedge derivatives 4 3
Cash flow hedges
Effective portion 23 147
Ineffective portion 1 -
Share purchase warrants 5 -
Fair value hedges (5) (8)
---------------------------------------------------------------------
At Dec.31 $ 204(1) $ 359(1)
---------------------------------------------------------------------
Classification:
Other current assets $ 128 $ 165
Other assets 177 257
Other current liabilities (42) (11)
Other long-term obligations (59) (52)
---------------------------------------------------------------------
$ 204 $ 359
---------------------------------------------------------------------
(1) Derivative assets and liabilities are presented net by offsetting
related amounts due to/from counterparties if the conditions of
FIN No. 39, Offsetting of Amounts Related to Certain Contracts,
are met. Amounts receivable from counterparties netted against
derivative liabilities totaled $9 million at December 31, 2005.
Non-hedge Derivative Gains (Losses)(1)
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Non-hedge derivatives
Commodity contracts $ 4 $ (9) $ 3
Currency contracts 3 (4) 17
Interest rate contracts 2 16 32
Share purchase warrants (5) - -
---------------------------------------------------------------------
4 3 52
Hedge ineffectiveness
Ongoing hedge inefficiency 1 - 1
Due to changes in timing of hedged items 1 2 18
---------------------------------------------------------------------
$ 6 $ 5 $ 71
---------------------------------------------------------------------
(1) Non-hedge derivative gains (losses) are classified as a component
of other (income) expense.
Cash Flow Hedge Gains (Losses) in OCI
---------------------------------------------------------------------
Commodity
price Interest
hedges Currency hedges rate hedges
----------- ---------------------- ----------------
Oper- Admini- Capital Long-
Gold/ ating stration expen- Cash term
Silver Fuel costs costs ditures balances debt Total
---------------------------------------------------------------------
At Dec.31,
2002 $ 9 $ - $ 26 $ - $ - $ 26 $ (12) $ 49
Effective
portion of
change in
fair value
of hedging
instruments 4 (1) 251 32 54 9 (1) 348
Transfers to
earnings:
On recording
hedged
items in
earnings (13) - (58) (7) - (18) 5 (91)
Hedge
ineffec-
tiveness
due to
changes in
timing of
hedged
items - - - - (18)(1) - - (18)
---------------------------------------------------------------------
At Dec.31,
2003 - (1) 219 25 36 17 (8) 288
Effective
portion of
change in
fair value
of hedging
instruments - 7 117 19 19 5 (20) 147
Transfers to
earnings:
On recording
hedged
items in
earnings - (4) (96) (11) (5) (19) 3 (132)
Hedge
ineffec-
tiveness
due to
changes in
timing of
hedged
items - - - - (2)(1) - - (2)
---------------------------------------------------------------------
At Dec.31,
2004 - 2 240 33 48 3 (25) 301(2)
Effective
portion of
change in
fair value
of hedging
instruments - 46 (38) 13 (4) 1 5 23
Transfers to
earnings:
On recording
hedged
items in
earnings - (10) (100) (16) (4) (6) 2 (134)
Hedge
ineffec-
tiveness
due to
changes in
timing of
hedged
items - - - - (1)(1) - - (1)
---------------------------------------------------------------------
At Dec.31,
2005 $ - $ 38 $ 102 $ 30 $ 39 $ (2) $ (18)$189(2)
---------------------------------------------------------------------
Hedge gains/
losses Cost Cost
classified Gold of of Admini- Amorti- Interest Interest
within Sales sales sales stration zation expense cost
---------------------------------------------------------------------
Portion of
hedge gain
(loss)
expected to
affect 2006
earnings(2) $ - $ 11 $ 64 $ 11 $ 2 $ (3) $ (1) $84
---------------------------------------------------------------------
(1) On determining that certain forecasted capital expenditures were
no longer likely to occur within two months of the originally
specified time frame.
(2) Based on the fair value of hedge contracts at December 31, 2005.
/T/
D Fair Value of Financial Instruments
Fair value is the value at which a financial instrument could be closed out or sold in a transaction with a
willing and knowledgeable counterparty over a period of time consistent with our risk management or investment
strategy. Fair value is based on quoted market prices, where available. If market quotes are not available,
fair value is based on internally developed models that use market-based or independent information as inputs.
These models could produce a fair value that may not be reflective of future fair value.
/T/
Fair Value Information
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
---------------------------------------------------------------------
Financial assets
Cash and equivalents(1) $ 1,037 $ 1,037 $ 1,398 $ 1,398
Accounts receivable(1) 54 54 58 58
Available-for-sale
securities(2) 62 62 61 61
Equity-method investments 138 140 86 75
Derivative assets(4) 305 305 422 422
---------------------------------------------------------------------
$ 1,596 $ 1,598 $ 2,025 $ 2,014
---------------------------------------------------------------------
Financial liabilities
Accounts payable(1) $ 386 $ 386 $ 335 $ 335
Long-term debt(5) 1,801 1,827 1,686 1,731
Derivative liabilities(4) 101 101 63 63
Restricted share units(6) 17 17 6 6
Deferred share units(6) 1 1 1 1
---------------------------------------------------------------------
$ 2,306 $ 2,332 $ 2,091 $ 2,136
---------------------------------------------------------------------
(1) Recorded at cost. Fair value approximates the carrying amounts
due to the short-term nature and generally negligible credit
losses.
(2) Recorded at fair value. Quoted market prices are used to
determine fair value.
(3) Recorded at cost, adjusted for our share of income/loss and
dividends of equity investees.
(4) Recorded at fair value based on internal valuation models that
reflect forward market commodity prices, currency exchange rates
and interest rates, and a discount factor that is based on market
US dollar interest rates. If a forward market does not exist, we
obtain broker-dealer quotations. Valuations assume all
counterparties have an AA credit rating.
(5) Long-term debt is generally recorded at cost except for
obligations that are designated in a fair-value hedge
relationship, which are recorded at fair value in periods where a
hedge relationship exists. The fair value of long-term debt is
calculated by discounting the future cash flows under a debt
obligation by a discount factor that is based on US dollar
market interest rates adjusted for our credit quality.
(6) Recorded at fair value based on our period end closing market
stock price.
/T/
E Credit Risk
Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of
a financial instrument. For cash and equivalents and accounts receivable, credit risk represents the carrying
amount on the balance sheet.
For derivatives, when the fair value is positive, this creates credit risk. When the fair value of a derivative
is negative, we assume no credit risk. In cases where we have a legally enforceable master netting agreement
with a counterparty, credit risk exposure represents the net amount of the positive and negative fair values
for similar types of derivatives. For a net negative amount, we regard credit risk as being zero. A net
positive amount for a counterparty is a reasonable measure of credit risk when there is a legally enforceable
master netting agreement. We mitigate credit risk by:
- entering into derivatives with high credit-quality counterparties;
- limiting the amount of exposure to each counterparty; and
- monitoring the financial condition of counterparties.
/T/
Credit Quality of Financial Assets
---------------------------------------------------------------------
At Dec.31, 2005 S&P Credit rating
---------------------------------------------------------------------
AA- or A- or
higher higher B to BBB Total
---------------------------------------------------------------------
Cash and equivalents $ 962 $ 54 $ 21 $ 1,037
Derivatives(1) 161 82 - 243
Accounts receivable - - 54 54
---------------------------------------------------------------------
$ 1,123 $ 136 $ 75 $ 1,334
---------------------------------------------------------------------
Number of counterparties(2) 15 10 -
---------------------------------------------------------------------
Largest counterparty (%) 47% 49% -
---------------------------------------------------------------------
Concentrations of Credit Risk
---------------------------------------------------------------------
United Other
At Dec.31, 2005 States Canada International Total
---------------------------------------------------------------------
Cash and equivalents $ 879 $ 34 $ 124 $ 1,037
Derivatives(1) 140 78 25 243
Accounts receivable 6 15 33 54
---------------------------------------------------------------------
$ 1,025 $ 127 $ 182 $ 1,334
---------------------------------------------------------------------
(1) The amounts presented reflect the net credit exposure after
considering the effect of master netting agreements.
(2) For cash and equivalents and derivatives combined.
/T/
F Risks Relating to the Use of Derivatives
By using derivatives, in addition to credit risk, we are affected by market risk and market liquidity risk.
Market risk is the risk that the fair value of a derivative might be adversely affected by a change in
commodity prices, interest rates, gold lease rates, or currency exchange rates, and that this in turn affects
our financial condition. We manage market risk by establishing and monitoring parameters that limit the types
and degree of market risk that may be undertaken. We mitigate this risk by establishing trading agreements with
counterparties under which we are not required to post any collateral or make any margin calls on our
derivatives. Our counterparties cannot require settlement solely because of an adverse change in the fair value
of a derivative.
Market liquidity risk is the risk that a derivative cannot be eliminated quickly, by either liquidating it or
by establishing an offsetting position. Under the terms of our trading agreements, counterparties cannot
require us to immediately settle outstanding derivatives, except upon the occurrence of customary events of
default such as covenant breaches, including financial covenants, insolvency or bankruptcy. We generally
mitigate market liquidity risk by spreading out the maturity of our derivatives over time.
/T/
17. ASSET RETIREMENT OBLIGATIONS
Asset Retirement Obligations (AROs)
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------
At Jan.1 $ 367 $ 318
AROs incurred in the period 47 14
Impact of revisions to expected cash flows
Adjustments to carrying amount of assets 29 32
Charged to earnings 15 22
Settlements
Cash payments (30) (33)
Settlement gains (3) (4)
Accretion
Operating mines 11 11
Closed mines 10 7
---------------------------------------------------------------------
At Dec.31 446 367
Current part (37) (33)
---------------------------------------------------------------------
$ 409 $ 334
---------------------------------------------------------------------
/T/
AROs arise from the acquisition, development, construction and normal operation of mining property, plant and
equipment, due to government controls and regulations that protect the environment on the closure and
reclamation of mining properties. The major parts of the carrying amount of AROs relate to tailings and heap
leach pad closure/rehabilitation; demolition of buildings/mine facilities; ongoing water treatment; and ongoing
care and maintenance of closed mines. The fair values of AROs are measured by discounting the expected cash
flows using a discount factor that reflects the credit-adjusted risk-free rate of interest. We prepare
estimates of the timing and amount of expected cash flows when an ARO is incurred. We update expected cash
flows to reflect changes in facts and circumstances. The principal factors that can cause expected cash flows
to change are: the construction of new processing facilities; changes in the quantities of material in reserves
and a corresponding change in the life of mine plan; changing ore characteristics can impact required
environmental protection measures and related costs; changes in water quality that impact the extent of water
treatment required; and changes in laws and regulations governing the protection of the environment. When
expected cash flows increase, the revised cash flows are discounted using a current discount factor whereas
when expected cash flows decrease the additional cash flows are discounted using a historic discount factor,
and then in both cases any change in the fair value of the ARO is recorded. We record the fair value of an ARO
when it is incurred. At producing mines AROs incurred and changes in the fair value of AROs are recorded as an
adjustment to the corresponding asset carrying amounts. At closed mines, any adjustment to the fair value of an
ARO is charged directly to earnings. AROs are adjusted to reflect the passage of time (accretion) calculated by
applying the discount factor implicit in the initial fair-value measurement to the beginning-of-period carrying
amount of the AROs. For producing mines accretion is recorded in the cost of goods sold each period. For
development projects and closed mines, accretion is recorded as part of environmental remediation costs in
other (income) expense. Upon settlement of an ARO, we record a gain or loss if the actual cost differs from the
carrying amount of the ARO. Settlement gains are classified as environmental remediation costs in other
(income) expense. Other environmental remediation costs that are not AROs as defined by FAS 143 are expensed as
incurred (see note 7).
/T/
18. OTHER LONG-TERM OBLIGATIONS
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Pension benefits (note 23) $ 54 $ 49
Other post-retirement benefits (note 23) 28 26
Derivative liabilities (note 16C) 59 52
Restricted share units (note 22B) 16 6
Other 51 32
---------------------------------------------------------------------
$ 208 $ 165
---------------------------------------------------------------------
/T/
19. DEFERRED INCOME TAXES
Recognition and Measurement
We record deferred income tax assets and liabilities where temporary differences exist between the carrying
amounts of assets and liabilities in our balance sheet and their tax bases. The measurement and recognition of
deferred income tax assets and liabilities takes into account: enacted rates that will apply when temporary
differences reverse; interpretations of relevant tax legislation; tax planning strategies; estimates of the tax
bases of assets and liabilities; and the deductibility of expenditures for income tax purposes. We recognize
the effect of changes in our assessment of these estimates and factors when they occur. Changes in deferred
income tax assets, liabilities and valuation allowances are allocated between net income and other
comprehensive income based on the source of the change.
Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries, which are
considered to be reinvested indefinitely outside Canada. The determination of the unrecorded deferred income
tax liability is not considered practicable.
/T/
Sources of Deferred Income Tax Assets and Liabilities
---------------------------------------------------------------------
At Dec.31 2005 2004(1)
---------------------------------------------------------------------
Deferred tax assets
Tax loss carry forwards $ 252 $ 290
Capital tax loss carry forwards 42 48
Alternative minimum tax ("AMT") credits 135 121
Asset retirement obligations 175 106
Property, plant and equipment 297 206
Inventory 57 14
Post-retirement benefit obligations 5 18
Other 11 6
---------------------------------------------------------------------
Gross deferred tax assets 974 809
Valuation allowances (656) (629)
---------------------------------------------------------------------
Net deferred tax assets 318 180
Deferred tax liabilities
Property, plant and equipment (230) (127)
Derivatives (61) (95)
---------------------------------------------------------------------
$ 27 $ (42)
---------------------------------------------------------------------
Classification:
Non-current assets (note 14) $ 141 $ 97
Non-current liabilities (114) (139)
---------------------------------------------------------------------
$ 27 $ (42)
---------------------------------------------------------------------
(1) 2004 deferred tax asset balances for tax loss carry forwards, for
property, plant and equipment and other have been restated with a
corresponding restatement of valuation allowances.
Expiry Dates of Tax Losses and AMT Credits
---------------------------------------------------------------------
No
expiry
'06 '07 '08 '09 '10+ date Total
---------------------------------------------------------------------
Tax losses(1)
Chile $ - $ - $ - $ - $ - $ 700 $ 700
Tanzania - - - - - 142 142
U.S. - - - 1 185 - 186
Other 19 4 2 8 15 26 74
---------------------------------------------------------------------
$ 19 $ 4 $ 2 $ 9 $ 200 $ 868 $ 1,102
---------------------------------------------------------------------
AMT credits(2) - - - - - $ 135 $ 135
---------------------------------------------------------------------
(1) Represents the gross amount of tax loss carry forwards translated
at closing exchange rates at December 31, 2005.
(2) Represents the amounts deductible against future taxes payable in
years when taxes payable exceed "minimum tax" as defined by
United States tax legislation.
/T/
Valuation Allowances
We consider the need to record a valuation allowance against deferred tax assets on a country-by-country basis,
taking into account the effects of local tax law. A valuation allowance is not recorded when we conclude that
sufficient positive evidence exists to demonstrate that it is more likely than not that a deferred tax asset
will be realized. The main factors considered are:
- historic and expected future levels of future taxable income;
- opportunities to implement tax plans that affect whether tax assets can be realized; and
- the nature, amount and expected timing of reversal of taxable temporary differences.
Levels of future taxable income are mainly affected by: market gold and silver prices; forecasted future costs
and expenses to produce gold reserves; quantities of proven and probable gold reserves; market interest rates
and foreign currency exchange rates. If these factors or other circumstances change, we record an adjustment to
the valuation allowances to reflect our latest assessment of the amount of deferred tax assets that will more
likely than not be realized.
A valuation allowance of $209 million has been set up against certain deferred tax assets in the United States.
A majority of this valuation allowance relates to AMT credits which have an unlimited carry forward period.
Increasing levels of future taxable income due to higher gold selling prices and other factors and
circumstances may result in an adjustment to this valuation allowance.
/T/
Source of Changes in Deferred Tax Balances
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Temporary differences
Property, plant and equipment $ 30 $ (86) $ 26
Asset retirement obligations (69) (21) (2)
Tax loss carry forwards 38 93 (10)
Derivatives (34) (4) 82
Other 8 (5) 4
---------------------------------------------------------------------
$ (27) $ (23) $ 100
Adjustment to deferred tax balances
due to change in tax status(1) (5) (81) -
Release of beginning-of-year
valuation allowances (32) (5) (62)
Outcome of tax uncertainties - (120) -
---------------------------------------------------------------------
$ (64) $(229) $ 38
---------------------------------------------------------------------
Intraperiod allocation to:
Income before income taxes $ (30) $(225) $(49)
Cumulative accounting changes - - 5
OCI (34) (4) 82
Balance sheet reclassifications (5) 13 23
---------------------------------------------------------------------
$ (69) $(216) $ 61
---------------------------------------------------------------------
(1) Relates to changes in tax status in Australia (note 8).
/T/
20. CAPITAL STOCK
A Common Shares
Our authorized capital stock includes an unlimited number of common shares (issued 538,081,875 common shares);
9,764,929 First preferred shares; Series A (issued nil); 9,047,619 Series B (issued nil); 1 Series C special
voting share (issued 1); and 14,726,854 Second preferred shares Series A (issued nil).
We repurchased 4.47 million common shares in 2004 (2003 - 8.75 million common shares) for $95 million, at an
average cost of $21.20 per share (2003: $17.56 per share). This resulted in a reduction of common share capital
by $35 million (2003 - $67 million) and a $60 million (2003 - $87 million) charge (being the difference between
the repurchase cost and the average historic book value of shares repurchased) to retained earnings.
In 2005, we declared and paid dividends in US dollars totaling $0.22 per share ($118 million) (2004 - $0.22 per
share, $118 million; 2003 - $0.22 per share, $118 million).
B Exchangeable Shares
In connection with a 1998 acquisition, Barrick Gold Inc. ("BGI"), issued 11.1 million BGI exchangeable shares,
which are each exchangeable for 0.53 of a Barrick common share at any time at the option of the holder, and
have essentially the same voting, dividend (payable in Canadian dollars), and other rights as 0.53 of a Barrick
common share. BGI is a subsidiary that holds our interest in the Hemlo and Eskay Creek Mines.
At December 31, 2005, 1.4 million (2004 - 1.4 million) BGI exchangeable shares were outstanding, which are
equivalent to 0.7 million Barrick common shares (2004 - 0.7 million common shares), and are reflected in the
number of common shares outstanding. We have the right to require the exchange of each outstanding BGI
exchangeable share for 0.53 of a Barrick common share. While there are exchangeable shares outstanding, we are
required to present summary consolidated financial information relating to BGI.
/T/
Summarized Financial Information for BGI
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Total revenues and other income $ 181 $ 216 $ 226
Less: costs and expenses 186 287 238
---------------------------------------------------------------------
Income (loss) before taxes $ (5) $ (71) $ (12)
---------------------------------------------------------------------
Net income (loss) $ 21 $ (41) $ (31)
---------------------------------------------------------------------
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Assets
Current assets $ 119 $ 67
Non-current assets 88 119
---------------------------------------------------------------------
$ 207 $ 186
---------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities 25 24
Intercompany notes payable 390 395
Other long-term liabilities 55 56
Shareholders' equity (263) (289)
---------------------------------------------------------------------
$ 207 $ 186
---------------------------------------------------------------------
21. OTHER COMPREHENSIVE INCOME (LOSS) ("OCI")
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
Accumulated OCI at Jan.1
Cash flow hedge gains, net of tax of
$95, $99, $17 $ 206 $ 189 $ 32
Investments, net of tax of
$nil, $nil, $nil 21 25 (6)
Currency translation adjustments,
net of tax of $nil, $nil, $nil, (146) (147) (144)
Additional minimum pension liability,
net of tax of $nil, $nil, $nil (12) (7) (7)
---------------------------------------------------------------------
$ 69 $ 60 $ (125)
---------------------------------------------------------------------
OCI for the year:
Changes in fair value of cash flow hedges 23 147 348
Changes in fair value of investments (8) (3) 24
Currency translation adjustments 3 1 (3)
Adjustments to minimum pension liability (16) (5) -
Less: reclassification adjustments for
gains/losses recorded in earnings:
Transfers of cash flow hedge gains
to earnings:
On recording hedged items in earnings (134) (132) (91)
Hedge ineffectiveness due to changes in
timing of hedged items (1) (2) (18)
Investments:
(Gains) losses realized on sale 16 (6) 11
Other than temporary impairment charges (17) 5 (4)
---------------------------------------------------------------------
OCI, before tax (134) 5 267
Income tax recovery (expense) related to OCI 34 4 (82)
---------------------------------------------------------------------
OCI, net of tax $ (100) $ 9 $ 185
---------------------------------------------------------------------
Accumulated OCI at Dec.31
Cash flow hedge gains, net of tax of
$61, $95, $99 128 206 189
Investments, net of tax of
$nil, $nil, $nil 12 21 25
Currency translation adjustments, net
of tax of $nil, $nil, $nil (143) (146) (147)
Additional minimum pension liability,
net of tax of $nil, $nil, nil (28) (12) (7)
---------------------------------------------------------------------
$ (31) $ 69 $ 60
---------------------------------------------------------------------
/T/
22. STOCK-BASED COMPENSATION
In 2005, following a review of various types of stock-based compensation arrangements, we introduced a new
stock-based compensation plan for employees. Under the new plan, selected employees are granted restricted
share units (RSUs) each year that vest on the third anniversary of the date of grant. Certain employees have
the ability to elect for 50% of each annual RSU grant to be exchanged for stock options using a predetermined
exchange ratio. We expect that the volume of options granted each year will decline compared to historical
volumes, with a greater number of RSUs issued instead.
/T/
A Stock Options
Employee Stock Option Activity (Number of Shares in Millions)
---------------------------------------------------------------------
2005 2004 2003
---------------------------------------------------------------------
Average Average Average
Shares price Shares price Shares price
---------------------------------------------------------------------
C$ options
At Jan.1 19.4 $ 28 21.5 $ 27 18.9 $ 27
Granted - $ - 0.8 $ 28 4.8 $ 29
Exercised(1) (3.8) $ 25 (1.7) $ 25 (1.0) $ 24
Forfeited (0.8) $ 27 (0.7) $ 26 (0.6) $ 24
Cancelled/expired (0.1) $ 40 (0.5) $ 31 (0.6) $ 32
---------------------------------------------------------------------
At Dec.31 14.7 $ 28 19.4 $ 28 21.5 $ 27
---------------------------------------------------------------------
US$ options
At Jan.1 5.9 $ 22 2.2 $ 19 3.0 $ 17
Granted 2.1 $ 25 4.9 $ 24 - -
Exercised(1) (0.3) $ 15 (1.0) $ 15 (0.7) $ 13
Forfeited (0.4) $ 28 - - - -
Cancelled/expired (0.4) $ 26 (0.2) $ 32 (0.1) $ 22
---------------------------------------------------------------------
At Dec.31 6.9 $ 24 5.9 $ 22 2.2 $ 19
---------------------------------------------------------------------
(1) The exercise price of the options is the closing share price on
the day before the grant date. They vest evenly over four years,
beginning in the year after granting. Options granted in July
2004 and prior are exercisable over 10 years, whereas options
granted since December 2004 are exercisable over 7 years. At
December 31, 2005, 12 million (2004 - 13 million;
2003 - 1 million) common shares, in addition to those currently
outstanding, were available for granting options.
Stock Options Outstanding (Number of Shares in Millions)
---------------------------------------------------------------------
Outstanding Exercisable
----------------------------------- ------------------
Range of Average
exercise Average life Average
prices Shares price (years) Shares price
---------------------------------------------------------------------
C$ options
$ 22 - $ 27 6.2 $ 24 6 4.9 $ 25
$ 28 - $ 31 6.5 $ 29 6 4.2 $ 29
$ 32 - $ 43 2.0 $ 39 1 2.0 $ 39
---------------------------------------------------------------------
14.7 $ 28 5 11.1 $ 29
---------------------------------------------------------------------
US$ options
$ 9 - $ 18 0.2 $ 13 4 0.2 $ 13
$ 22 - $ 27 6.5 $ 24 6 1.1 $ 24
$ 28 - $ 37 0.2 $ 29 5 0.1 $ 31
---------------------------------------------------------------------
6.9 $ 24 6 1.4 $ 23
---------------------------------------------------------------------
/T/
We record compensation cost for stock options based on the excess of the market price of the stock at the grant
date of an award over the exercise price. Historically, the exercise price for stock options has equaled the
market price of the stock at the grant date, resulting in no compensation cost.
/T/
Option Information
---------------------------------------------------------------------
For the years ended Dec.31
(per share and per option
amounts in dollars) 2005 2004 2003
---------------------------------------------------------------------
Valuation Black- Black- Black-
assumptions Scholes Lattice(2) Scholes Scholes
Expected term (years) 5 5 5 6
Expected volatility(1),(2)23% - 30% 31% - 38% 30% 40%
Weighted average
expected volatility(2) n/a 33.3% 30% 40%
Expected dividend
yield(1) 0.8% - 1% 0.9% 1.0% 1.0%
Risk-free interest
rate(1),(2) 3.8% - 4.0% 4.3% - 4.5% 3.8% 4.5%
---------------------------------------------------------------------
---------------------------------------------------------------------
Options granted
(in millions) 1.1 1.0 5.7 4.8
Weighted average fair
value per option $ 7.30 $ 8.13 $ 6.87 $ 8.50
---------------------------------------------------------------------
---------------------------------------------------------------------
Pro forma effects
Net income, as reported $ 401 $ 248 $ 200
Stock-option expense (26) (29) (24)
---------------------------------------------------------------------
Pro forma net income $ 375 $ 219 $ 176
---------------------------------------------------------------------
Net income per share:
As reported - Basic $ 0.75 $ 0.47 $ 0.37
As reported - Diluted $ 0.75 $ 0.46 $ 0.37
Pro forma(3) $ 0.70 $ 0.41 $ 0.33
---------------------------------------------------------------------
(1) Different assumptions were used for the multiple stock option
grants valued under the Black-Scholes method.
(2) Stock option grants issued after September 30, 2005 were valued
using the Lattice valuation model. The volatility and risk-free
interest rate assumption varied over the expected term of that
stock option grant.
(3) Basic and diluted.
/T/
We changed the method used to value stock option grants from the Black-Scholes method to the Lattice valuation
model for stock options granted after September 30, 2005. We believe the Lattice valuation model provides a
more representative fair value because it incorporates more attributes of stock options such as employee
turnover and voluntary exercise patterns of option holders. For options granted before September 30, 2005, fair
value was determined using the Black-Scholes method. The expected volatility assumptions have been developed
taking into consideration both historical and implied volatility of our US dollar share price. The risk-free
rate for periods within the contractual life of the option is based on the US Treasury yield curve in effect at
the time of the grant.
We use the straight-line method for attributing stock option expense over the vesting period. Stock option
expense incorporates an expected forfeiture rate. The expected forfeiture rate is estimated based on historical
forfeiture rates and expectations of future forfeitures rates. We make adjustments if the actual forfeiture
rate differs from the expected rate.
Under the Black-Scholes model the expected term assumption takes into consideration assumed rates of employee
turnover and represents the estimated average length of time stock options remain outstanding before they are
either exercised or forfeited. Under the Lattice valuation model, the expected term assumption is derived from
the option valuation model and is in part based on historical data regarding the exercise behavior of option
holders based on multiple share-price paths. The Lattice model also takes into consideration employee turnover
and voluntary exercise patterns of option holders.
As at December 31, 2005, there was $56 million of total unrecognized compensation cost relating to unvested
stock options. We expect to recognize this cost over a weighted-average period of 2 years.
B Restricted Share Units (RSUs) and Deferred Share Units (DSUs)
Under our RSU Plan, selected employees are granted RSUs, where each RSU has a value equal to one Barrick common
share. RSUs vest and will be settled in cash on the third anniversary of the grant date. Additional RSUs are
credited to reflect dividends paid on Barrick common shares. RSUs are recorded at fair value on the grant date,
with a corresponding amount recorded as deferred compensation that is amortized on a straight-line basis over
the vesting period. Changes in the fair value of the RSUs are recorded, with a corresponding adjustment to
deferred compensation. Compensation expense for 2005 was $2 million (2004 - $4 million; 2003 - $4 million). At
December 31, 2005, the weighted-average remaining contractual life of RSUs was 2.5 years.
Under our DSU plan, Directors receive 50% of their basic annual retainer in the form of DSUs, with the option
to elect to receive 100% of such retainer in DSUs. Each DSU has the same value as one Barrick common share.
DSUs must be retained until the Director leaves the Board, at which time the cash value of the DSUs will be
paid out. Additional DSUs are credited to reflect dividends paid on Barrick common shares. DSUs are recorded at
fair value on the grant date and are adjusted for changes in fair value. The fair value of amounts granted each
period together with changes in fair value are expensed.
/T/
DSU and RSU Activity
---------------------------------------------------------------------
DSUs Fair value RSUs Fair value
(thousands) (millions) (thousands) (millions)
---------------------------------------------------------------------
At Dec.31, 2002 - $ - 489 $ 7.3
Granted 8 0.2 130 2.9
Forfeited - - (171) (2.9)
Credits for dividends - - 4 0.1
Change in value - 3.0
---------------------------------------------------------------------
At Dec.31, 2003 8 $ 0.2 452 $ 10.4
Settled - - (293) (7.3)
Forfeited - - (58) (1.3)
Granted 23 0.5 131 3.1
Credits for dividends - - 3 0.1
Change in value - 0.6
---------------------------------------------------------------------
At Dec.31, 2004 31 $ 0.7 235 $ 5.6
Settled (3) (0.1) - -
Forfeited - - (38) (0.9)
Granted(1) 19 0.5 415 11.1
Converted to stock options - - (3) (0.1)
Credits for dividends - - 2 0.1
Change in value 0.3 0.6
---------------------------------------------------------------------
At Dec.31, 2005 47 $ 1.4 611 $ 16.4
---------------------------------------------------------------------
(1) In January 2006, under our RSU plan, 18,112 restricted share
units were converted to 72,448 stock options, and 9,395 units
were forfeited.
/T/
23. POST-RETIREMENT BENEFITS
A Defined Contribution Pension Plans
Certain employees take part in defined contribution employee benefit plans. We also have a retirement plan for
certain officers of the Company, under which we contribute 15% of the officer's annual salary and bonus. Our
share of contributions to these plans, which is expensed in the year it is earned by the employee, was $20
million in 2005, $19 million in 2004 and $16 million in 2003.
B Defined Benefit Pension Plans
We have one qualified defined benefit pension plan that covers certain of our United States employees and
provides benefits based on employees' years of service. Our policy is to fund the amounts necessary on an
actuarial basis to provide enough assets to meet the benefits payable to plan members under the Employee
Retirement Income Security Act of 1974. Independent trustees administer assets of the plans, which are invested
mainly in fixed-income and equity securities. On December 31, 2004, the qualified defined benefit plan was
amended to freeze benefit accruals for all employees, resulting in a curtailment gain of $2 million.
As well as the qualified plan, we have non-qualified defined benefit pension plans covering certain employees
and former directors of the Company. An irrevocable trust ("rabbi trust") was set up to fund these plans. The
fair value of assets held in this trust was $22 million in 2005 (2004 - $31 million), and is recorded in our
consolidated balance sheet under available-for-sale securities.
Actuarial gains and losses arise when the actual return on plan assets differs from the expected return on plan
assets for a period, or when the expected and actuarial accrued benefit obligations differ at the end of the
year. We amortize actuarial gains and losses over the average remaining life expectancy of plan participants,
in excess of a 10% corridor.
/T/
Pension Expense
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Return on plan assets $ (11) $ (11) $ (11)
Interest cost 12 12 14
Actuarial gains - 1 -
Loss on curtailment - (2) -
Gain on settlement - - 1
---------------------------------------------------------------------
$1 $ - $ 4
---------------------------------------------------------------------
C Pension Plan Information
Fair Value of Plan Assets
------------------------------------------------------------- ------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Balance at Jan.1 $170 $ 166 $ 170
Actual return on plan assets 10 14 19
Company contributions 10 6 8
Benefits paid (24) (16) (31)
---------------------------------------------------------------------
Balance at Dec.31 $166 $ 170 $ 166
---------------------------------------------------------------------
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Target Actual Actual Actual
---------------------------------------------------------------------
Composition of plan assets:
Equity securities 50% 49% $ 81 $ 78
Debt securities 50% 51% 85 92
---------------------------------------------------------------------
100% 100% $166 $ 170
---------------------------------------------------------------------
Projected Benefit Obligation (PBO)
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004
---------------------------------------------------------------------
Balance at Jan.1 $218 $ 221
Interest cost 13 12
Actuarial losses 17 3
Benefits paid (24) (16)
Curtailments/settlements - (2)
---------------------------------------------------------------------
Balance at Dec.31 $224 $ 218
---------------------------------------------------------------------
Funded status(1) $(58) $(48)
Unrecognized actuarial losses 29 11
---------------------------------------------------------------------
Net benefit liability recorded $(29) $(37)
---------------------------------------------------------------------
ABO(2),(3) $222 $ 217
---------------------------------------------------------------------
(1) Represents the fair value of plan assets less projected benefit
obligations. Plan assets exclude investments held in a rabbi
trust that are recorded separately on our balance sheet under
Investments (fair value $22 million at December 31, 2005). In the
year ending December 31, 2006, we do not expect to make any
further contributions.
(2) For 2005 we used a measurement date of December 31, 2005 to
calculate accumulated benefit obligations.
(3) Represents the ABO for all plans. The ABO for plans where the PBO
exceeds the fair value of plan assets was $222 million
(2004 - $49 million).
Expected Future Benefit Payments
---------------------------------------------------------------------
For the years ending Dec.31
---------------------------------------------------------------------
2006 $16
2007 16
2008 16
2009 16
2010 17
2011 - 2015 $90
---------------------------------------------------------------------
Total Recorded Benefit Liability
---------------------------------------------------------------------
At Dec.31 2005 2004
---------------------------------------------------------------------
Current $ 3 $ -
Non-current 26 37
---------------------------------------------------------------------
Benefit plan liability $ 29 $ 37
Additional minimum liability(1) (note 20) 28 12
---------------------------------------------------------------------
$ 57 $ 49
---------------------------------------------------------------------
(1) A minimum pension liability is recognized if the Accumulated
Benefit Obligation (ABO), exceeds the fair value of the pension
plan assets. The liability that is recorded is calculated by
subtracting the fair value of plan assets from the ABO, adjusting
this amount by the accrued/prepaid pension cost that has already
been recorded on the balance sheet.
D Actuarial Assumptions
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Discount rate(1)
Benefit obligation 5.50% 5.50% 6.25%
Pension cost 5.50% 6.25% 6.50%
Return on plan assets(1) 7.00% 7.00% 7.00%
Wage increases 5.00% 5.00% 5.00%
---------------------------------------------------------------------
(1) Effect of a one-percent change: Discount rate: $26 million change
in ABO and $1 million change in pension cost; Return on plan
assets: $2 million change in pension cost.
/T/
Pension plan assets, which consist primarily of fixed-income and equity securities, are valued using current
market quotations. Plan obligations and the annual pension expense are determined on an actuarial basis and are
affected by numerous assumptions and estimates including the market value of plan assets, estimates of the
expected return on plan assets, discount rates, future wage increases and other assumptions. The discount rate,
assumed rate of return on plan assets and wage increases are the assumptions that generally have the most
significant impact on our pension cost and obligation.
The discount rate for benefit obligation and pension cost purposes is the rate at which the pension obligation
could be effectively settled. This rate was developed by matching the cash flows underlying the pension
obligation with a spot rate curve based on the actual returns available on high-grade (Moody's Aa) US corporate
bonds. Bonds included in this analysis were restricted to those with a minimum outstanding balance of $50
million. Only non-callable bonds, or bonds with a make-whole provision, were included. Finally, outlying bonds
(highest and lowest 10%) were discarded as being non-representative and likely to be subject to a change in
investment grade. The resulting discount rate from this analysis was rounded to the nearest 25 basis points.
The procedure was applied separately for pension and post-retirement welfare plan purposes, and produced the
same rate in each case.
The assumed rate of return on assets for pension cost purposes is the weighted average of expected long-term
asset return assumptions. In estimating the long-term rate of return for plan assets, historical markets are
studied and long-term historical returns on equities and fixed-income investments reflect the widely accepted
capital market principle that assets with higher volatility generate a greater return over the long run.
Current market factors such as inflation and the interest rates are evaluated before long-term capital market
assumptions are finalized.
Wage increases reflect the best estimate of merit increases to be provided, consistent with assumed inflation
rates.
E Other Post-retirement Benefits
We provide post-retirement medical, dental, and life insurance benefits to certain employees. We use the
corridor approach in the accounting for post-retirement benefits. Actuarial gains and losses resulting from
variances between actual results and economic estimates or actuarial assumptions are deferred and amortized
over the average remaining life expectancy of participants when the net gains or losses exceed 10% of the
accumulated post-retirement benefit obligation.
/T/
Other Post-retirement Benefits Expense
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Interest cost $ 2 $ 2 $ 1
Other 5 - -
Curtailments/settlements - - (1)
---------------------------------------------------------------------
$ 7 $ 2 $ -
---------------------------------------------------------------------
Fair Value of Plan Assets
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Balance at Jan. 1 $ - $ - $ -
Contributions 4 2 2
Benefits paid (4) (2) (2)
---------------------------------------------------------------------
Balance at Dec. 31 $ - $ - $ -
---------------------------------------------------------------------
Accumulated Post-retirement Benefit Obligation (APBO)
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Balance at Jan. 1 $ 29 $ 24 $ 28
Interest cost 2 2 1
Actuarial losses 11 5 (3)
Benefits paid (3) (2) (2)
---------------------------------------------------------------------
Balance at Dec. 31 $ 39 $ 29 $ 24
---------------------------------------------------------------------
Funded status (38) (29) (24)
Unrecognized net transition obligation 1 - -
Unrecognized actuarial losses 6 1 (4)
---------------------------------------------------------------------
Net benefit liability recorded $ (31) $ (28) $ (28)
---------------------------------------------------------------------
/T/
We have assumed a health care cost trend of 10% in 2006, decreasing ratability to 5% in 2011 and thereafter.
The assumed health care cost trend had a minimal effect on the amounts reported. A one percentage point change
in the assumed health care cost trend rate at December 31, 2005 would have increased the post-retirement
obligation by $4 million or decreased the post-retirement benefit obligation by $4 million and would have had
no significant effect on the benefit expense for 2005.
/T/
Expected Future Benefit Payments
---------------------------------------------------------------------
For the years ending Dec.31
---------------------------------------------------------------------
2006 $ 3
2007 3
2008 3
2009 3
2010 3
2011 - 2015 $ 13
---------------------------------------------------------------------
/T/
24. LITIGATION AND CLAIMS
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to
the Company but which will only be resolved when one or more future events occur or fail to occur. In assessing
loss contingencies related to legal proceedings that are pending against us or unasserted claims that may
result in such proceedings, the Company and its legal counsel evaluate the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to
be sought.
If the assessment of a contingency suggests that a loss is probable, and the amount can be reliably estimated,
then a loss is recorded. When a contingent loss is not probable but is reasonably possible, or is probable but
the amount of loss cannot be reliably estimated, then details of the contingent loss are disclosed. Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case we
disclose the nature of the guarantee. Legal fees incurred in connection with pending legal proceedings are
expensed as incurred.
Wagner complaint
On June 12, 2003, a complaint was filed against Barrick and several of its current or former officers in the US
District Court for the Southern District of New York. The complaint is on behalf of Barrick shareholders who
purchased Barrick shares between February 14, 2002 and September 26, 2002. It alleges that Barrick and the
individual defendants violated US securities laws by making false and misleading statements concerning
Barrick's projected operating results and earnings in 2002. The complaint seeks an unspecified amount of
damages. Other parties on behalf of the same proposed class of Barrick shareholders filed several other
complaints, making the same basic allegations against the same defendants. In September 2003, the cases were
consolidated into a single action in the Southern District of New York. The plaintiffs filed a Consolidated
and/or Amended Complaint on November 5, 2003. On January 14, 2004, Barrick filed a motion to dismiss the
complaint. On September 29, 2004, the Court issued an order granting in part and denying in part Barrick's
motion to dismiss the action. The Court granted the plaintiffs leave to file a Second Amended Complaint, which
was filed on October 20, 2004. The plaintiffs filed a Third Amended Complaint on January 6, 2005. On May 23,
2005, Barrick filed a motion to dismiss part of the Third Amended Complaint. On January 31, 2006, the Court
issued an order granting in part and denying in part Barrick's motion to dismiss. We intend to defend the
action vigorously.
Wilcox complaint
On September 8, 2004, two of our US subsidiaries, Homestake Mining Company of California ("Homestake
California") and Homestake Mining Company ("Homestake") were served with a First Amended Complaint by persons
alleging to be current or former residents of a rural area near the former Grants Uranium Mill. The Complaint,
which was filed in the US District Court for the District of New Mexico, identifies 26 plaintiffs. Homestake
and Homestake California, along with an unspecified number of unidentified defendants, are named as defendants.
The plaintiffs allege that they have suffered a variety of physical, emotional and financial injuries as a
result of exposure to radioactive and other hazardous substances. The Complaint seeks an unspecified amount of
damages. On November 25, 2005, the Court issued an order granting in part and denying in part a motion to
dismiss the claim. The Court granted the motion and dismissed plaintiffs' claims based on strict and absolute
liability and ruled that plaintiffs' state law claims are pre-empted by the Price-Anderson Act. An Initial
Scheduling Order has been issued by the Court. We intend to defend the action vigorously.
25. JOINT VENTURES
Our major interests in joint ventures are a 50% interest in the Kalgoorlie Mine in Australia; a 50% interest in
the Round Mountain Mine in the United States; a 50% interest in the Hemlo Mine in Canada; and a 33% interest in
the Marigold Mine in the United States.
/T/
SUMMARY FINANCIAL INFORMATION (100%)
Income Statement and Cash Flow Information
---------------------------------------------------------------------
For the years ended Dec.31 2005 2004 2003
---------------------------------------------------------------------
Revenues $ 1,009 $ 946 $ 827
Costs and expenses (796) (702) (671)
---------------------------------------------------------------------
Net income $ 213 $ 244 $ 156
---------------------------------------------------------------------
Operating activities(1) $ 318 $ 316 $ 151
Investing activities(1) $ (75) $ (81) $ (85)
Financing activities(1),(2) $ (237) $ (236) $ (55)
---------------------------------------------------------------------
(1) Net cash inflow (outflow).
(2) Includes cash flows between the joint ventures and joint venture
partners.
Balance Sheet Information
---------------------------------------------------------------------
At December 31 2005 2004
---------------------------------------------------------------------
Assets
Inventories $ 176 $ 110
Property, plant and equipment 504 579
Other assets 87 93
---------------------------------------------------------------------
$ 767 $ 782
---------------------------------------------------------------------
Liabilities
Current liabilities $ 123 $ 93
Long-term obligations 105 114
---------------------------------------------------------------------
$ 228 $ 207
---------------------------------------------------------------------
Mine Statistics
UNITED STATES
------------------------------------------------------
Goldstrike
Open Pit Underground Total
Three months ended
December 31, 2005 2004 2005 2004 2005 2004
-------------------------------- ------------------ -----------------
Tons mined
(thousands) 31,199 29,946 382 373 31,581 30,319
Tons processed
(thousands) 2,513 2,670 382 345 2,895 3,015
Average grade
(ounces per ton) 0.226 0.161 0.369 0.427 0.245 0.192
Recovery rate
(percent) 87.2% 86.6% 89.5% 90.8% 87.7% 87.7%
-------------------------------- ------------------ -----------------
Production
(thousands of
ounces) 495 373 127 134 622 507
Production costs
per ounce
Cash operating
costs $ 194 $ 214 $ 313 $ 212 $ 218 $ 213
Royalties and
production
taxes 22 14 32 21 23 17
Accretion expense 1 2 - - 1 1
-------------------------------- ------------------ -----------------
Total cash costs(1) 217 230 345 233 242 231
Amortization 56 62 120 97 68 72
-------------------------------- ------------------ -----------------
Total production
costs $ 273 $ 292 $ 465 $ 330 $ 310 $ 303
-------------------------------- ------------------ -----------------
Capital expenditures
(US$ millions) $ 40 $ 23 $ 5 $ 10 $ 45 $ 33
-------------------------------- ------------------ -----------------
Year ended
December 31, 2005 2004 2005 2004 2005 2004
-------------------------------- ------------------ -----------------
Tons mined
(thousands) 129,833 134,212 1,463 1,573 131,296 135,785
Tons processed
(thousands) 10,097 10,779 1,488 1,566 11,585 12,345
Average grade
(ounces per ton) 0.175 0.151 0.381 0.400 0.202 0.183
Recovery rate
(percent) 85.6% 85.1% 89.9% 89.7% 86.7% 86.2%
-------------------------------- ------------------ -----------------
Production
(thousands of
ounces) 1,514 1,381 510 562 2,024 1,943
Production costs
per ounce
Cash operating
costs $ 215 $ 231 $ 289 $ 234 $ 234 $ 231
Royalties and
production taxes 18 16 25 21 20 18
Accretion expense 2 2 - - 1 1
-------------------------------- ------------------ -----------------
Total cash costs(1) 235 249 314 255 255 250
Amortization 60 61 120 120 75 79
-------------------------------- ------------------ -----------------
Total production
costs $ 295 $ 310 $ 434 $ 375 $ 330 $ 329
-------------------------------- ------------------ -----------------
Capital expenditures
(US$ millions) $ 135 $ 42 $ 27 $ 30 $ 162 $ 72
-------------------------------- ------------------ -----------------
(1) Total cash costs per ounce statistics for 2005 and 2004 are not
comparable due to the change in accounting for deferred stripping
costs.
UNITED STATES
-----------------------------------
Round Mountain Marigold
Three months ended December 31, 2005 2004 2005 2004
----------------------------------------------------- ---------------
Tons mined (thousands) 3,582 4,736 3,651 3,856
Tons processed (thousands) 8,645 8,905 914 770
Average grade (ounces per ton) 0.014 0.015 0.033 0.030
Recovery rate (percent) n/a n/a n/a n/a
----------------------------------------------------- ---------------
Production (thousands of ounces) 78 84 19 15
Production costs per ounce
Cash operating costs $ 245 $ 211 $ 200 $ 168
Royalties and production taxes 42 52 12 25
Accretion expense 4 4 1 1
----------------------------------------------------- ---------------
Total cash costs(1) 291 267 213 194
Amortization 47 18 90 68
----------------------------------------------------- ---------------
Total production costs $ 338 $ 285 $ 303 $ 262
----------------------------------------------------- ---------------
Capital expenditures (US$ millions) $ - $ 1 $ 2 $ 12
----------------------------------------------------- ---------------
Year ended December 31, 2005 2004 2005 2004
----------------------------------------------------- ---------------
Tons mined (thousands) 15,985 19,743 15,610 14,956
Tons processed (thousands) 34,004 36,963 3,016 3,286
Average grade (ounces per ton) 0.014 0.015 0.027 0.025
Recovery rate (percent) n/a n/a n/a n/a
----------------------------------------------------- ---------------
Production (thousands of ounces) 368 381 69 47
Production costs per ounce
Cash operating costs $ 205 $ 187 $ 191 $ 171
Royalties and production taxes 37 34 27 25
Accretion expense 4 4 1 2
----------------------------------------------------- ---------------
Total cash costs(1) 246 225 219 198
Amortization 45 46 93 76
----------------------------------------------------- ---------------
Total production costs $ 291 $ 271 $ 312 $ 274
----------------------------------------------------- ---------------
Capital expenditures (US$ millions) $ 1 $ 5 $ 12 $ 12
----------------------------------------------------- ---------------
(1) Total cash costs per ounce statistics for 2005 and 2004 are
not comparable due to the change in accounting for deferred
stripping costs.
AUSTRALIA
------------------------------------------------------
Plutonic Darlot Lawlers Kalgoorlie
Three months
ended
December 31, 2005 2004 2005 2004 2005 2004 2005 2004
--------------------------- ------------- ------------- -------------
Tons mined
(thousands) 348 3,567 238 217 1,762 250 11,903 11,431
Tons processed
(thousands) 409 644 231 215 235 217 1,769 1,870
Average grade
(ounces per
ton) 0.151 0.127 0.174 0.137 0.170 0.138 0.057 0.069
Recovery rate
(percent) 91.2% 90.4% 96.1% 95.0% 96.1% 95.8% 81.5% 85.5%
--------------------------- ------------- ------------- -------------
Production
(thousands of
ounces) 57 74 39 28 38 29 81 110
Production costs
per ounce
Cash operating
costs $ 282 $ 243 $ 226 $ 247 $ 219 $ 240 $ 323 $ 232
Royalties and
production
taxes 11 8 11 8 11 9 6 8
Accretion
expense - - - - 1 - 2 1
--------------------------- ------------- ------------- -------------
Total cash
costs(1) 293 251 237 255 231 249 331 241
Amortization 49 42 61 63 56 68 51 41
--------------------------- ------------- ------------- -------------
Total production
costs $ 342 $ 293 $ 298 $ 318 $ 287 $ 317 $ 382 $ 282
--------------------------- ------------- ------------- -------------
Capital
expenditures
(US$ millions) $ 7 $ 4 $ 1 $ 1 $ 4 $ 3 $ 3 $ 3
--------------------------- ------------- ------------- -------------
Year ended
December 31, 2005 2004 2005 2004 2005 2004 2005 2004
--------------------------- ------------- ------------- -------------
Tons mined
(thousands) 3,644 13,722 808 896 2,327 3,365 43,532 45,459
Tons processed
(thousands) 2,004 2,662 859 861 888 866 7,314 7,142
Average grade
(ounces per
ton) 0.140 0.127 0.164 0.170 0.154 0.133 0.067 0.072
Recovery rate
(percent) 90.2% 90.0% 96.0% 95.8% 96.4% 96.1% 85.4% 86.6%
--------------------------- ------------- ------------- -------------
Production
(thousands of
ounces) 251 305 135 140 131 110 417 444
Production costs
per ounce
Cash operating
costs $ 252 $ 214 $ 250 $ 203 $ 261 $ 238 $ 237 $ 223
Royalties and
production
taxes 11 9 9 7 9 7 9 8
Accretion
expense - - - - 1 1 2 3
--------------------------- ------------- ------------- -------------
Total cash
costs(1) 263 223 259 210 271 246 248 234
Amortization 39 34 66 53 53 53 49 44
--------------------------- ------------- ------------- -------------
Total production
costs $ 302 $ 257 $ 325 $ 263 $ 324 $ 299 $ 297 $ 278
--------------------------- ------------- ------------- -------------
Capital
expenditures
(US$ millions) $ 20 $ 15 $ 9 $ 7 $ 9 $ 5 $ 12 $ 10
--------------------------- ------------- ------------- -------------
(1) Total cash costs per ounce statistics for 2005 and 2004 are not
comparable due to the change in accounting for deferred stripping
costs.
CANADA ARGENTINA
----------------------------------------- -----------
Hemlo Eskay Creek Holt-McDermott Veladero
Three months
ended
December 31, 2005 2004 2005 2004 2005 2004 2005 2004
---------------------------- ------------- ------------- ------------
Tons mined
(thousands) 1,003 1,182 41 68 - - 19,434 -
Tons
processed
(thousands) 484 507 37 70 - - 1,556 -
Average grade
(ounces
per ton) 0.105 0.140 0.812 1.138 - - 0.025 -
Recovery rate
(percent) 92.8% 93.5% 83.2% 93.3% - - n/a -
---------------------------- ------------- ------------- ------------
Production
(thousands
of ounces) 51 66 25 73 - - 51 -
Production
costs per
ounce
Cash
operating
costs $ 304 $ 222 $ (2) $ 1 $ - $ - n/a $ -
Royalties
and
production
taxes 12 9 10 5 - - n/a -
Accretion
expense 1 1 7 1 - - n/a -
---------------------------- ------------- ------------- ------------
Total cash
costs(1) 317 232 15 7 - - n/a -
Amortization 58 56 238 191 - - n/a -
---------------------------- ------------- ------------- ------------
Total
production
costs $ 375 $ 288 $ 253 $ 198 $ - $ - n/a $ -
---------------------------- ------------- ------------- ------------
Capital
expenditures
(US$
millions) $ 2 $ 3 $ 1 $ 2 $ - $ - $ 55 $ 77
---------------------------- ------------- ------------- ------------
Year ended
December 31, 2005 2004 2005 2004 2005 2004 2005 2004
---------------------------- ------------- ------------- ------------
Tons mined
(thousands) 4,409 4,715 200 269 - 380 63,514 -
Tons
processed
(thousands) 1,931 2,019 199 263 - 394 4,513 -
Average grade
(ounces
per ton) 0.119 0.130 0.964 1.178 - 0.149 0.021 -
Recovery rate
(percent) 93.6% 94.0% 89.7% 93.1% - 93.1% 57.1% -
---------------------------- ------------- ------------- ------------
Production
(thousands
of ounces) 230 247 172 290 - 55 56 -
Production
costs per
ounce
Cash
operating
costs $ 277 $ 231 $ 38 $ 26 $ - $ 197 n/a $ -
Royalties
and
production
taxes 10 9 7 5 - - n/a -
Accretion
expense 1 1 4 1 - - n/a -
---------------------------- ------------- ------------- ------------
Total cash
costs(1) 288 241 49 32 - 197 n/a -
Amortization 58 50 153 176 - 114 n/a -
---------------------------- ------------- ------------- ------------
Total
production
costs $ 346 $ 291 $ 202 $ 208 $ - $ 311 n/a $ -
---------------------------- ------------- ------------- ------------
Capital
expenditures
(US$
millions) $ 6 $ 8 $ 2 $ 7 $ - $ - $ 266 $ 284
---------------------------- ------------- ------------- ------------
(1) Total cash costs per ounce statistics for 2005 and 2004 are not
comparable due to the change in accounting for deferred stripping
costs.
PERU TANZANIA
-------------------------- ---------------------------
Pierina Lagunas Norte Bulyanhulu Tulawaka
------------ ------------- ------------- -------------
Three months
ended
December 31, 2005 2004 2005 2004 2005 2004 2005 2004
---------------------------- ------------- ------------- ------------
Tons mined
(thousands) 12,081 9,657 7,157 - 246 258 1,015 -
Tons
processed
(thousands) 3,638 4,248 8,367 - 262 274 97 -
Average grade
(ounces
per ton) 0.058 0.025 0.071 - 0.313 0.366 0.356 -
Recovery rate
(percent) n/a - n/a - 87.8% 88.3% 96.3% -
---------------------------- ------------- ------------- ------------
Production
(thousands
of ounces) 174 94 298 - 72 89 33 -
Production
costs per
ounce
Cash
operating
costs $ 161 $ 146 $ 88 $ - $ 380 $ 307 $ 201 $ -
Royalties
and
production
taxes - - 13 - 19 15 16 -
Accretion
expense 4 9 1 - 2 1 - -
---------------------------- ------------- ------------- ------------
Total cash
costs(1) 165 155 102 - 401 323 217 -
Amortization 115 165 60 - 119 70 149 -
---------------------------- ------------- ------------- ------------
Total
production
costs $ 280 $ 320 $ 162 $ - $ 520 $ 393 $ 366 $ -
---------------------------- ------------- ------------- ------------
Capital
expenditures
(US$
millions) $ 10 $ 6 $ 13 $ 67 $ 11 $ 20 $ - $ 21
---------------------------- ------------- ------------- ------------
Year ended
December 31, 2005 2004 2005 2004 2005 2004 2005 2004
---------------------------- ------------- ------------- ------------
Tons mined
(thousands) 46,884 40,225 23,653 - 1,011 1,118 6,758 -
Tons
processed
(thousands) 15,965 16,746 14,269 - 1,045 1,123 322 -
Average grade
(ounces
per ton) 0.045 0.034 0.059 - 0.336 0.352 0.271 -
Recovery rate
(percent) n/a - n/a - 88.5% 88.4% 95.8% -
---------------------------- ------------- ------------- ------------
Production
(thousands
of ounces) 628 646 550 - 311 350 87 -
Production
costs per
ounce
Cash
operating
costs $ 134 $ 106 $ 95 $ - $ 342 $ 270 $ 233 $ -
Royalties
and
production
taxes - - 13 - 14 13 19 -
Accretion
expense 5 5 2 - 2 1 1 -
---------------------------- ------------- ------------- ------------
Total cash
costs(1) 139 111 110 - 358 284 253 -
Amortization 115 165 53 - 112 100 138 -
---------------------------- ------------- ------------- ------------
Total
production
costs $ 254 $ 276 $ 163 $ - $ 470 $ 384 $ 391 $ -
---------------------------- ------------- ------------- ------------
Capital
expenditures
(US$
millions) $ 20 $ 8 $ 141 $ 182 $ 37 $ 46 $ 8 $ 48
---------------------------- ------------- ------------- ------------
(1) Total cash costs per ounce statistics for 2005 and 2004 are not
comparable due to the change in accounting for deferred stripping
costs.
SUMMARY GOLD MINERAL RESERVES AND MINERAL RESOURCES
For the year ended December 31, 2005
---------------------------------------------------------------------
Tons Grade Ounces
Based on attributable ounces (000's) (oz/ton) (000's)
---------------------------------------------------------------------
NORTH AMERICA
Goldstrike Open
Pit (proven and probable) 114,512 0.128 14,603
(mineral resource) 21,115 0.050 1,054
---------------------------------------------------------------------
Goldstrike
Underground (proven and probable) 7,319 0.379 2,773
(mineral resource) 3,234 0.386 1,247
---------------------------------------------------------------------
Goldstrike
Property Total (proven and probable) 121,831 0.143 17,376
(mineral resource) 24,349 0.095 2,301
---------------------------------------------------------------------
Round Mountain
(50%) (proven and probable) 137,804 0.017 2,338
(mineral resource) 17,706 0.017 296
---------------------------------------------------------------------
East Archimedes (proven and probable) 17,093 0.059 1,011
(mineral resource) 3,049 0.061 187
---------------------------------------------------------------------
Hemlo (50%) (proven and probable) 10,382 0.091 944
(mineral resource) 1,980 0.151 299
---------------------------------------------------------------------
Eskay Creek (proven and probable) 268 0.810 217
(mineral resource) 676 0.315 213
---------------------------------------------------------------------
Marigold (33%) (proven and probable) 32,546 0.021 689
(mineral resource) 19,906 0.020 389
---------------------------------------------------------------------
SOUTH AMERICA
Pascua-Lama (proven and probable) 397,441 0.046 18,349
(mineral resource) 61,412 0.038 2,304
---------------------------------------------------------------------
Veladero (proven and probable) 386,137 0.033 12,641
(mineral resource) 2,771 0.005 14
---------------------------------------------------------------------
Lagunas Norte (proven and probable) 227,140 0.036 8,266
(mineral resource) 47,964 0.035 1,699
---------------------------------------------------------------------
Pierina (proven and probable) 65,440 0.029 1,916
(mineral resource) 3,578 0.019 67
---------------------------------------------------------------------
AUSTRALIA/AFRICA
Kalgoorlie (50%) (proven and probable) 84,883 0.058 4,894
(mineral resource) 4,265 0.062 265
---------------------------------------------------------------------
Plutonic (proven and probable) 16,554 0.145 2,399
(mineral resource) 18,208 0.151 2,753
---------------------------------------------------------------------
Cowal (proven and probable) 63,600 0.039 2,495
(mineral resource) 57,208 0.034 1,966
---------------------------------------------------------------------
Lawlers (proven and probable) 3,760 0.126 472
(mineral resource) 6,246 0.169 1,054
---------------------------------------------------------------------
Darlot (proven and probable) 6,343 0.144 914
(mineral resource) 3,446 0.112 385
---------------------------------------------------------------------
Bulyanhulu (proven and probable) 25,916 0.414 10,732
(mineral resource) 3,776 0.469 1,770
---------------------------------------------------------------------
Buzwagi (proven and probable) 39,231 0.061 2,403
(mineral resource) 18,720 0.043 809
---------------------------------------------------------------------
Tulawaka (70%) (proven and probable) 973 0.387 377
(mineral resource) -
---------------------------------------------------------------------
OTHER (proven and probable) 363 0.435 158
(mineral resource) 6,940 0.113 783
---------------------------------------------------------------------
TOTAL (proven and probable) 1,637,705 0.054 88,591
(mineral resource) 302,200 0.058 17,554
---------------------------------------------------------------------
For the year ended December 31, 2004
---------------------------------------------------------------------
Tons Grade Ounces
Based on attributable ounces (000's) (oz/ton) (000's)
---------------------------------------------------------------------
NORTH AMERICA
Goldstrike Open
Pit (proven and probable) 123,334 0.131 16,188
(mineral resource) 22,318 0.050 1,107
---------------------------------------------------------------------
Goldstrike
Underground (proven and probable) 7,575 0.392 2,970
(mineral resource) 6,268 0.379 2,373
---------------------------------------------------------------------
Goldstrike
Property Total (proven and probable) 130,909 0.146 19,158
(mineral resource) 28,586 0.122 3,480
---------------------------------------------------------------------
Round Mountain
(50%) (proven and probable) 86,983 0.018 1,538
(mineral resource) 45,364 0.015 666
---------------------------------------------------------------------
East Archimedes (proven and probable) 17,093 0.059 1,011
(mineral resource) 3,049 0.061 187
---------------------------------------------------------------------
Hemlo (50%) (proven and probable) 13,946 0.090 1,260
(mineral resource) 5,251 0.113 594
---------------------------------------------------------------------
Eskay Creek (proven and probable) 485 1.058 513
(mineral resource) 476 0.538 256
---------------------------------------------------------------------
Marigold (33%) (proven and probable) 32,244 0.023 744
(mineral resource) 17,768 0.022 387
---------------------------------------------------------------------
SOUTH AMERICA
Pascua-Lama (proven and probable) 360,759 0.049 17,615
(mineral resource) 43,468 0.064 2,797
---------------------------------------------------------------------
Veladero (proven and probable) 396,517 0.032 12,849
(mineral resource) 21,804 0.021 449
---------------------------------------------------------------------
Lagunas Norte (proven and probable) 229,449 0.040 9,123
(mineral resource) 16,153 0.024 395
---------------------------------------------------------------------
Pierina (proven and probable) 65,026 0.039 2,508
(mineral resource) 15,363 0.022 341
---------------------------------------------------------------------
AUSTRALIA/AFRICA
Kalgoorlie (50%) (proven and probable) 87,894 0.059 5,181
(mineral resource) 12,798 0.068 866
---------------------------------------------------------------------
Plutonic (proven and probable) 18,291 0.137 2,512
(mineral resource) 13,203 0.158 2,085
---------------------------------------------------------------------
Cowal (proven and probable) 63,600 0.039 2,495
(mineral resource) 47,534 0.034 1,596
---------------------------------------------------------------------
Lawlers (proven and probable) 3,222 0.126 405
(mineral resource) 4,824 0.159 765
---------------------------------------------------------------------
Darlot (proven and probable) 7,142 0.147 1,048
(mineral resource) 3,984 0.119 473
---------------------------------------------------------------------
Bulyanhulu (proven and probable) 23,913 0.443 10,596
(mineral resource) 4,253 0.546 2,321
---------------------------------------------------------------------
Buzwagi (proven and probable) - - -
(mineral resource) 27,127 0.074 2,016
---------------------------------------------------------------------
Tulawaka (70%) (proven and probable) 1,077 0.355 382
(mineral resource) 584 0.068 40
---------------------------------------------------------------------
OTHER (proven and probable) 287 0.411 118
(mineral resource) 4,702 0.158 744
---------------------------------------------------------------------
TOTAL (proven and probable) 1,538,837 0.058 89,056
(mineral resource) 316,291 0.065 20,458
---------------------------------------------------------------------
GOLD MINERAL RESERVES(1)
As at December 31, 2005 PROVEN
---------------------------------------------------------------------
Tons Grade Ounces
Based on attributable ounces (000's) (oz/ton) (000's)
---------------------------------------------------------------------
NORTH AMERICA
Goldstrike Open Pit 65,522 0.119 7,773
Goldstrike Underground 2,867 0.489 1,403
Goldstrike Property Total 68,389 0.134 9,176
Round Mountain (50%) 47,013 0.022 1,056
East Archimedes 7,363 0.061 446
Hemlo (50%) 7,070 0.103 729
Eskay Creek 180 0.828 149
Marigold (33%) 17,701 0.022 389
---------------------------------------------------------------------
SOUTH AMERICA
Pascua-Lama 43,666 0.051 2,218
Veladero 22,139 0.037 812
Lagunas Norte 11,198 0.041 460
Pierina 24,974 0.038 949
---------------------------------------------------------------------
AUSTRALIA/AFRICA
Kalgoorlie (50%) 45,518 0.053 2,395
Plutonic 235 0.149 35
Cowal 5,191 0.046 238
Lawlers 1,505 0.106 159
Darlot 1,968 0.116 229
Bulyanhulu 1,809 0.412 745
Buzwagi 765 0.061 47
Tulawaka (70%) 195 0.195 38
---------------------------------------------------------------------
OTHER - - -
---------------------------------------------------------------------
TOTAL 306,879 0.066 20,270
---------------------------------------------------------------------
(1) See accompanying footnote on next page.
As at December 31, 2005 PROBABLE
---------------------------------------------------------------------
Tons Grade Ounces
Based on attributable ounces (000's) (oz/ton) (000's)
---------------------------------------------------------------------
NORTH AMERICA
Goldstrike Open Pit 48,990 0.139 6,830
Goldstrike Underground 4,452 0.308 1,370
Goldstrike Property Total 53,442 0.153 8,200
Round Mountain (50%) 90,791 0.014 1,282
East Archimedes 9,730 0.058 565
Hemlo (50%) 3,312 0.065 215
Eskay Creek 88 0.773 68
Marigold (33%) 14,845 0.020 300
---------------------------------------------------------------------
SOUTH AMERICA
Pascua-Lama 353,775 0.046 16,131
Veladero 363,998 0.032 11,829
Lagunas Norte 215,942 0.036 7,806
Pierina 40,466 0.024 967
---------------------------------------------------------------------
AUSTRALIA/AFRICA
Kalgoorlie (50%) 39,365 0.063 2,499
Plutonic 16,319 0.145 2,364
Cowal 58,409 0.039 2,257
Lawlers 2,255 0.139 313
Darlot 4,375 0.157 685
Bulyanhulu 24,107 0.414 9,987
Buzwagi 38,466 0.061 2,356
Tulawaka (70%) 778 0.436 339
---------------------------------------------------------------------
OTHER 363 0.435 158
---------------------------------------------------------------------
TOTAL 1,330,826 0.051 68,321
---------------------------------------------------------------------
(1) See accompanying footnote on next page.
As at December 31, 2005 TOTAL
---------------------------------------------------------------------
Tons Grade Ounces
Based on attributable ounces (000's) (oz/ton) (000's)
---------------------------------------------------------------------
NORTH AMERICA
Goldstrike Open Pit 114,512 0.128 14,603
Goldstrike Underground 7,319 0.379 2,773
Goldstrike Property Total 121,831 0.143 17,376
Round Mountain (50%) 137,804 0.017 2,338
East Archimedes 17,093 0.059 1,011
Hemlo (50%) 10,382 0.091 944
Eskay Creek 268 0.810 217
Marigold (33%) 32,546 0.021 689
---------------------------------------------------------------------
SOUTH AMERICA
Pascua-Lama 389,279 0.047 18,206
Veladero 386,137 0.033 12,641
Lagunas Norte 227,140 0.036 8,266
Pierina 65,440 0.029 1,916
---------------------------------------------------------------------
AUSTRALIA/AFRICA
Kalgoorlie (50%) 84,883 0.058 4,894
Plutonic 16,554 0.145 2,399
Cowal 63,600 0.039 2,495
Lawlers 3,760 0.126 472
Darlot 6,343 0.144 914
Bulyanhulu 25,916 0.414 10,732
Buzwagi 39,231 0.061 2,403
Tulawaka (70%) 973 0.387 377
---------------------------------------------------------------------
OTHER 363 0.435 158
---------------------------------------------------------------------
TOTAL 1,637,705 0.054 88,591
---------------------------------------------------------------------
(1) See accompanying footnote on next page.
/T/
(1) MINERAL RESERVES AND MINERAL RESOURCES NOTE
Mineral reserves ("reserves") have been calculated as at December 31, 2005 in accordance with National
Instrument 43-101 as required by Canadian securities regulatory authorities. For United States reporting
purposes, Industry Guide 7, (under the Securities and Exchange Act of 1934), as interpreted by Staff of the
SEC, applies different standards in order to classify mineralization as a reserve. Accordingly, for U.S.
reporting purposes, Buzwagi is classified as mineralized material. Barrick is currently assessing the
implications of conditions contained in the resolution issued by Chilean regulatory authorities approving the
environmental impact assessment for the Pascua-Lama project. It is possible that following the completion of
such assessment, approximately 0.86 million ounces of mineralization at the Pascua-Lama project will be
reclassified from reserves to mineralized material for U.S. reporting purposes. Calculations have been
prepared by employees of Barrick under the supervision of Jacques McMullen, Corporate Head, Metallurgy and
Process Development of Barrick, Rick Allan, Director - Engineering and Mining Support of Barrick, and Rick
Sims, Manager Corporate Reserves of Barrick. Reserves have been calculated using an assumed long-term average
gold price of US$400 (Aus$560), a silver price of US$6.25 and exchange rates of $1.30 $Can/$US and $0.72
$US/$Aus. Reserves at the Hemlo and Eskay properties assumed a gold price of $US425. Reserves at the Hemlo
property assumed an exchange rate of$1.20 $Can/$US. Reserve calculations incorporate current and/or expected
mine plans and cost levels at each property. Varying cut-off grades have been used depending on the mine and
type of ore contained in the reserves. Barrick's normal data verification procedures have been employed in
connection with the calculations. For a more detailed description of the key assumptions, parameters and
methods used in calculating Barrick's reserves and resources, see Barrick's most recent Annual Information Form
on file with Canadian provincial securities regulatory authorities and the U.S. Securities and Exchange
Commission.
/T/
GOLD MINERAL RESOURCES(1)
As at
December 31, 2005 MEASURED (M) INDICATED (I) (M)+(I)
------------------------------------ ------------------------ -------
Based on
attributable Tons Grade Ounces Tons Grade Ounces Ounces
ounces (000's)(oz/ton) (000's) (000's) (oz/ton) (000's) (000's)
------------------------------------ ------------------------ -------
NORTH AMERICA
Goldstrike
Open Pit 12,072 0.054 650 9,043 0.045 404 1,054
Goldstrike
Underground 1,015 0.472 479 2,219 0.346 768 1,247
Goldstrike
Property
Total 13,087 0.086 1,129 11,262 0.104 1,172 2,301
Round
Mountain
(50%) 6,605 0.019 124 11,101 0.015 172 296
East
Archimedes 979 0.063 62 2,070 0.060 125 187
Hemlo (50%) 821 0.166 136 1,159 0.141 163 299
Eskay Creek 235 0.332 78 441 0.306 135 213
Marigold
(33%) 11,813 0.018 216 8,093 0.021 173 389
------------------------------------ ------------------------ -------
SOUTH AMERICA
Pascua-Lama 7,725 0.035 270 53,687 0.038 2,034 2,304
Veladero 663 0.005 3 2,108 0.005 11 14
Lagunas Norte 822 0.028 23 47,142 0.036 1,676 1,699
Pierina 1,057 0.020 21 2,521 0.018 46 67
------------------------------------ ------------------------ -------
AUSTRALIA/AFRICA
Kalgoorlie
(50%) 1,663 0.058 96 2,602 0.065 169 265
Plutonic 274 0.245 67 17,934 0.150 2,686 2,753
Cowal 2,594 0.038 98 54,614 0.034 1,868 1,966
Lawlers 11 - - 6,235 0.169 1,054 1,054
Darlot 490 0.116 57 2,956 0.111 328 385
Bulyanhulu - - - 3,776 0.469 1,770 1,770
Buzwagi 309 0.042 13 18,411 0.043 796 809
Tulawaka (70%) - - - - - - -
------------------------------------ ------------------------ -------
OTHER - - - 6,940 0.113 783 783
------------------------------------ ------------------------ -------
TOTAL 49,148 0.049 2,393 253,052 0.060 15,161 17,554
------------------------------------ ------------------------ -------
(1) Resources which are not reserves do not have demonstrated
economic viability.
GOLD MINERAL RESOURCES(1)
As at December 31, 2005 INFERRED
---------------------------------------------------------------------
Tons Grade Ounces
Based on attributable ounces (000's) (oz/ton) (000's)
---------------------------------------------------------------------
NORTH AMERICA
Goldstrike Open Pit 417 0.089 37
Goldstrike Underground 3,034 0.386 1,172
Goldstrike Property Total 3,451 0.350 1,209
Round Mountain (50%) 17,687 0.013 229
East Archimedes - - -
Hemlo (50%) 2,820 0.143 404
Eskay Creek 176 0.443 78
Marigold (33%) 54,368 0.013 693
---------------------------------------------------------------------
SOUTH AMERICA
Pascua-Lama 20,400 0.049 1,003
Veladero 125,649 0.010 1,266
Lagunas Norte 21,592 0.051 1,103
Pierina 265 0.023 6
---------------------------------------------------------------------
AUSTRALIA/AFRICA
Kalgoorlie (50%) 2,009 0.149 300
Plutonic 9,527 0.189 1,800
Cowal 14,534 0.034 488
Lawlers 953 0.161 153
Darlot 117 0.222 26
Bulyanhulu 4,601 0.567 2,608
Buzwagi 618 0.040 25
Tulawaka (70%) 110 0.127 14
---------------------------------------------------------------------
OTHER 8,529 0.112 954
---------------------------------------------------------------------
TOTAL 287,406 0.043 12,359
---------------------------------------------------------------------
(1) Resources which are not reserves do not have demonstrated
economic viability.
CONTAINED SILVER WITHIN REPORTED GOLD RESERVES (1)
---------------------------------------------------------------------
Assumed metal prices; Gold: US$400/oz Silver: US$6.25/oz
Copper: US$1.25/lb
---------------------------------------------------------------------
For the year ended
Dec. 31, 2005 PROVEN PROBABLE
------------------------------------------- -------------------------
Tons Grade Ounces Tons Grade Ounces
(000s)(oz/ton) (000s) (000s) (oz/ton) (000s)
------------------------------------------- -------------------------
AFRICA
Bulyanhulu 1,809 0.26 462 24,107 0.32 7,738
------------------------------------------- -------------------------
NORTH AMERICA
Eskay Creek 180 43.68 7,862 88 38.22 3,363
------------------------------------------- -------------------------
SOUTH AMERICA
Lagunas Norte 11,198 0.09 1,011 215,942 0.10 21,294
Pascua-Lama 43,666 1.79 78,357 353,775 1.71 606,303
Pierina 24,974 0.22 5,455 40,467 0.17 6,712
Veladero 21,514 0.53 11,435 363,998 0.50 182,608
------------------------------------------- -------------------------
TOTAL 103,341 1.01 104,582 998,377 0.83 828,018
------------------------------------------- -------------------------
(1) Silver is accounted for as a by-product credit against reported
or projected gold production costs.
For the year ended
Dec. 31, 2005 TOTAL
---------------------------------------------------------------------
Process
Tons Grade Ounces recovery
(000s) (oz/ton) (000s) %
---------------------------------------------------------------------
AFRICA
Bulyanhulu 25,916 0.32 8,200 65.0%
---------------------------------------------------------------------
NORTH AMERICA
Eskay Creek 268 41.88 11,225 91.1%
---------------------------------------------------------------------
SOUTH AMERICA
Lagunas Norte 227,140 0.10 22,305 21.7%
Pascua-Lama 397,441 1.72 684,660 78.5%
Pierina 65,441 0.19 12,167 34.8%
Veladero 385,512 0.50 194,043 6.6%
---------------------------------------------------------------------
TOTAL 1,101,718 0.85 932,600 61.7%
---------------------------------------------------------------------
(1) Silver is accounted for as a by-product credit against reported
or projected gold production costs.
CONTAINED SILVER WITHIN REPORTED GOLD RESOURCES
For the year ended
Dec. 31, 2005 MEASURED (M) INDICATED (I)
------------------------------------------- -------------------------
Tons Grade Ounces Tons Grade Ounces
(000s)(oz/ton) (000s) (000s) (oz/ton) (000s)
------------------------------------------- -------------------------
AFRICA
Bulyanhulu - - - 3,776 0.44 1,661
------------------------------------------- -------------------------
NORTH AMERICA
Eskay Creek 235 11.06 2,598 441 9.85 4,345
------------------------------------------- -------------------------
SOUTH AMERICA
Lagunas Norte 822 0.15 120 27,261 0.10 2,712
Pascua-Lama 7,725 0.77 5,911 53,687 0.53 28,369
Pierina 1,057 5.06 5,349 42,988 0.17 7,107
Veladero 663 0.25 163 2,108 0.27 563
------------------------------------------- -------------------------
TOTAL 10,502 1.35 14,141 130,261 0.34 44,757
------------------------------------------- -------------------------
For the year ended
Dec. 31, 2005 TOTAL (M) + (I)
---------------------------------------------------------------------
Tons Grade Ounces
(000s) (oz/ton) (000s)
---------------------------------------------------------------------
AFRICA
Bulyanhulu 3,776 0.44 1,661
---------------------------------------------------------------------
NORTH AMERICA
Eskay Creek 676 10.27 6,943
---------------------------------------------------------------------
SOUTH AMERICA
Lagunas Norte 28,083 0.10 2,832
Pascua-Lama 61,412 0.56 34,280
Pierina 44,045 0.28 12,456
Veladero 2,771 0.26 726
---------------------------------------------------------------------
TOTAL 140,763 0.42 58,898
---------------------------------------------------------------------
CORPORATE OFFICE TRANSFER AGENTS AND REGISTRARS
Barrick Gold Corporation CIBC Mellon Trust Company
BCE Place, TD Canada Trust Tower, P.O. Box 7010,
Suite 3700 Adelaide Street Postal Station
161 Bay Street, P.O. Box 212 Toronto, Ontario M5C 2W9
Toronto, Canada M5J 2S1 Tel: (416) 643-5500
Tel: (416) 861-9911 Toll-free throughout
Fax: (416) 861-0727 North America: 1-800-387-0825
Toll-free within Canada and Fax: (416) 643-5660
United States: 1-800-720-7415 Email: inquiries@cibcmellon.ca
Email: investor@barrick.com Website: www.cibcmellon.com
Website: www.barrick.com
SHARES LISTED Mellon Investor Services L.L.C.
ABX - The Toronto Stock Exchange 480 Washington Blvd.
The New York Stock Exchange Jersey City, NJ 07310
The Swiss Stock Exchange Email: shrrelations@mellon.com
Euronext - Paris Website: www.mellon-investor.com
BGD - The London Stock Exchange
INVESTOR CONTACT MEDIA CONTACT
James Mavor Vincent Borg
Vice President, Senior Vice President,
Investor Relations Corporate Communications
Tel: (416) 307-7463 Tel: (416) 307-7477
Email: jmavor@barrick.com Email: vborg@barrick.com
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CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information contained or incorporated by reference in this Year End Report 2005, including any
information as to our future financial or operating performance, constitutes "forward-looking statements". All
statements, other than statements of historical fact, are forward-looking statements. The words "believe",
"expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may",
"will", "schedule" and similar expressions identify forward-looking statements. Forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are
inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and
unknown factors could cause actual results to differ materially from those projected in the forward-looking
statements. Such factors include, but are not limited to: fluctuations in the currency markets (such as the
Canadian and Australian dollars versus the U.S. dollar); fluctuations in the spot and forward price of gold or
certain other commodities (such as silver, copper, diesel fuel and electricity); changes in U.S. dollar
interest rates or gold lease rates that could impact the mark to market value of outstanding derivative
instruments and ongoing payments/receipts under interest rate swaps and variable rate debt obligations; risks
arising from holding derivative instruments (such as credit risk, market liquidity risk and mark to market
risk); changes in national and local government legislation, taxation, controls, regulations and political or
economic developments in Canada, the United States, Dominican Republic, Australia, Papua New Guinea, Chile,
Peru, Argentina, South Africa, Tanzania, Russia or Barbados or other countries in which we do or may carry on
business in the future; business opportunities that may be presented to, or pursued by, us; our ability to
successfully integrate acquisitions, including our recent acquisition of Placer Dome; operating or technical
difficulties in connection with mining or development activities; the speculative nature of gold
exploration and development, including the risks of obtaining necessary licenses and permits; diminishing
quantities or grades of reserves; adverse changes in our credit rating; and contests over title to properties,
particularly title to undeveloped properties. In addition, there are risks and hazards associated with the
business of gold exploration, development and mining, including environmental hazards, industrial accidents,
unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of
inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and
contingencies can affect our actual results and could cause actual results to differ materially from those
expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that
forward-looking statements are not guarantees of future performance. All of the forward-looking statements made
in this Year End Report 2005 are qualified by these cautionary statements. Specific reference is made to
Barrick's most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities
regulatory authorities for a discussion of some of the factors underlying forward-looking statements.
We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result
of new information, future events or otherwise, except to the extent required by applicable laws.
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FOR FURTHER INFORMATION PLEASE CONTACT:
Barrick Gold Corporation
Vincent Borg
Vice President, Corporate Communications
(416) 307-7477
(416) 861-1509 (FAX)
vborg@barrick.com
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