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The Sticker Shock of Barrick Gold

http://www.fool.com/investing/general/2012/11/01/the-sticker-shock-of-barrick-gold.aspx

Christopher Barker
November 1, 2012

It's easy to be drawn in from afar by that gorgeous and shiny new sports car on the showroom floor, but the real test comes as you get close enough to view the sticker.

From a distance, Barrick Gold (NYSE: ABX  ) may seem like an alluring choice for gold exposure. After all, it's the world's largest producer, and that economy of scale has tended to support peer leading cash costs over the years. But have a seat before you inspect that sticker more closely, because Barrick Gold has some sticker shock in store for you.

Barrick suffered a 7% decline in third-quarter gold production (to 1.78 million ounces), and a substantial 20% drop in copper production over prior-year levels. Combined with lower prices for both metals -- including the 14% retreat by copper prices that we discussed in relation to Yamana Gold's (NYSE: AUY  ) impressive quarterly report here -- Barrick saw its revenue slip by 13% to $3.44 billion. With a huge drop in by-product credits from copper, net cash costs surged by 66% to $537 per ounce! At $592 per ounce, co-product cash costs for gold production underperformed those of far smaller competitor Yamana, and themselves represented a 31% increase over the prior-year mark. Preparing to relieve some portion of that co-product cost pressure, Barrick did offer a positive note on the Pueblo Viejo joint venture with Goldcorp (NYSE: GG  ) , revealing that commercial production is expected before the end of the year!

The biggest sticker shock of all, meanwhile, came from the massive Pascua-Lama construction project under way on the border between Chile and Argentina. Just a few months after shocking investors with a 50%-60% escalation of projected costs for the project, Barrick revealed another upward adjustment, raising the total budget to as much as $8.5 billion! Part of the latest adjustment relates to timeline delays that now see