News From the Top of the Gold Chain

In the African bush, the lion reigns supreme at the pinnacle of a fascinating food chain. In the similarly competitive world of gold mining, Barrick Gold (NYSE:ABX) is king, and all the world its court.

Barrick posted adjusted net income of $604 million for the fourth quarter, marking a 90% improvement from the prior year on a per-share basis. Freed from the iron weight of gold hedges that previously constrained exposure to a rising gold price, the company reported a 110% increase in adjusted operating cash flow to a record $921 million. Of course, the devil is in the details, as the painful cost of cancelling those hedges yielded a reported cash flow of negative $4.3 billion.

For the full year, Barrick met its original production guidance with 7.4 million ounces of gold, at a cash cost of $363 net of byproducts. Like a python, Barrick never seems to stop growing, even as the challenges involved with replacing production of this scale mount. By a tiny margin, Barrick replaced its 2009 production, ending the year with a mind-boggling 139.8 million ounces of gold in reserve. Barrick has added 15.2 million ounces to gold reserves since I offered this timely analysis of Yamana Gold (NYSE:AUY) in 2008 -- a horde equivalent to 85% of Yamana's entire reserves at the time.

Barrick announced it will spin off its African operations as a new company called African Barrick Gold. Barrick intends to launch a London listing for shares representing 25% of the new company, while retaining a 75% equity stake. Even Barrick's spinoffs intimidate the competition, as the entity's reserves of 16.8 million ounces tower over those of fellow African producers like Randgold Resources (NASDAQ:GOLD) and IAMGOLD (NYSE:IAG). Hitting the ground running, African Barrick Gold is targeting 2010 production of more than 800,000 ounces, and recently achieved commercial production at the Buzwagi mine is likely to improve cash costs that hovered above $600 per ounce in the fourth quarter.

Especially in this difficult credit environment, you have to be top dog to cover the capital expenditures involved in building the world's largest gold mines. The revised preproduction price tag of $4.2 billion for the Cerro Casale project in Chile must have intimidated joint venture partner Kinross Gold (NYSE:KGC), as Kinross has opted to monetize half of its 50% stake for total consideration of $475 million.

It's a good thing Barrick will enjoy healthy cash flow going forward. In addition to Cerro Casale, Barrick is on the hook for 60% of the $3 billion needed to bring the Pueblo Viejo joint venture with Goldcorp (NYSE:GG) into production, and faces another $2.8 billion-$3 billion outlay for the Pascua Lama project that Silver Wheaton (NYSE:SLW) shareholders await with bated breath. With its hedge book obliterated, and a strong shot at sustaining massive production volumes as these major projects come online, I believe Barrick Gold will remain at the top of the gold chain for many years to come.