Barrick Gold Corp.
Annual Report 2002

Plain-text annual report

G O L D B A R R I C K 2 0 0 2 2 4 6 Financial Highlights Chairman’s Letter President’s Letter 12 Management’s Discussion and Analysis 64 Financial Statements 68 Notes to Financial Statements 96 Reserves 102 Board of Directors and Officers 104 Shareholder Information 106 Corporate Information ANNUAL MEETING The Annual General Meeting of Shareholders will be held on Wednesday, May 7, 2003 at 10:00 a.m. in the Canadian Room Fairmont Royal York Hotel, Toronto, Ontario. Barrick Gold Corporation is among the world’s largest gold producers in terms of market capitalization, production and reserves. The Company has a portfolio of long-life, low-cost mines and development projects in the United States, Canada, Australia, Peru, Chile, Argentina and Tanzania. These operating properties and development projects on four continents, combined with the gold industry’s only A-rated balance sheet, position Barrick to prosper in the years ahead. In 2002, Barrick produced 5.7 million ounces of gold at an average cash cost of $177 per ounce. The Company has a $2-billion development plan which is expected to add four new mines between 2005 and 2008. These new mines are estimated to produce approximately 2 million ounces of gold annually at an average cash cost of $125 per ounce over their first decade of operation, augmenting the quality and profitability of our operating portfolio of mines. Barrick’s shares trade under the ticker symbol ABX on the Toronto, New York, London and Swiss stock exchanges and the Paris Bourse. P R O F I L E 1 F I N A N C I A L H I G H L I G H T S 2002 YEAR IN REVIEW Barrick’s operating and financial performance declined in 2002 because of lower production and higher costs as existing operations move into the mature stage of their life cycle. With the aim of enhancing future performance, the Company announced its four-mine development plan, projected to begin contributing in 2005. > Financial Highlights (US GAAP basis) 2002 2001 2000 Financial Highlights (in millions of dollars except per share data) Gold sales Net income (loss) for the year Operating cash flow Cash and short-term investments Shareholders’ equity Net income (loss) per share (diluted) Operating cash flow per share Dividends per share Operating Highlights Gold production (thousands of ounces) Total cash costs per ounce Total production costs per ounce $ 1,967 $ 1,989 $ 1,936 193 589 1,074 3,334 0.36 1.09 0.22 5,695 177 268 $ $ 96 588 779 3,192 0.18 1.10 0.22 6,124 162 247 $ $ (1,189) 842 822 3,190 (2.22) 1.57 0.22 5,950 155 239 $ $ Reserves: proven and probable (thousands of ounces) 86,927 82,272 79,300 % change 2001-2002 -1 101 38 4 100 -1 -7 9 9 6 > FINANCIAL REVIEW expenditures in 14 years — free cash flow reached In 2002, gold revenue was similar to the year earlier, $361 million, the highest in Company history. As a as rising spot gold prices offset lower production due result, cash balances increased to over $1 billion. to the planned closure of five mines. Overall, earnings doubled in 2002 from 2001, when Company realized $60 million in synergies. 2002 also results reflected two one-time charges associated with saw the smooth integration of Homestake’s people the Homestake merger ($117 million) and a litigation into a single company and shared culture. As a result of the 2001 Homestake merger, the charge ($59 million). The Company generated solid cash flows from Alto Chicama in Peru, doubling exploration expendi- its operating mines and — with the lowest capital tures for 2002 over the initial plan. A successful exploration effort led to the discovery of 2 B A R R I C K A N N U A L R E P O R T 2 0 0 2 F I N A N C I A L H I G H L I G H T S > REMOTE CONTROLLED SCOOP AT MIEKLE MINE, NEVADA > ALTO CHICAMA, PERU > OPERATIONAL REVIEW $125 per ounce for the first 10 years For the year, Barrick produced 5.7 million of operations. The Company announced ounces of gold at total cash costs of production and cost estimates and $177 per ounce, compared to 6.1 million scheduled start-up dates for each of ounces of gold at $162 per ounce in the four projects: 2001. The lower production related to The Company plans the closure of five mines, as planned, > Alto Chicama in Peru, scheduled to during the year as reserves were begin operations in 2005, is projected to use the strong free depleted. The higher costs in 2002 to produce 500,000 ounces a year at reflect the maturing of the Company’s an average cash cost of $130 per ounce. cash flows from its mines, as they processed more ore (5% higher) at lower grades (5% lower) > Cowal in Australia is projected for a operating mines to and unit costs increased marginally 2005 start, at an estimated 270,000 (1% higher). ounces per year at average cash fund its exploration costs of $170 per ounce. The highlight for 2002 came from program and advance exploration, with the discovery of > Veladero in Argentina is projected to a major new deposit at Alto Chicama produce 530,000 ounces per year at the four new devel- that contributed 6.5 million ounces average cash costs of $155 per ounce, to reserves (for Canadian reporting with start-up expected in 2006. opment projects purposes). Overall, the Company added 7.5 million ounces to reserves from > Pascua-Lama, on the Chile/Argentina scheduled to com- its development projects and replaced border, is expected to commence 60% of the ounces it produced at its production in 2008, at an annual rate mence production operating mines. As a result, reserves of 800,000 ounces and average cash increased to 86.9 million ounces of costs of $85 per ounce. beginning in 2005. gold, up from 82.3 million ounces in 2001. As these projects begin entering pro- duction in 2005, the Company anticipates During the year, Barrick advanced its that they will make significant contribu- development plan, announcing a five- tions to earnings and cash flow. year, four mine, $2-billion program. The program is projected to produce 2 million new ounces a year at B A R R I C K A N N U A L R E P O R T 2 0 0 2 3 C H A I R M A N ’ S L E T T E R Barrick was built with a clear purpose in mind. We saw that investors were looking for a gold equity run as a business, with a focus on profitability. Acting on that understanding, within a decade Barrick became not only one of the world’s largest and most profitable gold producers, but the only one to earn an “A” credit rating. A bove all, successful companies have this in common: a commitment to build lasting value and excellence, and a commitment to setting high goals and achieving the highest standards. These commitments make up the foundation of our Company — and they go a long way toward explaining how, in the 20 years since it was founded, Barrick has become one of the most prominent companies in its field. Above all, our success reflects the dedication and passion of the men and women who together have built this Company. Barrick quickly established itself as a leader in the gold mining business. We accomplished this feat by running the Company in accordance with clear and concise business principles. Rather than hitch our cart to volatile gold prices, we focused on running a business that could flourish under any conditions. We established a track record of consistently setting and then surpassing the highest standards, both operational and financial. Before long, Barrick was known as the most profitable company in its industry, always using its balance sheet and hedge book in ways that minimized risk and maximized opportunity. We are immensely proud of what we’ve accomplished. Still, there’s no ignoring the facts: in 2002, Barrick did not meet our high standards. As performance slipped and investor confidence eroded, our Board of Directors decided that a change in management was necessary. With that, Greg Wilkins was named President and Chief Executive Officer of Barrick. Backed by the full support and confidence of the Board, and building on the many contributions of his predecessor, Randall Oliphant, Greg is already making great strides at reenergizing our Company. Our Board has been busy in other areas as well. Corporate governance has become a major focus, not only to regulators and investors, but also to our Board. 4 B A R R I C K A N N U A L R E P O R T 2 0 0 2 C H A I R M A N ’ S L E T T E R The Securities and Exchange Commission and the New York Stock Exchange have enacted tough new rules for boards of directors. Officially, as a non-US company, Barrick is not legally bound by some of these new regulations, yet as a global company we are committed to maintaining the highest standards of corporate governance. Recently, our Board created a separate corporate governance committee that is charged with proposing and implementing the new standards set out by Wall Street and Washington, to assure that our Company’s corporate stewardship best serves our shareholders. Regulations intended to improve corporate governance can only do so much. For a company to perform to the best of its abilities, a board must be personally committed to maintaining the integrity of a company and ensuring fiduciary responsibility to its shareholders. I’m proud of our Board’s record in this area. Over and over, our Board has demonstrated a determination to do what it takes to maximize shareholder value while remaining true to the ethos of this company. Underperformance has never been acceptable to our Board. Building a great and lasting company that creates true shareholder value is the overriding goal. This is a great time to be in our industry. In a period of political and economic uncertainty, gold is more important than ever. Better still, Barrick is perfectly positioned to take advantage of the opportunities. Whether you look at our managers and employees, our assets, our operations, our track record in exploration and development, or our financial strengths, Barrick has all the components required to forge ahead. Our task now is to get all those parts moving together as one, restoring investor confidence along the way. Few people are better suited for this task than Greg Wilkins, one of the finest executives I have ever worked with. In the 20 years since I founded Barrick, much has changed. Our commitment to building lasting value, however, has never wavered. On behalf of everyone at Barrick, I’m pleased to report that we are determined to chart the path of excellence that sustained us in the past, and will support us in the future. Peter Munk Chairman March 8, 2003 B A R R I C K A N N U A L R E P O R T 2 0 0 2 5 P R E S I D E N T ’ S L E T T E R Our fundamentals are strong. The key now is execution: Delivering at our existing mines, advancing our development projects, and making new exploration discoveries. If we do those things, we should see the kind of financial performance our shareholders have come to expect. B arrick was created and pleased to be back leading the built with a clear purpose Company in an exciting period in mind. Twenty years ago, for gold — and what I believe will Peter Munk recognized that gold be an exciting period for Barrick. and gold shares represented a unique asset class, fulfilling a As the 1990’s experienced a special role in the financial mar- period of sustained economic kets. Investors used gold-related growth and rising financial asset investments to diversify their values, gold remained in an portfolio risks, in line with the extended bear market. The new general wisdom that gold would millennium spurred the recent rise in times of uncertainty while break out in gold as it brought other financial asset values would with it heightened geopolitical fall. Fundamental to this thesis risk and a weaker economic cli- was that the gold investment mate. Gold, as expected, fulfilled be financially sound and its its role, rising in value while underlying operations well- virtually every other financial managed. Accordingly, Barrick investment class declined. So was built on proven business far so good — except that the principles. Today, 20 years patient Barrick shareholders did later, the philosophy that not enjoy the benefits that they gave birth to Barrick serves reasonably expected when the us equally well in the current gold price rose. environment of political and economic uncertainty. In this letter, I want to share Having been associated with happened and why — and how Barrick since the beginning, I am Barrick will again become the with you my sense of what 6 B A R R I C K A N N U A L R E P O R T 2 0 0 2 gold investment of choice and to $177 per ounce compared with regain its leadership position $162 a year earlier. The lower in the gold industry. operating performance offset the gains from higher gold prices, Since rejoining Barrick, I have which had increased from a been visiting our operating 22-year low of $271 per ounce mines and development projects in 2001 to an average of $310 to understand better both the per ounce in 2002. Barrick’s challenges and opportunities lower production level in 2002 facing the Company today. The was anticipated, resulting from issue, as I see it, is execution: the shutdown of operations with We must manage this company depleted ore bodies. The higher effectively to take advantage of cash costs, however, were a our assets and opportunities. At disappointment. Costs were the same time, we need to align expected to increase from $162 our forward sales program to a per ounce in 2001 to $167 per The issue, as I see it, P R E S I D E N T ’ S L E T T E R is execution: We must manage this company effectively to take advantage of our assets and opportunities. changing market, and optimize ounce in 2002. Instead, difficul- our capital structure. To achieve ties accessing higher-grade ore each of these goals, we must and a lack of production flexibility make certain we have the right at several of our underground people in the right places at all operations pushed costs to $177 levels of the Company. per ounce1. Barrick built itself on strong, The Company was slow in predictable financial performance, reacting to these operational priding itself on consistently issues and compounded the achieving or surpassing market problem by failing to communicate expectations. Looking back effectively with the Company’s more recently, it is evident stakeholders. Unfortunately, that Barrick failed to meet the the negative sentiment that standards — operational or developed towards the Company financial — that our investors overshadowed the successes have grown to expect. we enjoyed during 2002. Earnings before non-hedge Even the good news in 2002 had derivative adjustments and one- a negative impact on earnings. time charges declined from $221 We discovered the Alto Chicama million in 2001 to $199 million in deposit in Peru, brought 6.5 20021. Production was 5.7 million million ounces into reserves and ounces compared to 6.l million we moved ahead on the Veladero in 2001, while cash costs rose project in Argentina. As a result, 1 See page 60 regarding non-GAAP measures. B A R R I C K A N N U A L R E P O R T 2 0 0 2 7 P R E S I D E N T ’ S L E T T E R exploration spending doubled Our forward sales program will from a planned $52 million to continue to be a tool to manage $104 million, directly impacting our financial risk. It gives us the our earnings. In addition to critical ability to make major factors that should have been capital investments for the within our reach, we faced sev- development of new mines — eral market issues beyond our the source of future earnings, control. As a case in point, the cash flow and growth. And S&P’s policy shift to include only because of this program, we can Our forward sales US-based companies in their undertake these long-term capi- index, resulted in Barrick being tal commitments without expos- program will continue removed from the S&P 500 ing our balance sheet. It is the causing significant disinvestment only prudent way for a corpora- to be a tool to manage by index related investors. tion dependent entirely on a single volatile commodity price our financial risk. Yet the issue that dominated to make capital investments to It gives us the critical forward sales program. It is hard taining financial strength. the agenda last year was our grow its business while main- to imagine how a tool that has ability to make major capital investments for the development worked so successfully for 15 The simple fact is that our pro- years — earning over $2 billion gram is designed to work when for the Company — has managed gold prices rise — as it has in to generate so much negative early 2003. As the spot price publicity. The program has long moved above our forward price, of new mines — been vilified by a small group of we elected to sell all our produc- critics who have led a vocal and tion at the higher spot price. The the source of future earnings, cash flow misleading crusade denigrating extended deferral feature, the our forward sales program. Last right to defer delivery for 10 to 15 year, this crusade took the form years, provides the Company the of a lawsuit filed against the complete flexibility to sell at spot and growth. Company, advancing the conspir- gold prices or deliver into our acy theory that Barrick was forward sales contracts — which- actively and deliberately sup- ever is higher. No other company pressing the price of gold. Our has this degree of flexibility, shareholders should know that which is one of the many reasons we’re fighting back: Barrick has why Barrick’s program differs petitioned the court to have from its peers. the case dismissed — and has filed its own lawsuit to stop the As interest rates have declined, spread of malicious and false forward premiums have also information about our program. declined, making forward selling 8 B A R R I C K A N N U A L R E P O R T 2 0 0 2 P R E S I D E N T ’ S L E T T E R less attractive. Our existing quality, financial strength and program is larger than I’d like, people capable of managing as it represents almost 35% of our operations effectively to our reserves at operating mines. deliver sustainable earnings The size of the position will and cash flow. As I said at always be a function of business the outset, it boils down and market conditions, so any to execution. working guideline is bound to change. That said, my personal From all that I’ve seen, the view is that roughly two years Company’s fundamentals are production is a more optimal strong. Our existing operations limit to work towards. Gold is are among the longest-life, volatile — and this volatility will lowest-cost mines in the world. Our objective is clear: to be the provide us with the opportunity Our portfolio is in politically acknowledged leader over time to effectively re-align stable regions and we’ve got our forward sales program. But great talent in the field — oper- in the gold industry do take note that even before any ating management teams that realignment occurs, we have are motivated, capable and in terms of asset almost 70 million ounces of gold experienced. unhedged and linked to the gold price. That provides one of the Nevertheless, our producing largest exposures to higher gold assets are reaching maturity and prices in the entire gold industry. are now in the phase when we can reap the rewards of years quality, financial strength and people capable of managing Yet for all our strengths, the of investment and development. bottom line for 2002 is that 2002 was a perfect example of our operations we didn’t measure up in terms that, as we generated the highest of our share performance as free cash flow1 in the Company’s investors shifted to gold. Our history — $361 million — and difficulties in 2002 tarnished the increased our cash balance by effectively to deliver sustainable earnings Company’s credibility and shook year end to over $1 billion. Our and cash flow. investor confidence. We lost the goal in the years to come is to premium in the market that we harvest those free cash flows had long enjoyed. Our task now for reinvestment in the business is to recapture that premium, to grow earnings and cash flow by regaining investor confidence. per share. Our objective is clear: to be the Reserve replacement is a huge acknowledged leader in the challenge in the gold industry. gold industry in terms of asset With the potential at some of 1 See page 60 regarding non-GAAP measures. B A R R I C K A N N U A L R E P O R T 2 0 0 2 9 P R E S I D E N T ’ S L E T T E R our existing mines and our the past few years. As the juniors development projects, Barrick historically active in exploration is well positioned to meet that stepped back, Barrick stepped challenge — as we did last year, up — strengthening its explo- when we increased reserves ration team and spending risk by about 5 million ounces capital more effectively. That to 86.9 million ounces. effort paid off in the form of the Alto Chicama discovery last year. Longer term, reserve replace- While no company can be certain ment and growth go beyond that its exploration work will the existing pipeline of projects. continue to produce economic Our acquisition and Acquisitions and exploration are discoveries, we are optimistic the two principal means of adding that if we work smartly, we will exploration successes reserves and production. Both have further successes. coupled with our approached with great discipline. Of course once you discover a have risks, and both need to be balance sheet strength allowed us to announce a $2-billion development program designed to deposit, you need to get it into The Homestake merger has production. Our acquisition and worked well for us, as we suc- exploration successes coupled cessfully integrated the two with our balance sheet strength companies, realizing the human allowed us to announce a and financial synergies identi- $2-billion development program fied in the acquisition analysis. designed to bring 2 million However, acquisitions generally low-cost ounces per annum into bring 2 million low-cost do not have a history of deliver- production. That gives Barrick ing value, and it is even more the biggest portfolio of undevel- ounces annually into elusive to find value in gold oped assets in the industry — mining transactions. Blockbuster and when you consider that production. deals deliver size, but not neces- we’re developing these projects sarily quality and rarely create in a favorable gold price envi- wealth for the acquirer. We will ronment, you see why I am so continue to look for opportuni- excited to be back at Barrick. ties in the gold industry, and will move only when we see We are focused on getting these the opportunity to enhance projects into production as soon our financial performance. as possible. This is an enormous task that only experienced and Barrick is one of the few compa- well-financed companies can nies to have made a sizeable even consider. Barrick has commitment to exploration over successfully built more than 10 B A R R I C K A N N U A L R E P O R T 2 0 0 2 P R E S I D E N T ’ S L E T T E R 10 mines on four continents. holders not just our strengths We have both the development but our challenges, we believe experience and the balance open, honest, two-way dialogue sheet to get the job done. is the best way to share our sense of who we are — and where As 2003 unfolds, we’ll also be we’re going. focusing on the question of cap- ital structure, weighing our cash I want to close by coming back to needs against our debt levels, a point Peter Munk often makes. and assessing our existing oper- You won’t find a line item on the ations’ ability to generate free balance sheet labeled “Passion to cash flows versus the cash needs succeed,” or a metric that meas- for our development projects. ures a company’s heart. But the best companies have both, and As I have said, Barrick has all so does Barrick. That is why I can the tools it needs to be success- say with confidence that by con- ful: A strong commitment to sistently making good decisions gold, quality assets, internation- and delivering results — this al diversification, a strong bal- Company will thrive. ance sheet, and a solid forward sales program. Most importantly, as I have discovered through my recent site visits, it has highly skilled, highly motivated people, Gregory C. Wilkins a social conscience and a special President and culture that is unique to Barrick. Chief Executive Officer With a renewed commitment to March 8, 2003 better communicate to all stake- B A R R I C K A N N U A L R E P O R T 2 0 0 2 11 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL AND OPERATING RESULTS 13 14 15 17 43 45 49 54 59 60 Strategic Perspectives Highlights Outlook Income Statement 17 19 20 28 Gold Sales Operations Review by Geographic Area North America South America 31 Africa 33 Australia 38 Costs and Expenses Liquidity and Capital Resources Financial Risk Management Critical Accounting Estimates Off-Balance Sheet Arrangements 54 Gold Sales Contracts Contractual Obligations and Commitments Non GAAP Measures M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S STRATEGIC PERSPECTIVES > VELADERO, ARGENTINA B arrick Gold Corporation is In addition to our operating mines, we among the world’s largest gold have the largest portfolio of develop- producers in terms of market ment projects in the industry, and the capitalization, production and reserves, financial and development strengths with operating properties and develop- to build them. For the last five years, ment projects on four continents. With as the lower gold price environment 2003 marking Barrick’s 20th year in reduced exploration spending across the gold business, we believe that we the industry, we invested extensively are positioned to benefit from the in our exploration program. This invest- opportunities presented by a favorable ment paid dividends in 2002 with a gold price environment. major gold discovery – Alto Chicama in Peru. By early 2003, our work at Alto Our exploration team discovered Since its founding, Barrick has been Chicama allowed us to add 6.5 million a major gold deposit at Alto Chicama, adding 6.5 million ounces to reserves. run in accordance with clear and con- ounces to reserves (for Canadian report- cise business principles, focusing on profitability and financial performance rather than sheer size. We know that the key drivers of performance in our ing purposes), bringing our total reserves to 86.9 million ounces1, one of the largest gold asset bases in the industry. business are spot gold prices, produc- Coupled with the development projects tion, reserves and costs per ounce. obtained through our Homestake merger In 2002, our financial results were in 2001, we now have a four mine, below our expectations, primarily due $2-billion development program that to higher costs at our operations. As we expect to contribute to production, we move into 2003, we intend to focus earnings and cash flows beginning in on optimizing our operating mines and 2005. At full production, we expect setting achievable targets based on this group of projects to add 2 million each mine’s stage of operation. Overall, ounces of low-cost gold production we have a solid portfolio of operating – annually to our portfolio. With such albeit mature – properties. Even as the a sizeable development program average ore grade mined at each of underway, our strategic focus for the our operations declines toward reserve immediate future will be to continue grade, these mines remain long-life, our exploration efforts in ways that low-cost operations compared to the further enhance our operating mines industry. The key feature of these and development projects. While our properties is their ability to generate strategy does not make us dependent significant free cash flow, which we on acquisitions, we will consider trans- plan to use in part to fund our explo- actions that we believe are capable of ration and development programs. increasing earnings and cash flows. 1. For United States reporting purposes, Industry Guide 7 (under the Securities Exchange Act of 1934) as interpreted by the Staff of the U.S. Securities and Exchange Commission applies different standards in order to classify mineralization as a reserve. Accordingly, Alto Chicama and Veladero are classified for U.S. reporting purposes as mineralized material. Total reserves for U.S reporting purposes are 71.0 million ounces. B A R R I C K A N N U A L R E P O R T 2 0 0 2 13 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S We have the financial resources to move sheet, strong free cash flows from our ahead with our exploration and develop- existing operations and the support of ment programs without diluting our our forward sales program. shareholders because of our solid balance HIGHLIGHTS Our Pierina mine in Peru is the Company’s second For 2002, our net income was $193 – double what we originally planned million ($0.36 per share) compared to to spend. Activity at our Alto Chicama $96 million ($0.18 per share) in 2001, discovery increased our exploration while operating cash flow was $589 mil- expense by $24 million. At the same lion ($1.09 per share) for 2002 versus time, we also expensed all of the feasi- largest producer and $588 million ($1.10 per share) for 2001. bility work at Veladero ($15 million) over cash flow generator. the course of 2002. While the impact For the year, we produced 5.7 million on our 2002 earnings was negative, ounces of gold at total cash costs of $177 per ounce1 compared to 6.1 million both Alto Chicama and Veladero represent key assets that we expect ounces of gold at $162 per ounce in to contribute to our operating and 2001. Lower 2002 production was financial performance beginning in largely due to the planned phase-out 2005 and 2006, respectively. of five mines over the course of the year as reserves were depleted. We generated solid cash flows from our operating mines and as a result of our Overall, we met our production target for the year as solid contributions from lowest capital expenditures in 14 years, our free cash flows reached $361 million1, our Pierina mine in Peru and two of our the highest in Company history. Our North American operations offset lower forward sales program also contributed, production from four of our seven generating $168 million in additional underground mines. The lower produc- revenue in 2002. As a result, we ended tion and the resulting higher cash costs the year with more than $1 billion in at the four underground mines were due cash, and no net debt. largely to difficulties in accessing higher- grade ores. The four mines spent 2002 Our forward sales program provides us improving mine planning and increasing the flexibility to deliver at our forward development to provide better produc- price or the spot gold price – whichever tion flexibility in 2003 and beyond. is higher. For the first time in 15 years, in the first quarter of 2003 spot gold The $15 per ounce increase in total prices increased above our current year cash costs in 2002 over 2001 was due forward price, allowing us to defer to our ongoing operations processing delivery of our forward contracts and more ore (5% higher) at lower grades sell at the higher spot gold price. Our (5% lower) at marginally higher unit forward sales program has performed costs (up 1%). as it was designed, providing a higher floor price during periods of low gold Our 2002 earnings were also affected prices and the flexibility to sell all of our by a sharp increase in our exploration mine production at higher spot prices. and development expense to $104 million 1. See non-GAAP measures page 60. 14 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S > Global – Results For the year ended December 31, (US GAAP basis) Gold production – ounces (thousands) Revenue per ounce Cash operating costs per ounce Royalties Production taxes Total cash costs per ounce Amortization and reclamation Total production costs per ounce Capital expenditures (millions) Mineral reserves (millions of ounces) 1. See non-GAAP measures page 60. 2002 5,695 339 170 6 1 1771 91 268 228 86.9 $ $ $ 2001 6,124 317 155 6 1 162 85 247 474 82.3 $ $ $ % Change -7 7 10 – – 9 7 9 -52 6 A gold pour at our Bulyanhulu mine in Tanzania, East Africa. We believe that our forward sales While the program has worked well program’s flexibility is one of the for us in the past and remains an significant strengths of this Company. important asset, changing circum- At a time when spot gold prices rose stances make adjustments necessary. by more than $100 per ounce and our Given the present environment of low unrealized mark-to-market loss increased, interest rates and concerns over com- our program remained solid. What plex financial transactions, we intend makes gold hedging unique – in sharp to make our foward selling program contrast to derivative instruments in both smaller and simpler. Accordingly, general – is the fact that our program is over the course of 2002 we reduced supported by gold in the ground which the size of our program and focused can be delivered in the normal course on “plain vanilla” spot deferred of our business. Every ounce hedged forward sales contracts. represents a product we own – and we only have one in five ounces sold forward under our program. OUTLOOK While no company can predict future For 2003, we expect to produce performance with certainty, we have between 5.4 and 5.5 million ounces at a solid portfolio of assets capable of a cash cost of $180 to $190 per ounce. generating significant free cash flows. Including amortization, total production Our pipeline of development projects costs for the year are expected to be gives us the flexibility to add to our between $275 and $285 per ounce. production profile without the necessity Our forward sales program provides us of acquisitions. While we believe that with the ability to sell our production consolidation and rationalization of at a minimum selling price of $340 per the gold industry will continue, our ounce for 2003; however, as our objec- primary focus is on optimizing our tive is to maximize the value of every existing mines and the development ounce we produce, we plan to sell our of our new mines. production at the higher of the spot price or our forward price. B A R R I C K A N N U A L R E P O R T 2 0 0 2 15 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S We expect administration costs to be approximately $70 million, with exploration and business development in the $100 to $110 million range. Our projections assume the expensing of all of Alto Chicama’s and a portion of The forward looking statements included in this discussion and analysis involve risks and uncertainties and are based upon assumptions, which we believe are reasonable, but which could prove incorrect. Factors which could cause Veladero’s development costs. Interest actual results to differ from those expense is expected to be about $70 mil- implied in the forward looking state- lion (including accretion expense). Based ments include: changes in the price of on $350 per ounce gold, our tax rate is gold and certain other commodities; An underground exploration crew at expected to be between 15% and 20%; currency fluctuations; regulatory, polit- work at our Meikle mine in Nevada at $400 per ounce gold, our tax rate ical or economic developments in the would increase to 25% to 30%. We plan to begin implementing our development program in 2003, increasing capital expenditures to approximately $380 to $390 million from a sustaining capital level of areas in which we carry on business; and changes in mining or processing rates. With a large proportion of our reserve base undeveloped, the timing of commencement of production, as well as capital cost, production and cash costs of our development projects $228 million last year, with the increase will have a significant impact on future aimed at starting construction at the Veladero and Cowal projects. In addi- tion to the steady stream of free cash flow generated by our existing operations, we bring the strength of our balance sheet – with $1-billion in financial performance in 2005 and beyond. For a more detailed discussion of risks relevant to Barrick, see our Form 40-F/Annual Information Form on file with securities regulatory authorities. cash and low levels of debt – to provide The consolidated financial statements the financial base to proceed with these projects. have been prepared based on United States reserves standards. Our reserves for United States reporting The accompanying consolidated finan- purposes are the same as our reserves cial statements and related notes are presented in accordance with United States generally accepted accounting principles (“US GAAP”) and are for Canadian reporting purposes with the exception of two projects (Veladero and Alto Chicama), which we expect to qualify as reserves for United States expressed in US dollars. These state- reporting purposes within the next ments, together with the following twelve months. discussion and analysis, are intended to provide investors with a reasonable basis for assessing our operational and financial performance as well as certain forward looking information relating to potential future performance. 16 B A R R I C K A N N U A L R E P O R T 2 0 0 2 INCOME STATEMENT GOLD SALES Revenue for 2002 totaled $1,967 million price of $317 per ounce in 2001. The forward sales program generated on gold sales of 5.8 million ounces, $168 million in additional revenue in compared with $1,989 million on gold 2002 and $289 million in additional sales of 6.3 million ounces in 2001. revenue in 2001. The decline in addi- 2002 gold sales were approximately tional revenue generated through our 100,000 ounces higher than 2002 forward sales program in 2002 was production, reflecting the impact of due to higher gold prices, reducing ounces produced at the end of 2001 the amount of the premium over the but not sold until 2002. The marginally spot price from $76 per ounce in 2001 Barrick’s forward sales program provides the flexibility to sell mine lower 2002 revenue compared to to $42 per ounce in 2002. production at spot gold the prior year resulted from an 8% decrease in gold sales, partially offset As we saw in 2002 when spot gold by a $22 per ounce, or 7%, increase prices rise toward our higher forward in the average realized price. The sale price, the additional revenue prices or deliver into our forward sales lower gold sales in 2002 relate to the earned through the program decreases. contracts – whichever planned closure of five mines during When spot gold prices rise above our the year due to the depletion of their forward sale price, as occurred in early is higher. economic reserves. With the exception 2003, we can sell all of our gold produc- of one further mine closure in 2004, tion at the higher spot price and defer our existing operations should continue delivery of our forward sales contracts to produce at similar levels for the next to a future date. While the value of our several years. reserves and cash flows increase as spot gold prices rise, the unrealized In 2002, gold prices rose to their high- mark-to-market loss on our program est level since 1997, averaging $310 per also rises. The mark-to-market value ounce, compared to 2001, when gold declined from an unrealized gain of averaged $271 per ounce. Higher spot $356 million at the end of 2001 to an gold prices, combined with deliveries into unrealized loss of $639 million at the our forward sales program, allowed us end of 2002. The decline in the mark- to realize an average price of $339 per to-market value is primarily due to ounce compared to an average realized increasing spot gold prices (year end M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Gold Sales by Country (US$ thousands) 1,200 1,200 1,000 1,000 800800 600600 400400 200200 B A R R I C K A N N U A L R E P O R T 2 0 0 2 17 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S spot gold prices, 2002 – $347 compared price, leading us to defer scheduled to 2001 – $279) and the realization deliveries under those contracts and sell of $168 million of additional contract our production at the higher spot price. revenue during 2002, partially offset by unrealized gains on changes in forward Gold deliveries into these forward sales gold price differentials (or contango), contracts can be deferred for up to which are influenced principally by 10 to 15 years; as they are deferred, changes in interest and gold lease the delivery price under these contracts rates and premiums (US interest rates increases over time. The increase in less gold lease rates) earned during the delivery price of these deferred the year. For additional detail see contracts is based on the present spot- Off-Balance Sheet Arrangements – forward gold price differential, primarily Significance of mark-to-market gains influenced by US dollar interest rates. and losses page 57. In a high US dollar interest rate environment, the delivery price Future gold production committed under rises quickly, while in the present our forward sales program totaled 18.1 low interest rate environment, the So far in early 2003, we have extended the delivery dates on our forward sales contracts, and we have sold all of our million ounces at December 31, 2002. delivery price rises at a slower rate. production at the higher spot price. This represents approximately 21% of proven and probable reserves (for In an effort to make our program smaller Canadian reporting purposes), deliver- and simpler, we delivered production able over the next 10 to 15 years at against forward sales contracts without an average estimated future price of replacing those contracts, and we $341 per ounce at the scheduled delivery reduced our variable price sales com- dates. For 2003, we have the ability mitments by approximately two-thirds. to sell our production into the forward These steps allowed us to close the sales program at an average price of year at 18.1 million ounces committed $340 per ounce. In early 2003, the under our forward sales program, leaving delivery dates on those contracts have approximately 80% of our reserves been extended pursuant to their terms, unhedged. With our positive outlook for as we elected to sell our production at the gold price, interest rates at 40-year the higher spot price of approximately lows (leading to lower forward sales $360 per ounce. This is the first time premiums), and our strong financial in 15 years that gold prices have risen position, we intend to continue to above our current year forward sales manage the program down to a lower portion of overall reserves. Gross Operating Costs (US$ millions) 2001 2001 2002 4040 3030 2020 1010 18 B A R R I C K A N N U A L R E P O R T 2 0 0 2 OPERATIONS REVIEW BY GEOGRAPHIC AREA As noted in the Highlights, 2002 higher costs per ounce, overshadowing production decreased to 5.7 million strong contributions from Round ounces from 6.1 million ounces in 2001, Mountain, Pierina, and Eskay Creek. with lower production in 2002 due We responded to the operational issues largely to the planned phase-out of five by enhancing mine planning, scheduling mines over the course of the year as and budgeting to ensure better informa- economic reserves were depleted. Total tion and providing greater production operating costs, including reclamation, flexibility, giving us greater ability to were similar over the two years, at optimize the value of our underground $1,071 million in 2002 and $1,080 mil- mines. In addition, we have reviewed lion in 2001. However, on a per ounce our operating systems and procedures basis, total cash costs for the year to improve controls to facilitate timely increased to $177, from $162 in 2001. updating of forecast information at Higher cash costs were attributable to our mines. Our efforts centered on three main factors: improving the accuracy of periodic > Mining and processing more lower- forecasting by the General Managers > > grade tons during the year; and putting a stronger emphasis on Increased amortization of deferred achievability through the corporate mining costs; and office review process. Increased royalty and mining tax payments due to higher gold prices. In addition, planned increases in One of the operational facts inherent Betze-Post and Pierina resulted in higher in our industry is that as operations cash costs at those operations as mining mature, grades decline and it becomes moved into lower-grade areas of the expensing of deferred mining costs at North America South America Africa more difficult to add reserves at these open pits. operations. The lower grades lead to Australia M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S less production flexibility as the opera- With the closure of six mines over the tions have fewer choices of which areas past 15 months and our new projects to mine. Most of our operations have not expected to begin to contribute to reduced controllable unit mining, production until 2005, we anticipate processing and administrative costs lower production in 2003 and 2004. through productivity improvements, Production for 2003 is expected to resulting in higher mining and process- be between 5.4 and 5.5 million ounces, ing rates. However, comparatively small at a cash cost of between $180 and changes in tons and grades processed $190 per ounce. Following is a summary and recovery rates have a more pro- of each of our mines and development nounced impact on production, cash projects. For a more detailed discussion costs and earnings than before. of our operations and development projects see the most current Annual A variety of unrelated operating diffi- Information Form (AIF – on file with culties accessing higher-grade ores in the securities regulatory authorities 2002 at Bulyanhulu, Hemlo, Plutonic in Canada and the US). and Meikle led to lower production and B A R R I C K A N N U A L R E P O R T 2 0 0 2 19 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S NORTH AMERICA NORTH AMERICAN PROPERTIES > Largest producing region, accounting for 62% of the Company’s total production. > Goldstrike, Nevada Betze-Post Meikle > Region represents 50% of our developed reserve base at 26.2 million ounces. > Long-life asset base. > Round Mountain, Nevada > Fully developed operations generating the majority of the Company’s free cash flow, > Eskay Creek, British Columbia > Hemlo, Ontario > Holt-McDermott, Ontario which will be used to fund exploration and to build our new generation of mines. GOLDSTRIKE PROPERTY (NEVADA) For the year ended December 31, OPERATIONAL STATISTICS Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 144,533 11,960 0.20 2,050 19,939 155,606 10,562 0.25 2,263 20,379 $ 209 $ 183 9 218 74 296 46 $ $ 10 193 60 253 122 $ $ -7 13 -20 -9 -2 14 -10 13 23 17 -62 The Goldstrike Property remains the to over 7 cents per kwh). We are looking Company’s single largest producer and at alternative power suppliers to lower has just completed its eighth straight our power costs. year producing more than 2 million ounces. Cash costs have increased While the Property has matured, it over the past five years as the Property replaced 80% of production in 2002 has moved from mining and processing through reserve expansion in both high-grade material to near reserve the open pit (1.3 million ounces) and grade material in both the open pit and the underground (642,000 ounces), its underground. As well, electric power best showing since 1999. Overall, the and fuel cost increases have pressured Property is expected to continue to costs higher. Power costs increased in produce at the 2 million ounce level the Western United States in 2001, for at least the next four years. Cash causing our supplier to increase our costs are expected to remain relatively rates substantially (4.3 cents per kwh constant. With the large capital program 20 B A R R I C K A N N U A L R E P O R T 2 0 0 2 Surveyors at work at Betze-Post, where we have made great strides in improving the mine’s productivity over the past five years. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S completed, the Property contributes the at lower grade (down 20%). In addition, majority of the free cash flow from our higher power costs (up $6 per ounce) existing operations – free cash flow that and expensing of deferred stripping will play a key role in funding our explo- costs at Betze-Post (up $14 per ounce) ration program and developing our new led to higher costs. generation of mines. In 2003, the Property is expected In 2002, production declined 9% com- to produce 2,115,000 ounces of gold pared to 2001, while total cash costs (3% higher than 2002) at cash costs increased to $218 per ounce, up from of $225 per ounce. The increase in $193 a year earlier. The lower produc- cash costs is largely due to higher tion and higher cash costs were largely royalties and production taxes due to processing more tons (up 13%) resulting from higher gold prices. BETZE-POST MINE For the year ended December 31, OPERATIONAL STATISTICS Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 142,898 10,322 0.16 1,410 16,051 154,233 9,187 0.20 1,550 16,433 $ 221 $ 207 7 228 58 286 12 $ $ 8 215 52 267 32 $ $ -7 12 -20 -9 -2 7 -14 6 12 7 -63 Betze-Post production declined 9% the cost of power increased by $19 per from the previous year. The lower ounce. Despite the lower grade, cash production was due to lower grades costs increased by only $6 per ounce processed (down 20%), partially offset or 3% (excluding power cost increases) by higher throughput (up 12%). To max- over the four-year period because of imize investment returns, the mine plan the mine’s productivity improvements was designed to process higher-grade and cost-reduction initiatives. ore first and stockpile the lower-grade material in the earlier years of its life. Proven and probable gold reserves Over the past four years (1999-2002), at Betze-Post decreased to 16.1 million the average grade processed declined ounces from 16.4 million ounces in by 41%, while in the past two years 2001. The partial reserve replacement B A R R I C K A N N U A L R E P O R T 2 0 0 2 21 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S in 2002 was due to lower unit mining (up 5%). Lower unit mining costs, and processing costs, which allowed combined with higher recovery rates the conversion of a small underground and throughput, are expected to more reserve into a larger open pit reserve, than offset another power cost increase, as well as the discovery of lower-grade resulting in a 4% reduction in cash material at the pit bottom last year. operating costs per ounce before royal- ties and production taxes. However, For 2003, production is expected higher spot gold prices are expected to to increase to 1,495,000 ounces due result in higher royalties and production to better grades mined and processed taxes, resulting in total cash costs (up 6%) and increased tons processed similar to 2002 at $228 per ounce. A remote-controlled scooptram at work underground at Meikle. MEIKLE MINE For the year ended December 31, OPERATIONAL STATISTICS Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 1,635 1,638 0.43 640 3,888 184 14 198 121 319 34 $ $ $ 2001 % Change 1,372 1,375 0.56 713 3,946 $ 133 14 147 74 221 90 $ $ 19 19 -23 -10 -1 38 – 35 64 44 -62 Meikle production declined 10% from In recent years, Meikle has been transi- 2001, as total cash costs increased to tioning from a compact high-grade $198 per ounce from $147 per ounce mining operation to a lower-grade in 2001. The lower production relates operation spread over a much larger to lower grades processed (down 23%), area. Between 1999 and 2002, the partially offset by higher mining and average grade mined and processed processing rates (up 19%), as the declined (by 57%) while cash costs Rodeo deposit ramps up to full produc- per ounce doubled. As the mine has tion. The higher cash costs were due to matured, mining in Main Meikle is now lower grades mined and processed and focused on secondary stopes where higher unit mining costs, particularly ground conditions are not as competent, in the remnant material of the Main leading to production difficulties and Meikle zone. higher unit mining costs in 2002. 22 B A R R I C K A N N U A L R E P O R T 2 0 0 2 Drilling at Banshee, north of Meikle, holds the best potential for reserve additions at Goldstrike. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S As a result, the mine focused on to be completed in first quarter 2003; improving planning and scheduling based on the assessment of economic during the year to ensure a more potential, a decision on a Meikle-to- stable production plan going forward. Banshee access drift is expected by Proven and probable reserves at year end mid-2003. 2002 declined marginally to 3.89 mil- Production for 2003 is expected lion ounces from 3.95 million in 2001, to decline to 620,000 ounces, while as the mine replaced about 85% of total cash costs are expected to rise to 2002 production. Most of the material $219 per ounce. The lower production added in 2002 had been removed from is largely due to expected lower recov- reserves a year earlier when manage- ery rates (down 2%), as lower grades ment determined that more drilling processed (down 7%) are offset by was required to classify the material as higher mining rates (up 7%). Beginning reserves. While exploration drilling will in 2003, Meikle is mining and processing continue at depth below Main Meikle at the average grade of its remaining and in the Rodeo area, the best poten- reserves; as a result, production and tial for reserve additions is likely north costs should be stable around current of Main Meikle, in an area known as levels for the remainder of its mine life. Banshee. Surface drilling is expected ROUND MOUNTAIN MINE (NEVADA) For the year ended December 31, OPERATIONAL STATISTICS Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Gold Production (Barrick’s share) (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 63,146 62,222 0.019 755 378 1,875 $ $ $ 172 15 187 69 256 8 70,243 58,660 0.017 747 373 2,245 $ 176 11 187 62 249 15 $ $ -10 6 9 1 1 -16 -2 36 – 11 3 -47 B A R R I C K A N N U A L R E P O R T 2 0 0 2 23 The large tonnage, low-grade Round Mountain mine remains a consistent performer. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S The Round Mountain joint venture current deposit resides in an exploration had another strong year, contributing program at the Gold Hill property 377,747 ounces of gold to our 50 per- (located 5 miles from Round Mountain), cent account in 2002. Total cash costs where follow-up drilling continues to were $187 per ounce, in line with the yield encouraging results. The work previous year. The results were better planned for 2003 will further test the than plan for both production and potential economics of this pit and con- costs, as a result of better than antici- tinue to delineate the mineralized zone. pated grades processed through the mill as well as to the leach pad. For 2003, the mine is expected to have another solid year. The marginally Proven and probable reserves decreased lower production of 363,000 ounces from 2.2 million to 1.9 million ounces, and higher costs of $198 per ounce, as only a small portion of production are primarily due to lower production was replaced during the year. This is from the leach pad, as longer haulage a solid but mature operation with an cycles result in fewer tons being placed expected remaining mine life of four on the pad. years. Future potential beyond the ESKAY CREEK MINE (BRITISH COLUMBIA) For the year ended December 31, OPERATIONAL STATISTICS Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Grade – Silver (ounces per ton) Gold Production (000’s of ounces) Silver Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 254 256 1.50 72.18 359 17,763 1,430 $ $ $ 36 4 40 134 174 8 2001 % Change 230 229 1.55 71.07 321 15,454 1,775 $ $ $ 46 3 49 127 176 10 10 12 -3 2 12 15 -19 -22 33 -18 6 -1 -20 24 B A R R I C K A N N U A L R E P O R T 2 0 0 2 Eskay Creek had its best year for Proven and probable gold reserves at production despite lower grades Eskay decreased to 1.4 million from 1.8 and a strike at one of the mine’s million ounces due to production during key third-party smelters. Production the year. A development ramp was com- increased 12% in 2002 as cash costs pleted during the year to follow up on decreased by 18%. The increase in encouraging exploration results. Future production and lower cash costs were reserve expansion is most likely to come primarily the result of a 10% increase from this program. In addition, the sur- in tons mined and an increase in silver face program generated positive results, by-product credits. with follow-up scheduled in 2003. To mitigate the impact of the third- For 2003, production is expected to party smelter strike which began in increase marginally to 363,000 ounces, July 2002, the mine optimized its as higher mining and processing rates milling capacity, increasing throughput (up 11%) are expected to more than off- (by 12%), re-sequenced the mining set the lower grades processed. Cash efforts to source higher grade ore, and costs are expected to rise to $64 per arranged for increased sales to its other ounce, primarily due to lower silver main smelter. Though the labor strike grades significantly reducing by-product continues, shipments of ore and con- credits. Longer term, based on current centrate in late 2002 and early 2003 reserves, production is expected to were close to pre-strike levels, and we decline and cash costs are expected to anticipate being able to sustain these rise as the mining and processing move rates through the balance of this year, to the average grade of the reserve. even without a labor strike settlement. Eskay Creek contributed excellent results due to productivity improvements in both mining and processing. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S B A R R I C K A N N U A L R E P O R T 2 0 0 2 25 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S HEMLO PROPERTY (ONTARIO) For the year ended December 31, OPERATIONAL STATISTICS Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (100%) (000’s of ounces) A drill pattern underground at our Gold Production (Barrick’s share) Hemlo mine accesses Mineral Reserves (000’s of ounces) (000’s of ounces) 2002 3,785 3,812 0.149 538 269 2,118 a new working area for production. FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) $ 216 $ 189 8 224 40 264 6 $ $ 7 196 36 232 6 $ $ 2001 % Change 3,893 3,849 0.167 632 307 2,517 -3 -1 -11 -15 -12 -16 14 14 14 11 14 – Hemlo, of which we own a 50 percent Hemlo’s proven and probable reserves interest, is a joint venture comprised at year end 2002 stood at 2.1 million of the David Bell and Williams under- ounces compared to 2.5 million ounces ground mines and the Williams open one year earlier. In addition to not pit. In 2002, production declined (by replacing 2002 production, mining 12%) while cash costs increased (by recovery rates used for reserve 14%) to $224 per ounce. The lower pro- estimation purposes were adjusted duction and higher costs were primarily in those areas affected by the ground due to ground control problems that control problems, resulting in an addi- began early in 2002 and resulted in tional 115,000 ounces being removed restricted access to some high-grade from reserves. areas and increased dilution levels. A revised mine sequence, new backfill For 2003, production for our account methods and improved planning should is expected to be 253,000 ounces, provide the foundation for more secure resulting in marginally higher cash and predictable results from the under- costs of $231 per ounce. The lower ground operation in the future. production and higher cash costs are primarily due to lower grades, only partially offset by an increase in mill throughput. Longer term production and costs are expected to be similar to 2003. 26 B A R R I C K A N N U A L R E P O R T 2 0 0 2 HOLT-MCDERMOTT MINE (ONTARIO) For the year ended December 31, OPERATIONAL STATISTICS Mine Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 520 520 0.17 84 154 489 497 0.18 84 293 $ 173 $ 163 – 173 96 269 7 $ $ 2 165 93 258 7 $ $ 6 5 -4 – -47 6 -100 5 3 4 – While Holt-McDermott’s 2002 production For 2003, production is expected was the same as the prior year, cash to rise 16% to 97,000 ounces as costs were higher (up 5%). Higher cash costs rise to $218 per ounce. costs were a result of an increase in Production will be up as a result of tons mined and processed combined accessing higher-grade ore, while with a 4% decline in grade. costs will rise primarily due to the expensing of mining costs relating Proven and probable reserves at year to ongoing development. end 2002 stood at 154,000 ounces. Based on mining experience, anticipated reserve grades were adjusted down, resulting in a loss of 51,000 ounces net of 2002 production. Overview of the head frame and processing facilities at our Holt-McDermott mine. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S B A R R I C K A N N U A L R E P O R T 2 0 0 2 27 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S SOUTH AMERICA SOUTH AMERICAN PROPERTIES > Home of Barrick’s second-largest cash flow generator, the Pierina mine. > Pierina, Peru > Alto Chicama, Peru > Pascua-Lama, Chile and Argentina > Three development projects that make up the majority of our current pipeline: > Our recently discovered Alto Chicama Property in Peru. > Our largest development project, the Pascua-Lama and Veladero district, > Veladero, Argentina straddling the Chilean and Argentinean border. > Large grass roots exploration programs in Peru and Argentina. PIERINA MINE (PERU) For the year ended December 31, OPERATIONAL STATISTICS Mine Tons Mined (000’s) Leach – Tons to pad (000’s) Grade Processed (ounces per ton) A haul truck arrives at Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) the ore bin for loading at our Pierina mine. FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 32,311 13,414 0.080 898 3,602 $ $ $ 80 – 80 191 271 5 30,742 10,968 0.097 911 4,748 $ $ $ 40 – 40 195 235 12 5 22 -18 -1 -24 100 – 100 -2 15 -58 Pierina production declined marginally able to increase mining and processing (down 1%) compared to the prior year, rates and lower unit costs to offset at cash costs of $80 per ounce com- declining grades. pared to $40 per ounce in 2001. Cash costs included an unbudgeted increase At year end 2002, proven and probable of $6 per ounce related to higher oper- reserves declined to 3.6 million ounces ating costs caused by a tax assessment of gold, as the mine did not replace received late in the year. Cash costs 2002 production. The 2002 exploration doubled over the prior year, largely as program identified a resource south and a result of deferred mining costs being southeast of the pit, targets located charged as mining activity moves to near surface at the north end of the pit, lower-grade areas of the pit. Similar as well as one adjacent to the final wall to the Goldstrike Property, Pierina’s of the south end of the pit, all of which higher-grade material was mined and are scheduled for follow-up in 2003. Any processed early in the mine’s life to positive exploration results would likely maximize cash flows and investment only extend the mine life marginally returns. To date, the mine has been past its remaining mine life of five years. 28 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S In 2003, production and total cash by a 22% increase in tons mined. costs are expected to rise marginally Beginning in 2004, the mine is expected to 908,000 ounces at $86 per ounce. to move to lower grades in the open Grades mined are expected to decline pit, resulting in lower production and by 5%, but should be more than offset marginally higher cash costs. ALTO CHICAMA PROJECT (PERU) In April 2002, we announced a signifi- The preliminary feasibility study cant discovery at our Alto Chicama estimates Alto Chicama will produce Property. The initial inferred resource 500,000 ounces per year beginning in Geologists log core samples from at the time of the announcement was 2005, at an average cash cost over the exploration drills at our Alto Chicama property. estimated at 3.5 million ounces of gold. first decade of $130 per ounce. Capital As a result of drilling during the course costs are projected at $300 to $350 of the year, 6.5 million ounces were million. As 2002 ended, work focused brought into probable reserves for Canadian reporting purposes1. In addi- on infill drilling, mine planning and con- demnation drilling. Metallurgical tests tion, we have 2 million ounces in the indicate the oxide ore is amenable to measured and indicated resource heap leaching with recoveries in the category and 1 million ounces of range of 80%. inferred resource for a total reserve and resource of 9.5 million ounces For 2003, the focus at Alto Chicama of gold (as of January 31, 2003). will be to complete the Environmental Impact Statement and a final feasibility We began exploring the Alto Chicama study. Subject to Board approval and area in the first quarter of 2001, when final permitting, construction is expect- we acquired the option to explore the ed to start in late 2003 or early 2004. Property from the Peruvian state mining The timing of construction and produc- company (Centromin). In November tion is most dependent on when we 2002, we exercised our rights under receive our permits. Based on the the option agreement to acquire the work to date, the construction, geologic, Property by completing a technical eval- mining and processing risks appear uation and paying a $2 million advance low, as the project is very similar in royalty. We now have a 100% interest many respects to our Pierina mine. in the Property subject to a 2.51% net smelter return royalty to Centromin. PASCUA-LAMA AND VELADERO PROJECTS (CHILE/ARGENTINA) Veladero construction cost of $425 million. The Veladero feasibility study was Veladero is expected to commence completed during third quarter 2002. production in early 2006, producing It defines an operation mining ore from 530,000 ounces of gold at a cash cost two open pits (Filo Federico and Amable), of $155 per ounce over the first decade a two-stage crushing circuit and a valley of the mine’s operation. The Property’s fill heap leach, very similar to our Pierina Environmental Impact Statement was mine in Peru, at an estimated initial submitted in January 2003. 1. For United States reporting purposes, Industry Guide 7 (under the Securities Exchange Act of 1934) as interpreted by the Staff of the U.S. Securities and Exchange Commission applies different standards in order to classify mineralization as a reserve. Accordingly, Alto Chicama is classified as mineralized material for U.S. reporting purposes. B A R R I C K A N N U A L R E P O R T 2 0 0 2 29 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Definition drilling during the year The mine is planned as an open pit, cen- expanded the reserves (for Canadian tered at an elevation of 4,600 meters. reporting purposes) for the two pits to 9.4 million ounces1, compared The majority of the gold is expected to come from oxide ores in the first several to 8.4 million in 2001. Between these years of operation. As deeper sulfide two pits is a third mineralized zone, ores are encountered, a flotation circuit Cuatro Esquinas, which provides is expected to be added to maintain future exploration potential. recovery rates. On the processing front, Construction of the Veladero’s 2003 field program will ing, but based on the extensive work Pascua-Lama’s metallurgy is challeng- access road at focus on the construction of the access we have done to date, we believe we can Veladero, one of the Company’s four new development projects. road and camp infrastructure. Full successfully process the various ores construction is expected to commence Pascua-Lama presents. While the prop- September 2003, subject to receiving erty is located very high in the Andes, all permits and arranging any project the altitude is not dissimilar to our financing. However, this schedule is former El Indio/Tambo operations in dependent on our ability to gain com- Chile or several large copper mines. fort with the political and economic uncertainty in Argentina. Based on the Proven and probable reserves at year work to date, the geologic, mining and end 2002 were unchanged at 16.9 mil- processing risks appear manageable, lion ounces of gold and 594 million as the project is very similar to our ounces of silver, as the project did not Pierina mine. Pascua-Lama have any further reserve development activity during the year. In late 2000, a decision was made The optimized feasibility study is to postpone construction start-up at expected to be completed in 2004, Pascua-Lama, based on the then low with construction start-up potentially gold and silver price environment. occurring in late 2005. Production is Now, with the inclusion of nearby targeted at 800,000 ounces of gold Veladero in the portfolio (as a result of annually at cash costs of $85 per our Homestake merger) and the higher ounce for the first decade. The gold price environment, Pascua-Lama initial construction cost is currently is expected to commence production estimated at $1,175 million. in 2008, subject to final permitting, completing optimization of the feasibility study and arranging any project financing. Over the past year, work on Pascua-Lama has been directed at further optimization of the development plan to reduce the capital and operating cost structure. With the completion of the Veladero feasibility study, we are now in a position to evaluate synergies in terms of infrastructure, administrative support and construction activities. 1. For United States reporting purposes, Industry Guide 7 (under the Securities Exchange Act of 1934) as interpreted by the Staff of the U.S. Securities and Exchange Commission applies different standards in order to classify mineralization as a reserve. Accordingly, Veladero is classified as mineralized material for U.S. reporting purposes. 30 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S AFRICA > Tanzania (East Africa) represents Barrick’s African expansion. > Bulyanhulu completed its first full year of production in 2002. > A significant land position in the Lake Victoria goldfields of northern Tanzania with a large and active exploration program. > Geology in the Lake Victoria area is similar to the gold belts in Northern Ontario and Quebec and Western Australia, two of the most successful gold producing regions of the world. AFRICAN PROPERTIES > Bulyanhulu > Tulawaka > Kabanga BULYANHULU MINE (TANZANIA) For the year ended December 31, OPERATIONAL STATISTICS Mine Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 944 1,075 0.39 356 11,653 $ 190 8 198 102 300 56 $ $ 455 778 0.38 242 12,009 $ $ $ 186 11 197 98 295 153 107 38 2 47 -3 2 -27 1 4 2 -63 In its first full year of operation, Grades were lower as a result of delays Bulyanhulu produced 356,319 ounces of in accessing higher-grade stopes and gold at a cash cost of $198 per ounce. higher than planned dilution. Second, Production was marginally lower than higher concentrate transportation and plan (by 2%), while cash costs exceed- treatment costs and royalties also ed our 2002 estimates by $25 per pushed costs up. While full-year costs ounce. The slightly lower production were above plan, the trend within the and higher costs were due to two main year shows improvement, as cash costs factors. First, we mined and processed in fourth quarter 2002 decreased to more tons at lower than planned grade $185 per ounce as grades increased. to produce total ounces similar to plan. B A R R I C K A N N U A L R E P O R T 2 0 0 2 31 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S While Bulyanhulu has experienced For 2003, production is expected to teething pains ramping up to full pro- increase to 415,000 ounces (up 16%) duction, we see positive signs moving as total cash costs decline to $175 per forward. Mining and processing rates ounce, reflecting a full year of expected are now exceeding feasibility study better grades and recovery rates. levels and grades mined continue to The mining and processing rates improve as the mining team gains expe- are expected to rise with both the rience. The $194 million outstanding September 2002 completion of the under the project loan has become mine-shaft, allowing ore and waste to non-recourse to Barrick as the mine be transported faster than the current met the physical and technical require- ramp system and the installation of a ments of completion during the first second tailings pipeline. At Bulyanhulu, mining rates are improving as our largely Tanzanian quarter of 2003. work force gains experience mining the TANZANIAN EXPLORATION UPDATE underground deposit. 2003 will mark the beginning of our Impact Statement is progressing on fourth year of exploration in Tanzania, schedule, and a development decision one of the more prospective areas is expected in the first half of 2003 in the world. The strategy of land acqui- for the operation. Exploration drilling sition and cost-effective grass roots is scheduled for second quarter 2003 exploration that succeeded in evaluating on the West Zone as well as on other a large ground position and generating targets outlined in 2002. drill targets, is now nearly complete. Our focus in 2003 will be on fewer prop- The Kabanga nickel property was erties with higher exploration potential. part of a 1999 acquisition, which also gave us Bulyanhulu. We have been During 2002, engineering studies were evaluating the potential of the project carried out at Tulawaka. A feasibility over the course of 2002, expanding study for a small open pit, milling the resource and completing a scoping operation is nearing completion. study to ascertain the value of the asset. Preparation of an Environmental 32 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S AUSTRALIA > Second-largest-producing region for the Company. > Two key assets: > Yilgarn District, comprised of three mines (Plutonic, Darlot and Lawlers) > Kalgoorlie Super Pit, Australia’s largest gold mine – 50 percent interest > A portfolio of exploration properties, plus the Cowal development project with 2.8 million ounces of proven and probable reserves. AUSTRALIAN PROPERTIES > Yilgarn District Plutonic Darlot Lawlers > Kalgoorlie > Cowal Plutonic geologists increased reserves net of production by 945,000 ounces – a 60% increase. PLUTONIC MINE (WESTERN AUSTRALIA) For the year ended December 31, OPERATIONAL STATISTICS Open Pit Tons Mined (000’s) U/G Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 13,233 11,328 1,056 3,532 0.097 307 2,533 806 3,496 0.091 288 1,588 $ 175 $ 159 9 184 38 222 20 $ $ 7 166 45 211 11 $ $ 17 31 1 7 7 60 10 29 11 -16 5 82 Plutonic, the largest of the three Proven and probable reserves increased Yilgarn District mines, consists of both net of production by 945,000 ounces open pit and underground operations. (adding three years of production to 2002 production increased (by 7%) the mine life) to 2.5 million ounces. over 2001, while total cash costs This made 2002 the fourth consecutive increased (by 11%) to $184 per ounce. year the mine more than replaced pro- Production was lower and costs higher duction – and, more importantly, at due to delays in meeting the timetable better grade than the existing reserves. for mining the new higher-grade under- We view the exploration potential of ground Timor zone. To substitute for this mine favorably and will continue the lower underground production, with a significant exploration program the mine accelerated production in the area in 2003. of higher-cost open pit ore and low-grade stockpiles. B A R R I C K A N N U A L R E P O R T 2 0 0 2 33 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S For 2003, production is expected to higher cost are primarily due to lower decline to 295,000 ounces due to lower throughput, resulting from lower throughput and recovery rates, resulting open pit mining rates and depletion in marginally higher cash costs of $194 of low-grade stockpiles. per ounce. The lower production and DARLOT MINE (WESTERN AUSTRALIA) At Darlot, higher grades and processing rates through the mill increased production For the year ended December 31, OPERATIONAL STATISTICS Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) and lowered costs. Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) 2002 840 849 0.176 145 1,269 2001 % Change 794 806 0.161 125 1,341 6 5 9 16 -5 -4 27 -3 3 -2 -36 FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) $ 160 $ 167 8 168 47 215 7 $ $ 6 173 46 219 11 $ $ DARLOT LAWLERS 2002 production at Darlot increased Production at Lawlers increased (by (by 16%) over 2001, while total cash 9%) over 2001, at a cash cost of $179 costs declined (by 3%) to $168 per per ounce, 6% lower than the prior ounce, primarily due to higher through- year mainly due to an increase in put and higher grades. The mine replaced grades processed (15%). The mine half of its production in 2002, finishing replaced production in 2002, finishing the year with approximately 1.3 million the year with about 500,000 ounces ounces of proven and probable reserves. of proven and probable reserves. Based Based on its current reserve base, on its current reserve base, Lawlers the mine has a remaining mine life of has about five years remaining about 10 years. in its mine life. An extensive 2003 exploration program will test deeper For 2003, Darlot expects to have a extensions to the ore body. similar year in terms of both production at 143,000 ounces and cash costs of Lawlers expects production similar to $176 per ounce. 2002 at 111,000 ounces, but at higher costs of $213 per ounce, due to lower grades, recovery rates and higher-cost open pit production. 34 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S LAWLERS MINE (WESTERN AUSTRALIA) 2001 % Change For the year ended December 31, OPERATIONAL STATISTICS Open Pit Tons Mined (000’s) U/G Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 4,030 716 718 0.162 113 509 – 628 775 0.141 104 505 $ 171 $ 184 8 179 42 221 7 $ $ 7 191 52 243 5 $ $ Lawlers’ exploration team had a successful year, replacing reserves net of 2002 production. 100 14 -7 15 9 1 -7 14 -6 -19 -9 40 KALGOORLIE MINE (WESTERN AUSTRALIA) For the year ended December 31, OPERATIONAL STATISTICS Open Pit Tons Mined (000’s) U/G Tons Mined (000’s) Tons Processed (000’s) (100%) Grade Processed (ounces per ton) Gold Production (100%) (000’s of ounces) Gold Production (Barrick’s share) (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2002 2001 % Change 91,843 805 14,101 0.061 720 360 5,551 91,248 1,353 13,192 0.066 769 385 5,724 $ 215 $ 196 7 222 57 279 14 $ $ 7 203 49 252 19 $ $ 1 -40 7 -8 -6 -6 -3 10 – 9 16 11 -26 B A R R I C K A N N U A L R E P O R T 2 0 0 2 35 At Kalgoorlie, a joint venture committee is exploring ways to improve production and reduce costs. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 2002 production at the Kalgoorlie joint centrate on testing deep structurally venture (50%) was 6% lower than in the controlled targets under the Super Pit prior year, while total cash costs were and to the east of Mt. Charlotte. While 9% higher, due primarily to lower grades Kalgoorlie remains one of the longest- (down 8%) and recovery rates (off 2%). life assets, the asset is maturing, and The Mt. Charlotte underground deposit future reserve additions are less likely was originally scheduled for closure at to be identified. the end of 2001, but remained open, contributing 63,200 ounces (Barrick’s For 2003, our share of production is share) to total production in 2002. Mt. expected to be lower at 344,000 ounces Charlotte is not budgeted for production (down 4%) and cash costs higher at in 2003, but is still mining residual ore $237 per ounce (up 7%), with lower that may prolong its life by a few months. throughput after the winding down of the higher-grade underground operation Barrick’s share of proven and probable in 2002, partially offset by an increase reserves at year end declined to 5.6 mil- in open pit tons mined. A technical lion ounces compared to 5.7 million in committee made up of the two joint the prior year. Extensive inpit drilling venture partners was formed last year during the year and remodeling of to explore ways to improve the produc- proven and probable reserves resulted in tion and cost profiles at Kalgoorlie. The a reduction of the mineral resource base. committee’s recommendations are The 2003 exploration program will con- expected by mid-year. COWAL PROJECT (NEW SOUTH WALES) The Cowal project, acquired in early the grade declined (by 25%) due to 2001, came to us with a completed additional drilling and more conservative Environmental Impact Statement and reserve modeling. However, cash costs feasibility study. In the latter part of are expected to be similar because 2001, we began a technical program, of the optimization work completed including drilling and engineering stud- during the year. ies, to optimize the feasibility study, which we anticipate will be completed Construction is expected to commence in 2003. in 2003, with production expected mid- 2005, subject to final permitting and Cowal’s mine plan and process facilities an optimized feasibility study. In 2003, have been designed to produce approx- we will continue metallurgical test work imately 270,000 ounces of gold per year aimed at further optimizing the scope at an average cash cost of $170 per and economics of the project. The ounce. The main deposit contains proven timing of construction and production and probable reserves of 2.8 million is most dependent on the timing of ounces. While the total contained ounces receiving our final permits. remained the same as the year earlier, 36 B A R R I C K A N N U A L R E P O R T 2 0 0 2 Our Australian asset base represents hedge contracts for most of our solid long-term production. The princi- Australian dollar costs through 2005. pal risk to that production is the impact For additional detail regarding foreign of a stronger Australian dollar that currency contracts, see note 23 (D) “Other would push cash costs up. To mitigate deriviative instruments outstanding” to that risk, we have entered into currency our consolidated financial statements. OTHER PROPERTIES Other Properties include five mines of $189 per ounce, compared to 721,771 (El Indio, Bousquet, McLaughlin, Ruby Hill ounces at total cash costs of $198 per and Agua de la Falda) that were closed ounce in the prior year. during the year due to the depletion of reserves, as well as the Marigold mine For 2003, Marigold is expected to pro- At Cowal, one of Barrick’s four new development projects, work is underway in Nevada, in which we have a 33% duce 45,000 ounces at a cash cost of interest and which remains in operation. $170 per ounce. The decline in overall In 2002, our Other Properties produced production for the Company in 2003, to optimize the feasibility study. 374,774 ounces of gold, 7% of our pro- relates to the closure of the five mines duction, at an average total cash cost over the course of 2002. For the year ended December 31, OPERATIONAL STATISTICS Gold Production (000’s of ounces) Mineral Reserves (000’s of ounces) FINANCIAL STATISTICS Production cost per ounce Cash operating costs Royalties and production taxes Total cash costs Amortization and reclamation Total production costs Capital Expenditures (millions) 2001 % Change 2002 375 678 722 1,100 $ 180 $ 195 9 189 50 239 15 $ $ 3 198 84 282 2 $ $ -48 -38 -8 200 -5 -40 -15 650 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S B A R R I C K A N N U A L R E P O R T 2 0 0 2 37 Mineral Reserves – Gold (millions of ounces) 78.078.0 79.379.3 86.986.9 82.382.3 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S COSTS AND EXPENSES EXPLORATION AND BUSINESS DEVELOPMENT Our exploration strategy is to maintain focuses on four major areas where a geographic mix of projects at different we possess significant infrastructure: stages in the exploration process. Peru, Tanzania, Australia and Our early stage exploration effort Chile/Argentina. > Exploration and Business Development Expense North America Australia South America Veladero Alto Chicama district Other Africa Other/Business Development 2003E 17 11 10 31 9 8 24 110 $ $ 2002 13 8 20 29 8 9 17 104 $ $ 2001 17 8 44 - 7 9 18 103 $ $ In 2002, our most significant Following our exploration success expenditures were incurred at our at Alto Chicama in 2002, we increased Veladero and Alto Chicama projects. our initial exploration budget from At the beginning of 2002, our plan $5 million, with actual expenditures assumed that Veladero would achieve for the year reaching $29 million. For reserve status during the year. During 2003, we expect to spend $31 million 2002, we concluded that greater to advance the project, which will certainty was required in connection be expensed as the resource does with certain matters to warrant not yet qualify as a reserve for U.S. presentation as a reserve under SEC reporting purposes. rules. As a result, we expensed costs incurred throughout 2002. We expect Veladero to achieve reserve status under SEC rules during 2003. Until the AMORTIZATION Amortization totaled $519 million project achieves this status, we will ($85 per ounce) in 2002, compared to expense costs incurred, totaling about $501 million or $76 per ounce in 2001. $10 million. The overall increase in amortization expense was caused by a rise in amortization charges per ounce at some mines, offset by an 8% decrease in the number of ounces sold. 38 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S The overall increase in amortization capital additions. Beyond 2003, we per ounce in 2002 reflects two main expect amortization to be in the $80 factors: a change in the mix of gold to $90 per ounce range, depending on sales at our mines, with a greater the extent of exploration success at our proportion of sales coming from mines operating mines. Our new development with higher amortization rates, and projects are expected to have amor- higher amortization of $17 million at tization rates of between $50 and Meikle. The completion of construction $75 per ounce, which could bring our of Rodeo in 2001 and the reduction overall per ounce amortization charge of proven and probable reserves at down over time. the beginning of 2002 raised Meikle’s amortization expense per ounce from We are presently reviewing recent $72 to $119 in 2002. regulatory and accounting developments in the preferred practice for amortizing For 2003, amortization is expected underground development costs. Once to increase to $533 million, or $95 per we finalize our review, we may modify ounce. A large part of this increase is our amortization policy, which will result due to the low amortization rates at in changes to amortization charges mines that closed in 2002, with the for 2003 and beyond. At this point, we remainder being mainly a function of have yet to estimate the impact of any the changing mix of production and potential changes. Amortization by Property (US$ thousands) 200 150 100 50 ADMINISTRATION In 2002, administration costs In 2002, we recorded a pension benefit expense of $2 million (2001 – $6 million decreased by $22 million to $64 million. credit, excluding benefit enhancement We achieved administrative savings charges of $39 million related to of about $27 million, reflecting the the Homestake merger). We do not synergies of integrating Barrick and expect that our future earnings will Homestake, but this was partially offset be significantly affected by our existing by a $3 million compensation expense defined benefit pension plans due to for our restricted share unit plan, and the relatively small size of the plans. a $3 million increase in World Gold Also, most members in these plans are Council fees. World Gold Council fees no longer actively employed by us, and totaled $13 million in 2002. For 2003, have therefore ceased earning benefits administration costs are expected under the plans. to be about $70 million. B A R R I C K A N N U A L R E P O R T 2 0 0 2 39 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Interest Charges (US$ millions) 70 67 59 Through 2002, a significant portion interest expense is expected to decline of our defined benefit pension plan to about $49 million after capitalizing assets were invested in fixed income about $10 million at Cowal and Veladero. securities, with the remainder invested in equity securities. Because of this mix of investments, the return on plan assets and funding status of our plans MERGER AND RELATED COSTS The cost of completing the 2001 merger was not as adversely affected by the with Homestake of $117 million was general decline in equity markets recorded in 2001 earnings. In 2002, cash compared to plans operated by some payments of merger and related costs other companies. At the end of 2002, totaled $50 million. Other amounts we had an unfunded liability of $27 mil- totaling $10 million were settled through lion. As a result, based on current pension plan enhancements. We also markets, we may be required to make recorded a small adjustment to the a contribution to more fully fund the accrual of $2 million in 2002 earnings plans in the future. that reflects the difference between actual and estimated costs. INTEREST EXPENSE We incurred $59 million in interest costs and financing charges in 2002, LITIGATION COSTS On January 15, 2002 the Supreme related mainly to our debentures and Court of British Columbia ruled in favor our Bulyanhulu project financing. of Inmet Mining Corporation and Overall, our effective interest rate against Homestake Canada Inc. (“HCI”) declined slightly in 2002 to 7.2%, from in connection with litigation relating 7.3% in 2001. In 2002, we expensed to the proposed sale of the Troilus gold interest of $57 million and capitalized mine to HCI in 1997. The judgement, $2 million to mine development activities which we have appealed, was for at Cowal. In 2001, we expensed $25 $59 million, and we recorded a provision million and capitalized $42 million to for this amount in 2001. We expect development and construction activities a judgement to be rendered on our at Pascua-Lama, Bulyanhulu and Rodeo. appeal in 2004. We use interest rate swaps to manage the effective rates of interest we pay on our long-term debt. On $250 million of INTEREST AND OTHER INCOME Interest and other income decreased our $500 million debentures, we have slightly to $29 million in 2002 from converted the fixed 7.5% interest rate $32 million in 2001. The decrease to a floating rate through 2007, taking primarily reflects $8 million lower advantage of low market interest rates. interest income on cash balances, Through this strategy, we managed to mainly due to declining interest rates, reduce the effective rate on this portion partially offset by foreign currency of the debentures to 5.7% in 2002. On translation losses which totaled our Bulyanhulu financing, we have taken $10 million in 2001. advantage of the present low interest rates to fix the interest rate for the term In 2002, we earned an effective of the debt at a rate of about 7%. interest rate on our cash of 3.4% For 2003, we expect to incur a similar compared to 5.3% in 2001. The amount of interest as in 2002, but decrease in the effective rate in 2002 40 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S reflects a general decline in market For 2003, we expect interest and other interest rates from 3.8% to 1.8% over income to decrease further to about the last two years. Through interest $23 million, reflecting a full year’s rate swaps we earned a fixed rate of effect of lower market interest rates. 4.1% for 2002 on $500 million of our Through the use of interest rate swaps cash balances, with the additional cash we have locked in a fixed rate of 3.8% earning interest at lower market on $650 million of our cash balances, interest rates. with the excess cash earning interest at market interest rates. > Non-Hedge Derivative Gains (Losses) (millions) Commodity contracts Currency contracts Interest and lease rate contracts 2002 (2) 8 (12) (6) $ $ 2001 57 (15) (9) 33 $ $ Non-hedge derivative gains and losses treatment. The contracts act as an arise on derivative instruments used economic hedge, but do not meet in our risk management strategy that the strict FAS 133 criteria for hedge do not qualify for hedge accounting accounting treatment, due to a treatment. These gains and losses mismatch in the timing of contract do not include any gains or losses maturities and the forecasted on our gold sales contracts. The gains expenditures. These contracts are being and losses occur because of changes marked-to-market through earnings. in commodity prices, currency exchange rates and interest rates. Interest and Lease Rate Contracts Commodity Contracts Losses on interest and lease rate swaps in 2002 were $12 million (2001 – $9 mil- In 2001, gains of $57 million on written lion loss). The losses were primarily call options outstanding at that time related to our total return swaps and were mainly due to changes in spot were largely the result of the widening gold prices. In 2002, we did not have of credit spreads over yields on govern- a significant call option position ment securities. During 2002, we closed outstanding and incurred net losses out substantially all of the total return of $2 million. Currency Contracts swaps, so our future results will not be significantly affected by these contracts. At the end of 2002, we held pay-fixed Gains on currency contracts in 2002 US dollar interest rate swaps with were mainly caused by the impact notional amounts of $150 million (2001 of a strengthening Australian dollar – $275 million) and receive-fixed gold on non-hedge contracts. Losses in lease rate swaps with notional amounts 2001 were due to changes in both the of 6.4 million ounces or about $2 billion Canadian and Australian dollar. At the (2001 – 6.2 million ounces). Both are end of 2002, we held foreign currency being marked-to-market through contracts with notional amounts of earnings. These gold lease rate swaps A$83 million and C$26 million, which represent all of our current gold lease do not qualify for hedge accounting rate exposure. B A R R I C K A N N U A L R E P O R T 2 0 0 2 41 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S INCOME TAXES In 2002, we recorded a tax credit of $16 million compared to a credit of STATEMENT OF COMPREHENSIVE INCOME Comprehensive income consists of net $14 million in 2001. In fourth quarter income or loss, together with certain 2002, we recorded a tax credit of $22 other economic gains and losses that million, mainly reflecting the resolution are collectively described as “other of certain tax uncertainties. Excluding comprehensive income” and are the credit recorded in fourth quarter excluded from the income statement. 2002, our relatively low effective tax rate is mainly because a significant In 2002, other comprehensive income portion of our earnings are generated included: losses of $21 million arising on in a low tax-rate jurisdiction. We have translation of the financial statements of also begun to realize the benefit of tax our Argentinean subsidiaries due to the synergies from the Homestake merger devaluation of the Argentinean Peso; through the integration of our North unrealized gains of $28 million arising American operations. on interest rate swaps and foreign currency contracts that are accounted Should gold prices remain in the for as cash flow hedges; and the transfer $350 per ounce range, we expect our of $21 million of gains on these cash underlying effective tax rate to rise flow hedges to earnings in the year. to about 15 to 20%, because a larger portion of our earnings would come In 2001, other comprehensive income from tax jurisdictions with higher tax included losses of $26 million arising on rates. At spot gold prices in excess translation of the financial statements of $400, we estimate that our effective of our Australian subsidiaries due to the tax rate would be about 30%. devaluation of the Australian dollar; and the transfer of losses of $25 million on Our income tax expense is also affected cash flow hedges to earnings in 2001. by changes in the level of valuation After the merger with Homestake in allowances recorded against deferred 2001, changes in circumstances tax assets. Valuation allowances are indicated that the functional currency recorded where there is substantial of our Australian subsidiaries is the uncertainty over the realization of a tax United States dollar, which means that, asset. Among other things, a sustained for 2002 and beyond, the financial upward trend in gold prices may result statements of our Australian in a decrease in valuation allowances subsidiaries are translated at historic with corresponding tax credits exchange rates rather than current recorded in earnings. market rates. Therefore, translation of these subsidiaries’ financial statements no longer results in the recognition of unrealized gains and losses in other comprehensive income. 42 B A R R I C K A N N U A L R E P O R T 2 0 0 2 1,074 882 779 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S LIQUIDITY & CAPITAL RESOURCES LIQUIDITY Liquidity can be described as the our cash generating ability, including cash generated by operating activities ability of an enterprise to generate and expected capital expenditure adequate amounts of cash to meet requirements; the quantity of our gold its needs. In recent history, the main reserves; and our relatively low geo- sources of liquidity for us have been political risk profile due to the location our net cash inflow from operating of our mines. activities, our large cash position, and our various debt-financing facilities. Like most financial contracts, our Currently, our debt facilities include revolving credit facility and our gold our publicly traded debentures, our sales contracts require us to comply Bulyanhulu project financing, and with certain financial covenants. our $1 billion revolving credit facility These covenants include: with a syndicate of global banks. (a) Maintaining a minimum consolidated tangible net worth of over $2.0 billion In the last three years we have generated (our consolidated net worth as at substantial levels of operating cash flow, December 31, 2002 was over $3.3 and we believe this to be one of our billion); and fundamental financial strengths. We (b) Maintaining a maximum long-term expect capital needs of about $2 billion debt to consolidated net worth ratio over the next five years to build our below 1.5:1 (the ratio as at December 31, four development projects, as well as 2002 was under 0.25:1). The calculation between $100 and $200 million per year of net worth excludes the unrealized for sustaining capital at our existing mark-to-market gain or loss on our operations. Our alternatives for sourcing derivative instruments and gold this capital include our $1 billion cash sales contracts. position, our future operating cash flows and project financings. We In the unlikely event that we breach are evaluating these alternatives to these covenants, we would be in default determine the optimal mix of capital of our gold sales contracts, which could resources for the projects. We expect result in the counterparties requiring that present levels of liquidity in these settlement of these contracts; and sources of financing will be adequate also the syndicate of banks in our credit to meet our expected capital needs. facility could require repayment of amounts outstanding at that time. While a deterioration in our credit rating would not adversely affect our existing In this discussion of financial debt obligations or gold sales contracts, resources and liquidity, we address it could impact the cost of borrowing our Consolidated Statements of for any new financings. There are a Cash Flows, our Consolidated Balance number of factors that are important Sheets and our Consolidated to our “A” credit rating, including: our Statements of Shareholders’ Equity. market capitalization; the strength of our balance sheet, including the amount of net debt and our debt-to-equity ratio; B A R R I C K A N N U A L R E P O R T 2 0 0 2 43 Capital Expenditures by Continent (US$ millions) 474 386 228 South America Australia Africa North America M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S STATEMENTS OF CASH FLOWS Our consolidated cash and equivalents INVESTING ACTIVITIES Our most significant ongoing investing totaled $1,044 million at the end activities are for capital expenditures of 2002, up from $574 million at the at our mines. Annually, we invest in end of 2001. The main reasons for the sustaining capital at our mines, including increase in 2002 were the maturity expenditures relating to underground of term deposits totaling $159 million, development activities. We also incur and free cash flow generated in the year of $361 million1 (2001 – $114 mil- significant capital expenditures in the development and construction phases lion; 2000 – $230 million). The increase of new mines, although the yearly level in free cash flow is mainly due to lower varies depending on the status of our capital expenditures in 2002 compared development projects. with prior years. Our free cash flow will be reduced by capital expenditures Capital expenditures decreased by relating to our development plan over $246 million in 2002 to $228 million. the next few years. In 2002, expenditures were mainly for OPERATING ACTIVITIES Our operating cash flow is significantly sustaining capital and underground development. Higher expenditures in the previous two years were mainly due to: underground development at affected by the volume of gold sales, Meikle and Rodeo (2001 – $90 million; as well as realized gold prices and cash 2000 – $80 million); construction operating costs. In 2002, our average of the Bulyanhulu Mine (2001 – $153 realized gold price per ounce sold million; 2000 – $203 million); and increased by $22, although this was higher levels of development activity offset by a $15 per ounce increase at Pascua-Lama (2001 – $69 million; in total cash operating costs. Overall, 2000 – $107 million). our operating cash flow remained similar to 2001, due to the combined For 2003, we expect to spend a total effect of a variety of factors, including: of $386 million, including $218 million increased cash margins in 2002 (defined for sustaining capital, which is similar as gold sales less cash operating costs), to 2002, and $168 million on our which generated extra operating cash development plan ($123 million at flow of about $40 million, combined Veladero, $34 million at Cowal, with a $34 million inflow due to $11 million at Alto Chicama). reduced inventory levels offset by lower sales volumes that reduced operating We sometimes invest excess cash cash flow by about $25 million; and in term deposits with initial maturities an increase in cash payments for greater than 90 days, which are reclamation and closure costs by excluded from cash and equivalents $35 million, mainly at inactive mines. and included in short-term invest- ments. At the end of 2001, we held For 2003, we expect our operating cash cash of $159 million in the form of flow to remain at similar levels to 2002, term deposits that were included assuming an average realized gold price under short-term investments. As of $350, as higher gold prices are offset the term deposits matured in 2002, by higher cash operating costs and the cash received was reflected as lower gold sales volumes. an inflow under investing activities and is included in cash and equivalents. 1. Defined as operating cash flow less capital expenditures – see Reconciliation of Free Cash Flow page 61. 44 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S FINANCING ACTIVITIES Our most significant ongoing financing activities are repayments/drawdowns of debt obligations, dividend payments, and proceeds from issuing capital stock. The most significant financing cash flows in 2002 were $83 million received on the exercise of employee stock options and dividend payments totaling $119 million, which were $26 million higher than in 2001. We also made scheduled payments under our long-term debt obligations totaling $25 million in 2002. For 2003, we will be required to make scheduled long-term debt repayments of $20 million. The amount of any dividends will be determined by the Board of Directors. CONSOLIDATED BALANCE SHEET Working Capital Our non-cash working capital position was largely unchanged from 2001. Inventories declined by $34 million as gold sales exceeded production in 2002, which was offset by an increase in derivative assets included in current assets reflecting higher unrealized gains on cash flow hedge contracts, and an increase in accounts receivable by $12 million. Capitalized Mining Costs Amounts decreased in 2002 primarily due to mining in areas of the Betze-Post pit where the actual ounces to total ore and waste ratio was lower than the life- of-mine ratio. As a result, amortization exceeded incurred cash expenditures. Other Assets The increase resulted from the inclusion of deferred tax assets totaling $45 million in 2002, and an increase in derivative assets reflecting higher unrealized gains on cash flow hedge contracts. STATEMENT OF SHAREHOLDERS’ EQUITY Shareholders’ equity increased by $142 million in 2002. The increase is mainly attributable to net income of $193 million and an increase in capital stock by $86 million (from the exercise of employee stock options), offset by dividends totaling $119 million. FINANCIAL RISK MANAGEMENT In the normal course of business, secure trading lines and terms that we the main financial risks that affect believe are the most favorable offered us arise from changes in commodity to companies in our industry. prices, interest rates, foreign currency exchange rates and energy prices. These contracts are valued using pricing We use privately negotiated contracts inputs that are readily available from (rather than exchange-traded contracts) independent sources. Changes in the with a group of 19 leading international value of the contracts are mainly counterparties to manage our risk affected by, among other things, exposures. Because of the long-life, low- changes in commodity prices, interest cost nature of our mines, as well as our rates, gold lease rates and currency financial strength, we have been able to exchange rates. B A R R I C K A N N U A L R E P O R T 2 0 0 2 45 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Our use of these contracts is based on established practices and parameters, which are subject to the oversight of the Finance Committee of the Board of Directors. We also maintain a separate compliance function to independently monitor our hedging and financial risk management activities and segregate the duties of personnel responsible for entering into transactions from those responsible for recording transactions. GOLD AND SILVER PRICE RISK We manage our exposure to volatility in gold prices through our forward sales contracts. A detailed discussion of the nature of these contracts, how we use them in our business, and the historic benefits we have derived from them is included on page 54. Certain of our mines, and in particular Eskay Creek, produce significant quantities of silver as a by-product. The quantities of silver present in the ore processed, as well as prices realized for silver production, significantly impact our cash operating costs per ounce at these mines because by-product revenue is deducted from operating costs. We use spot deferred silver contracts as a means to sell silver production and to act as an economic hedge of our exposure to changes in silver prices. Substantially all of our silver production in 2003 is protected by these contracts, at an average price of about $4.95 per ounce. INTEREST RATE RISK Our interest rate risk exposure mainly relates to future contango returns in our spot deferred contracts, the fair value and ongoing payments under lease rate and US dollar interest-rate swaps, and interest receipts on our cash balances. We are more adversely affected by lower interest rates than higher rates, because the net amount of assets less liabilities affected by interest rates is an asset and also because the forward price of gold is significantly affected by US dollar interest rates. In higher interest rate environments, we realize higher prices under our spot deferred sales contracts because the premium on the forward gold price over spot prices is greater, and we receive higher interest income on our cash balances. Most of our $774 million of outstanding long-term debt obligations are at fixed interest rates. The exceptions are $250 million of our debentures where we have converted the interest rate from fixed to floating rates, and our $80 million of variable-rate bonds. For $650 million of our cash balances, we have fixed the interest return we are earning through 2006 – 2007, with the excess generating interest income at variable US dollar interest rates. The excess of interest-bearing assets over liabilities recognized on our balance sheet, which are subject to variable interest rates, was $64 million at December 31, 2002 (representing cash of $394 million, less the floating- rate portion of debentures of $250 million, and our $80 million of variable-rate bonds). Like all fixed price sales contracts with future fixed cash flows, the mark- to-market value of our existing gold sales contracts is affected by changes in the 46 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S forward price of gold, which in turn Our main foreign currency exposures is affected by market US dollar interest relate to cash expenditures at our rates and gold lease rates. As we Canadian and Australian mines that explain on page 57, the mark-to-market are denominated in local currencies. value is not recorded on our balance We use foreign currency contracts sheet, and it does not affect the level to economically hedge our exposure of our future earnings or cash flows. to changes in the Canadian and Australian dollar against the US dollar. For new gold sales contracts, the level With the recent strengthening of the of market US dollar interest rates Canadian dollar and Australian dollar and gold lease rates at that time will against the US dollar, unhedged influence forward gold prices and producers with operations in these will therefore affect the realized gold countries could be facing significantly prices under these contracts. higher US dollar operating costs. As disclosed in note 23 to our financial In 2002, substantially all of our statements, we enter into gold lease Canadian dollar expenditures were rate swaps as part of our overall gold hedged at $0.65 and substantially all price optimization strategy. Because of our Australian dollar expenditures these gold lease rate swaps include were hedged at $0.54. For 2003, fixed US dollar cash flows, changes we have hedged about 90% of our in the fair value of these swaps (which Canadian dollar expenditures at $0.65 flow through earnings each period) and substantially all of our Australian are affected by changes in US dollar dollar expenditures at $0.53. Beyond interest rates. Changes in US dollar 2003, we have contracts in place interest rates affect only the mark- to reduce our currency risk exposure to-market value of these gold lease on about 60 – 70% of our Australian rate swaps, and do not impact the and Canadian dollar exposures through actual cash flows arising on the swaps. 2005. Consequently, we do not expect FOREIGN CURRENCY EXCHANGE RISK Although we operate on four continents, we do not view currency fluctuations as a significant risk in the next few years fluctuations in these currencies to significantly affect our near term earnings or operating cash flows. ENERGY PRICE RISK Our operating costs reflect the at most of our operations because all quantities of electricity and diesel fuel our revenues and most of our cash consumed, at prices that are mainly expenditures are denominated in US based on the market prices of these dollars, and we have hedged most of our commodities. These costs represent non-US dollar operating costs. Nearly approximately 16% of our total cash half of our production comes from costs per ounce for 2002. our United States mines, while most of our Peruvian and Tanzanian operating and capital expenditures – such as diesel fuel, reagents and equipment – are denominated in United States dollars. B A R R I C K A N N U A L R E P O R T 2 0 0 2 47 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Quantity consumed in 2002 Cost (dollars) Impact on total cash costs per ounce (dollars) 1. Includes transportation and refining charges Electricity Diesel 1.9 billion kilowatt hours $0.06 per kilowatt hour 1.3 million barrels $38 per barrel 1 $ 20 $ 9 The table above illustrates our actual by using master netting arrangements consumption of these commodities, the such that our credit risk exposure is average purchase cost and the impact on limited to the net positive fair value of our average total cash costs per ounce. contracts with individual counterparties. Substantially all of our costs arising Market liquidity risk is the risk that a from consumption of these items is derivative position cannot be eliminated subject to variations in market prices, quickly, by either liquidating derivative except that we have hedged about instruments or by establishing an 20% of diesel fuel requirements for offsetting position. Under the terms of 2003. We are evaluating ways in which our trading agreements with counter- to mitigate these risk exposures, and parties, the counterparties cannot we may take steps to hedge these require us to immediately settle costs in the future or utilize alternative outstanding contracts, unless we breach sources of supply to lower costs. any financial covenants (see page 55). DERIVATIVES RISK The derivative contracts we enter into We mitigate market liquidity risk by spreading out the maturity of our derivative instruments over time. This ensures that the size of positions are an integral part of our financial risk maturing is such that for commodity management strategy. The contracts act contracts we are able to physically as economic hedges of our underlying deliver gold and silver against the exposures that arise in the normal contracts, and for other contracts the course of our business and are not held relevant markets for currencies and for speculative purposes. Because we interest rates will be able to absorb produce gold and silver, incur costs in the contracts. foreign currencies and invest and borrow in US dollars and are therefore Mark-to-market risk is the risk that subject to US interest rates, all of our an adverse change in market prices for derivative contracts cover natural commodities, currencies or interest underlying asset or liability positions. rates will affect our financial condition. By using derivative instruments, we We have mitigated this risk by have various financial risks, which we establishing trading agreements with manage in the following manner. counterparties under which we are not required to post any collateral or make Credit risk is the risk that one or more any margin calls on our derivative counterparties will fail to perform on an instruments. Also, the counterparties obligation to us. We mitigate credit risk cannot require settlement of a derivative by dealing with high quality counter- solely because of an adverse change parties, by spreading our credit risk in the mark-to-market value. We enter exposure over a number of counter- into derivative instruments to act parties, by limiting our exposure as economic hedges of underlying to individual counterparties, and exposure to commodity prices, foreign 48 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S currency exchange rates and interest the derivative instruments we use, rates that arise in the normal course of changes in the mark-to-market value our business. Consequently, for most of do not affect earnings. CRITICAL ACCOUNTING ESTIMATES What follows is a discussion of our application of critical accounting policies that require us to make assumptions about matters that are highly uncertain at the time the accounting estimate is made, and where different estimates that we reasonably could have used in the current period – or changes in the accounting estimate that are reasonably likely to occur from period to period – would have a material impact on our financial statements. We have identified the following accounting estimates as critical: > amortization of property, plant and equipment; > impairment assessments of long-lived assets; > mine reclamation and closure costs; > the measurement and recognition of valuation allowances against deferred income tax assets; and > contingencies. We also have certain accounting policies that we consider to be important – such as our policies for revenue recognition, exploration costs and derivative instruments – that do not meet the definition of critical accounting estimates as they do not require us to make estimates or judgements that are subjective or highly uncertain. Management has discussed the development and selection of our critical accounting estimates with the Audit Committee of the Board of PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment and capitalized mining costs, which totaled $3.6 billion at December 31, 2002, represent a significant portion of our assets (68%). Due to the large size of these assets, the application of our accounting policies for these assets has a material impact on our reported earnings. AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT We capitalize mine development and construction costs incurred at a property after we have identified proven and probable reserves. Upon commence- ment of gold production, we amortize these costs over the expected life of the property, based on proven and probable reserves and other factors. The process of estimating quantities of gold reserves is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given ore body may also change substantially over time as a result of numerous factors, including, but not limited to, additional develop- ment activity, evolving production history and the continual reassessment of the viability of production under various economic conditions. Directors, and the Audit Committee A material revision (upward or down- has reviewed the disclosure relating ward) to existing reserve estimates to such estimates in this Management’s could occur because of, among other Discussion and Analysis. things: revisions to geological data B A R R I C K A N N U A L R E P O R T 2 0 0 2 49 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S or assumptions; a change in the $20 million and decrease net income assumed gold prices; and the results by about $15 million ($0.03 per share). of drilling and exploration activities. Conversely, a $25 per ounce increase We make every effort to ensure that in gold price would increase our reported reserve estimates represent reserves by about 2 million contained the most accurate assessment possible. ounces (3%), relating primarily However, because of the subjective to Kalgoorlie, Goldstrike and Pascua- decisions we have to make, as well Lama. Such an increase in reserves as variances in available data for would decrease annual amortization each ore body, these estimates are by about $15 million and increase net generally uncertain. income by about $10 million ($0.02 per share). Changes in reserve quantities, including changes resulting from gold and silver In addition to changes in gold prices, price assumptions, would cause reserve quantities can also change for corresponding changes in amortization other reasons, including but not limited expense in periods subsequent to the to, new drilling results, changes revision, and could result in impairment in production costs and changes of the carrying amount of property, in geological assumptions. The mines plant and equipment and capitalized where amortization charges would mining costs. be most significantly affected by changes in reserve estimates are For the past three years, we estimated Pierina, Meikle, Eskay Creek and reserves assuming a $300 per ounce Bulyanhulu. These mines generally gold price. At December 31, 2002 a $25 have the largest amounts of property, per ounce reduction (8%) in gold price plant and equipment subject would reduce our reserves by about to amortization using the units 4 million contained ounces (6%), of production method and the highest relating primarily to our Kalgoorlie and per ounce amortization charges. The Bulyanhulu operating mines and the effect of a 10% change in reserves Pascua-Lama development project. at these mines on amortization would Such a decrease in reserves would be as follows: increase annual amortization by about Pierina Meikle Eskay Creek Bulyanhulu Impact of a 10% change in gold reserves on amortization (per ounce) Impact on earnings, based on ounces sold in 2002 (millions) $ 18 12 13 10 $ 16 8 5 4 IMPAIRMENT ASSESSMENTS OF LONG-LIVED ASSETS We believe that our estimates are critical for these assets because they are susceptible to change from period to period and the potentially material effect that recognizing an impairment could have on the assets reported on our balance sheet and on our reported earnings. They are based on estimates of future cash flows, which include estimates of: > the quantity of gold reserves at our mines; 50 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S > future gold and silver prices; and existing accounting policy, the > future operating and capital costs remaining $159 million for our to mine and process our reserves operating mines will be accrued over over extended periods of time their estimated lives, based on the (5 to 25 years). units of production method as gold is produced and sold. Changes in In 2000 we recorded a $1.6 billion estimated costs are recognized provision to reduce the carrying values prospectively as a revision to future of various assets. With the recent rise cost accruals. On adoption of FAS 143 in spot gold prices, the current in 2003, we will recognize these likelihood of a significant impairment liabilities at fair value on our balance at our operating mines has diminished. sheet, with a corresponding adjustment Based on a long-term gold price of to the carrying amount of the related $300 per ounce and our gold mineral assets that give rise to these obliga- reserves at December 31, 2002, we tions. Our financial statements will have completed a sensitivity analysis continue to be materially affected by that indicates that a 10% decrease in net cash flows resulting from a combination of a lower spot gold our estimates of reclamation and closure costs. price and an increase in operating and Our operating mines and approxi- capital costs at each of our properties would not result in the recognition of a provision for impairment. RECLAMATION AND CLOSURE COSTS Our mining, exploration and develop- ment activities are subject to various levels of federal, provincial and state mately 50 closed mines are located in the United States, Canada, Australia, Chile, Peru and Tanzania. We expect to spend about $135 to $160 million over the next five years on reclamation and closure activities, with about 85% of these amounts at our closed mines. Our current operating mines have estimated productive lives, based on reserves at December 31, 2002, laws and regulations relating to the ranging from 2 to 25 years. protection of the environment, including requirements for closure and Significant management judgments and reclamation of mining properties. estimates are made when estimating In general, these laws and regulations reclamation and closure costs, which are continually changing and, over will be incurred, in some cases, many time, becoming more restrictive. years from the date of estimate. A 10% change in the current overall estimate We estimate that future site of reclamation and closure costs for our reclamation and closure obligations will closed mines would increase or be $169 million at our closed mines decrease net income by about $12 and $292 million at our operating million or $0.02 per share. A 10% mines. At December 31, 2002, we had change at each of our operating mines fully accrued for the future costs may not have a significant effect on net at our closed mines ($169 million), and income in a period because the effect of we had accrued $133 million for our the change would be accrued over the current operating mines. Based on our estimated remaining life of each mine. B A R R I C K A N N U A L R E P O R T 2 0 0 2 51 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S As described in note 2 to our financial statements, effective January 1, 2003, we will adopt FAS 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long- lived assets and the associated asset retirement costs. In summary, FAS 143 requires us to record the fair value (millions) United States Chile/Argentina Tanzania Canada Australia Other Valuation allowance $ 173 120 85 67 24 7 $ 476 Our most significant valuation allowances, of legal liabilities for asset retirement and the related tax jurisdictions are: obligations in the period in which they are incurred. When a liability is initially recorded, we will capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability will be increased each period to reflect the interest element (accretion) reflected in its initial measurement at fair value, and the capitalized cost is amortized over the useful life of the related asset. While FAS 143 will not change the amounts spent on these activities, it will affect the timing of recognition of amounts on our balance sheet and in our income statement. VALUATION ALLOWANCES AGAINST DEFERRED TAX ASSETS For each deferred tax asset, we evaluate the likelihood of whether some portion or all of the asset will not be realized. This evaluation is based on, among other things, expected levels of future taxable income. If, based on the weight > In the United States, Chile and Argentina, valuation allowances relate to tax assets in subsidiaries that do not have any present sources of income against which to utilize the assets. In the event these subsidiaries have sources of income in the future, we may be able to reduce the level of valuation allowances recorded. > In Canada, substantially all of the valuation allowances relate to capital losses that will only be utilized if we realize any capital gains in the future. > In Australia, the valuation allowances relate to operating losses in subsidiaries that have had a history of losses over the last three years. In the event there is a sustained upward movement in the price of gold or other factors occur that increase the profitability of these subsidiaries over the next few years, we may reduce the level of valuation allowances against these assets. of available evidence, we determine that > In Tanzania, the tax legislation it is more likely than not (a likelihood of more than 50 percent) that all or some portion of a deferred tax asset will not be realized, then we record a valuation allowance against it. As of December 31, 2002, we have recorded a valuation allowance of $476 million on a portion of our net deferred tax assets totaling $497 million. provides for a compounding of unused tax depreciation which results in an additional deduction for tax purposes for amounts spent on property, plant and equipment. After considering the effect of this compounding, and the expected levels of future taxable income at the Bulyanhulu Mine, we recorded a valuation allowance against the portion of the deferred tax assets that we believe will more than likely not be realized. In the event that levels 52 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S of future taxable income at be materially different from the Bulyanhulu are higher than we liabilities we have recorded, due to the presently expect, which could be complex nature of the tax legislation because of a number of factors, that affects us. including a sustained upward movement in gold prices, operating As described in note 22 to our financial efficiencies or the discovery of statements, we have recorded current additional reserves, we may reduce and deferred income tax liabilities the level of valuation allowances of $141 million for the cost arising against these assets. from the denial by the Peruvian tax authorities (SUNAT) of our right to In future years, levels of taxable income revalue the Pierina mining concession. will be affected by, among other things, This reduction on the Pierina cost base changes in gold prices, cash operating for tax purposes results in a temporary costs, proven and probable gold timing difference between income for reserves, interest rates and foreign tax and accounting purposes, and the currency exchange rates. Significant recognition of liabilities for income changes in these and other factors taxes under our accounting policy for could have a material impact on the income taxes. We have appealed this amount of valuation allowances decision, a process that we expect to recorded and on income tax expense. take several years. Until the appeal is CONTINGENCIES We account for contingencies in accor- resolved, we will not be required to make any payments of this incremental tax liability. However, if at the end of the appeal process we are unsuccessful, dance with FAS 5, “Accounting for we will be required to pay SUNAT the Contingencies.” FAS 5 requires additional taxes owing at that time. us to record an estimated loss for a loss Through the end of 2002, the impact on contingency when information available current income taxes payable amounts indicates that it is probable that an asset to $41 million, and this current part will has been impaired or a liability has been continue to increase each year up to incurred, and the amount of the loss can the full $141 million over the remaining be reasonably estimated. By their nature, life of the mine. contingencies will only be resolved when one or more future events occur We have not recorded any potential or fail to occur – and typically those interest and penalties, currently events will occur a number of years estimated at $51 million based on the in the future. We assess such contingent SUNAT assessment, because we believe liabilities, which inherently involves the that it is not probable that these exercise of significant management amounts are payable to SUNAT. A liability judgment and estimates of the outcome for interest and penalties will only be of future events. recorded should it become probable that SUNAT’s position on interest and Income tax contingencies penalties will be upheld or settled. We record liabilities for known tax In the event that we are unsuccessful in contingencies when, in our judgment, our appeal of the assessment of interest it is probable that a liability has been and penalties in Peru, based on the incurred. It is reasonably possible amounts potentially payable at the end that actual amounts payable resulting of 2002, we would recognize a charge from audits by tax authorities could of about $51 million ($0.09 per share). B A R R I C K A N N U A L R E P O R T 2 0 0 2 53 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Legal contingencies Inmet Litigation As described in note 22 to our financial As disclosed in note 22 to our financial statements, we are involved in claims statements, we have accrued the and legal proceedings, the resolution amount of judgement awarded to of which could have a material effect Inmet, and in August 2002 we posted on our financial condition or future a letter of credit for C$95 million results of operations. In assessing pending a decision on our appeal. these contingencies, we evaluated We expect to receive a decision on the perceived merits of the legal our appeal in 2004, at which time, proceedings or unasserted claims, if we are unsuccessful, we will be as well as the perceived merits of required to satisfy the judgement. the amount of relief sought or that we expect to seek. In the event that the income tax and Inmet contingencies described above and that we have recorded in our financial statements are resolved in our favor, we would recognize in income gains of about $182 million ($0.34 per share), net of tax, in aggregate. OFF-BALANCE SHEET ARRANGEMENTS We do not enter into off-balance sheet purpose entities whose sole business arrangements with special purpose purpose is to enter into derivative entities in the normal course of our transactions with us. business, nor do we have any uncon- solidated affiliates. In the case of joint We use gold sales contracts to protect ventures, our proportionate interest our earnings and cash flow from for consolidation purpose is equivalent declining gold prices, while permitting to the economic returns to which us to sell our gold production in the we are entitled as a joint venture gold spot market in a rising gold price partner. Our only significant off-bal- environment, as we have done in early ance sheet arrangements are our 2003. At the end of 2002, our gold gold sales contracts. sales commitments under these contracts totaled 18.1 million ounces. GOLD SALES CONTRACTS Overview These contracts meet the US GAAP definition of a derivative, but because We have entered into gold sales they qualify for the normal sales contracts with high quality banking exception under FAS 133, they are not counterparties. The banking counter- recorded on our balance sheet at fair parties with whom we enter into value. Instead, we account for these these contracts engage in derivative agreements as sales contracts with the transactions with numerous third proceeds under the contract recorded parties in addition to us. We do not as revenue at the date we physically have any relationships with special deliver gold to the counterparties. 54 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Under these contracts: > We carefully manage credit exposure > We can deliver gold to meet our to our counterparties under these commitments at any time we choose contracts. Generally, the counter- over periods of up to 10 or 15 years. parties have credit ratings of “AA”, We have the flexibility over this and any credit exposure is spread period to sell our production in either over the 19 counterparties. the spot gold market or through these contracts. Generally, our strategy is to sell our gold production in the spot market if the market price exceeds the price under our sales agreements. > We are not subject to any margin > We regularly review our gold sales commitments to ensure that we have the gold mineral reserves and future gold production that substantially exceed our contract commitments. calls, regardless of the price of gold. Through the use of these contracts > There are no credit downgrade provisions in these contracts. over the last three years, we have realized higher revenues than if we had sold our gold production in the spot gold market at average spot gold prices. The benefits of using these contracts can be illustrated as follows: > Revenues from Forward Sales Contracts Total revenues from contract sales (millions) Average contract selling price ($/oz) Average spot price ($/oz) Incremental revenues from contracts in excess of average spot gold prices (millions) 2002 1,401 352 310 168 $ $ $ $ 2001 1,307 347 271 289 $ $ $ $ 2000 1,341 365 279 315 $ $ $ $ The terms of our gold sales contracts and our high quality, long-life, low-cost provide flexibility and benefits that we asset base. We believe that the benefits believe are unique to us and unavailable we derive from these contracts give to any other gold producer. We are able us a substantial economic and financial to realize benefits from the contracts advantage over other companies in the mainly because we are able to choose a gold mining industry. suitable delivery date at any time over the 10 to 15 year term of the contract. The main factors that affect our future Over this period, we can sell our gold at ability to derive benefits from these the spot price, but if the spot price is agreements are two financial covenants: lower than the contract price, our maintain a consolidated net worth of production is protected because we are at least $2 billion (2002 – $3.3 billion) able to sell at the contract price. These and our debt to equity ratio must not advantageous terms reflect, among exceed 1.5:1 (2002 – less than 0.25:1). other things, our strong credit rating B A R R I C K A N N U A L R E P O R T 2 0 0 2 55 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S greater the amount of the forward premium or contango and – so long as US dollar interest rates are higher than gold lease rates – the greater the contract price compared to the spot price at the start of the contract. Over the past five years, three-month US dollar interest rates have averaged 4.6% and gold lease rates have averaged 1.2%, resulting in an average contango rate of 3.4%. With the recent decline in interest rates, three-month US dollar interest rates have been about 1.8% and gold lease rates have been about 0.4%, resulting in a contango rate of 1.4%. The level of contango rates is one of the most significant factors that affect the price we realize from these contracts. At the end of 2002, the average rate of contango implied in our gold spot deferred contracts was 3.2%. The selling prices under our spot deferred contracts are fixed over an average future period of two years. Beyond the dates that contango is presently fixed, future premiums earned under the spot deferred contracts will be based on market contango rates at that time, for those future periods until the actual delivery date. In the event gold lease rates are higher than US dollar interest rates, the KEY CONTRACT TERMS AND CONDITIONS Spot deferred sales contracts A spot deferred sales contract is an agreement that we will sell a fixed number of ounces of gold to the contract counterparty on a delivery date in the future at an agreed price. We have the flexibility to choose the delivery date at any time over a 10 to 15 year period from the start of the contract. Our rights and obligations under these contracts are defined by Master Trading Agreements (“MTA’s”) that we have executed with our counterparties. The selling price under the contract is based on the forward price of gold at the future delivery date, which is essentially a function of the spot gold price on the date the contract is entered into plus a premium (commonly referred to as “contango”) through the future delivery date. The amount of contango is often quoted as a percentage return that reflects the spread between market LIBOR interest rates (i.e., US dollar interest rates) and gold lease rates. Generally, US dollar interest rates are higher than the gold lease rate, which means that the future price is higher than the current price under the contract. The longer the period of time until delivery, the Historical 3-Month Gold Lease Rates (%) 1010 88 66 44 22 1990 1992 1994 1996 1998 2000 2002 56 B A R R I C K A N N U A L R E P O R T 2 0 0 2 “premium” becomes negative (known Variable price sales contracts as “backwardation”). Over the past five A variable price sales contract years, backwardation has occurred only is a version of our spot deferred sales once, and only for a period of two days. contract, the difference being that the price of gold is variable within certain Since we have the flexibility to deliver limits. While most of our spot deferred gold under our sales contracts at any contracts are to sell gold at a fixed price time over the next 10 to 15 years, we in the future, the “variable price” sales can sell our gold at the higher of the contracts have a variable price for gold, spot price or the contract price well typically either i) within a range, or ii) into the future. In the event spot capped to a maximum level based on prices consistently exceed the contract the spot price at an agreed future date. price for the next 10 to 15 years, and assuming that we choose to deliver our The variable price sales contracts enjoy gold at spot prices over this period, we all the same benefits and flexibility as would eventually deliver gold at a price our spot deferred sales contracts: we of about $500 per ounce under our can deliver gold against our variable existing contracts (assuming typical price sales contracts at any time up historical long-term contango rates of to 10 to 15 years in the future; most 4%); however, if today’s low interest contracts have the “evergreen” clause; rate environment persists, the forward and they are not subject to margin calls. price of the contract would rise to about $400 per ounce. By choosing Significance of mark-to-market to deliver gold at higher spot gold gains and losses prices, we are able to take advantage Mark-to-market gains and losses of those higher prices, but it remains represent unrealized changes in the fair probable that we will physically deliver value of our gold sales contracts. For gold over the term of the contract, and example, if we had a contract to sell we will not be required to cash settle gold currently at $340 an ounce and the contracts. In most cases, under the spot price of gold was $375 an the terms of our MTA’s, the period ounce, then the mark-to-market value over which we are required to deliver of the contract is about negative $35 gold is extended annually by one year, per ounce. This has no impact on the or kept “evergreen,” regardless of selling price under the contract, which our intended delivery dates, unless remains intact at $340 per ounce. otherwise notified by the counterparty. This means that, with each year that passes, the Termination Date is extended into the future by one year. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S B A R R I C K A N N U A L R E P O R T 2 0 0 2 57 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S The mark-to-market value represents the contract. However, because of a calculation of the fair value of the the large amount of Central Bank contracts at a point in time, based gold available for lending relative on market conditions at that time. to demand, gold lease rates tend to Because we intend to physically deliver be low and any spikes short-lived. future production against our sales contracts, we do not expect to ever have The estimated fair value of the gold to financially settle this gain or loss and contracts at December 31, 2002 was record it in our income statement. On approximately negative $639 million, delivery of gold under the contract, we and the fair value of silver contracts receive cash equivalent to the selling was $7 million positive. The most price in the contract and we record this significant factors affecting this mark- amount under gold sales in our income to-market value are spot gold prices statement. Therefore, we do not expect and market contango rates. The a significant increase in the price of gold mark-to-market value of our gold and an adverse change in the mark-to- sales contracts would approach zero market value of these contracts to result (breakeven) at a spot gold price of in the mark-to-market value being approximately $310 per ounce, assum- recorded in our earnings and cash flow. ing all other variables are constant. The fair value of our foreign currency A short-term spike in gold lease rates contracts at December 31, 2002 would not have a material negative was $25 million positive. The value impact on us because we are not of gold contracts is based on the exposed under our gold sales contracts net present value of cash flows under to short-term gold lease rate variations. the contracts, based on a gold spot A prolonged rise in gold lease rates price of $347 per ounce and market could result in lower contango (or rates for LIBOR and gold lease rates. negative contango i.e. “backwardation”) The year-to-date change in the fair and therefore a smaller forward value of our gold contracts is detailed premium (or backwardation) under as follows: > Continuity Schedule of the Change in the Mark-to-Market Value of our Gold Sales Contract Position (millions) Fair value as at December 31, 2001 – Gain Impact of realized gains in the year Impact of change in spot price (from $279 per ounce to $347 per ounce) Contango earned in the year Impact of change in valuation inputs other than spot metal prices (e.g., interest rates, lease rates, and volatility) Fair value as at December 31, 2002 – Loss $ $ 356 (168) (1,353) 182 344 (639) 58 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S CONTRACTUAL OBLIGATIONS AND COMMITMENTS (millions) Contractual obligations Long-term debt Reclamation and closure costs $ Capital leases Operating leases Purchase obligations: Supplies inventory and consumables Power contracts Capital expenditures Other Total Payments due in 2003 2004 – 2005 2006 – 2007 2008+ Total 20 45 - 6 50 18 20 57 $ 72 51 3 7 21 24 - 20 $ 568 $ 50 - 5 4 44 - 18 $ 114 357 - 10 - - - 19 774 503 3 28 75 86 20 114 $ 216 $ 198 $ 689 $ 500 $ 1,603 Long-term debt cost estimates are recorded in earnings Our debt obligations do not include any as they occur. The liability recorded subjective acceleration clauses or other on our balance sheet under this account- clauses that enable the holder of the ing policy represents the difference debt to call for early repayment, except between costs accrued to date and in the event that we breach any of the actual payments made. On January 1, terms and conditions of the debt. We are 2003, we will adopt FASB Statement not required to post any collateral under No. 143, Asset Retirement Obligations. any debt obligations, and the terms of Under FAS 143, we will record our legal the obligations would not be affected obligations for reclamation and closure by a deterioration in our credit rating. costs at each balance sheet date Reclamation and closure costs resulting in an increase in the obligations at their fair value on January 1, 2003, The amounts included in the table by $32 million. for reclamation and closure costs represent our present legal obligations The most significant contingent liability for costs at all our existing operating relating to reclamation and closure mines and mines in various stages of activities, which is not recorded on our closure. For those mining operations balance sheet, relates to potential where our interest is in a joint venture obligations to monitor water quality and arrangement, the table reflects our treat ground water on an ongoing basis. proportionate share of the liability for We record a liability for these activities reclamation and closure costs. if environmental laws and regulations require us to conduct these activities. Under our present accounting policy, we accrue these costs on an undis- Power Purchase Agreements counted basis, using the units of We enter into contracts to purchase production method over the life of each power at each of our operating mines. mine. After closure, changes to future The contracts provide for fixed prices, B A R R I C K A N N U A L R E P O R T 2 0 0 2 59 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S which in certain circumstances are no obligation to the royalty holders. adjusted for inflation. Some agreements The amounts that we expect to pay obligate us to purchase fixed quantities in the future are: 2003 - $37 million; per hour, seven days a week, while 2004 to 2005 – $92 million; 2006 others are based on a percentage to 2007 – $89 million; and 2008 and of actual consumption. These contracts beyond – $297 million. These amounts extend through various dates in 2004 are estimated based on our expected to 2007. gold production from proven and probable reserves (under Canadian In addition to the purchase obligations reporting standards) for the periods set out in the table, we purchase about indicated, assuming a $300 gold price. 0.9 billion kilowatt-hours annually The most significant royalty arrange- at market rates that were about 7 cents ments are disclosed in note 4 to our per kilowatt-hour in 2002. Under the financial statements. terms of one contract, we purchase power based on actual consumption, Payments to maintain land tenure which has an exit fee of $12 million and mineral property rights should we decide to switch In the normal course of business, to an alternate power supplier. we are committed to make annual COMMITMENTS Royalties payments to maintain title to certain of our properties and to maintain our rights to mine gold at certain of our properties. In the event we choose Virtually all of our royalty commit- to abandon a property or discontinue ments only give rise to obligations mining operations, the payments at the time we produce gold. In the relating to that property can be event that we do not produce gold suspended, resulting in our rights at our mining properties, we have to the property lapsing. NON GAAP MEASURES We have included cash costs per ounce business or to return to shareholders, data because we understand that certain either through dividends or share investors use this information to assess repurchases. Because we operate in a our performance and also determine capital-intensive industry, the illustration our ability to generate cash flow for use of free cash flow enables investors to in investing and other activities. appreciate the year-on-year performance The inclusion of cash costs per ounce of our mines in generating cash for other statistics enables investors to better purposes. This data is intended to provide understand year-on-year changes in additional information and should not be production costs, which in turn affect our considered in isolation or as a substitute profitability and cash flow. We also make for measures of performance prepared reference to the term “free cash flow,” in accordance with GAAP. The measures which we define as cash flow from are not necessarily indicative of operating operations less cash used in the purchase costs or cash flow measures presented of property, plant and equipment. This under GAAP. cash is available to reinvest in our 60 B A R R I C K A N N U A L R E P O R T 2 0 0 2 RECONCILIATION OF CASH COSTS PER OUNCE (in millions of US dollars except per ounce amounts) Operating costs per financial statements Reclamation, closure and other costs1 Operating costs for per ounce calculation Ounces sold (thousands) Total cash costs per ounce 2002 1,071 (43) 1,028 5,805 177 $ $ $ 2001 1,080 (60) 1,020 6,278 162 $ $ $ 2000 950 (50) 900 5,794 155 $ $ $ 1. In 2002, includes costs totaling $15 million in connection with the Peruvian tax assessment. Total cash costs per ounce data is calculated in accordance with The Gold Institute Production Cost Standard (the “Standard”). Adoption of the Standard is voluntary, and the data presented may not be comparable to data presented by other gold producers. Cash costs per ounce are derived from amounts included in the Statements of Income and include mine site operating costs such as mining, processing, administration, royalties and production taxes, but exclude amortization, reclamation costs, financing costs, and capital, development and exploration. RECONCILIATION OF FREE CASH FLOW (in millions of US dollars except per ounce amounts) Free cash flow Capital expenditures and mine development costs Operating cash flow 2002 361 228 589 $ $ 2001 114 474 588 $ $ 2000 230 612 842 $ $ M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S B A R R I C K A N N U A L R E P O R T 2 0 0 2 61 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS T he accompanying consolidated effective basis, the reliability of its financial statements have been financial information. prepared by and are the respon- sibility of the Board of Directors and The consolidated financial Management of the Company. statements have been audited by PricewaterhouseCoopers LLP, Chartered The consolidated financial statements Accountants. Their report outlines have been prepared in accordance the scope of their examination with United States generally accepted and opinion on the consolidated accounting principles and reflect financial statements. Management’s best estimates and judgements based on currently avail- able information. The Company has developed and maintains a system of internal accounting controls in order Jamie C. Sokalsky to ensure, on a reasonable and cost Senior Vice President and Chief Financial Officer Toronto, Canada February 5, 2003 M A N A G E M E N T ’ S R E S P O N S I B I L I T Y F O R F I N A N C I A L S T A T E M E N T S 62 B A R R I C K A N N U A L R E P O R T 2 0 0 2 AUDITORS’ REPORT TO THE SHAREHOLDERS OF BARRICK GOLD CORPORATION W e have audited the consoli- In our opinion, these consolidated dated balance sheets of financial statements present fairly, in all Barrick Gold Corporation as material respects, the financial position at December 31, 2002 and 2001 and the of the Company as at December 31, consolidated statements of income, 2002 and 2001 and the results of its cash flow and changes in shareholders’ operations and its cash flows for each equity for each of the three years in of the three years in the period ended the period ended December 31, 2002. December 31, 2002 in accordance with These financial statements are the United States generally accepted responsibility of the Company’s accounting principles. Management. Our responsibility is to express an opinion on these financial As discussed in Note 2 to the consoli- statements based on our audits. dated financial statements, during 2002 the Company changed its policy We conducted our audits in accordance on accounting for deferred stripping with generally accepted auditing costs, during 2001 the Company changed standards in both Canada and the its policy on accounting for derivative United States. Those standards require instruments, and during 2000 the that we plan and perform an audit to Company changed the policy on revenue obtain reasonable assurance whether recognition for gold sales. the financial statements are free of material misstatement. An audit includes On February 5, 2003, we reported examining, on a test basis, evidence separately to the shareholders of supporting the amounts and disclosures Barrick Gold Corporation on the finan- in the financial statements. An audit cial statements for the same periods, also includes assessing the accounting prepared in accordance with Canadian principles used and significant estimates generally accepted accounting principles. made by Management, as well as evalu- ating the overall financial statement presentation. Chartered Accountants Toronto, Canada February 5, 2003 A U D I T O R S ’ R E P O R T T O T H E S H A R E H O L D E R S O F B A R R I C K G O L D C O R P O R A T I O N B A R R I C K A N N U A L R E P O R T 2 0 0 2 63 F I N A N C I A L S T A T E M E N T S CONSOLIDATED STATEMENTS OF INCOME (US GAAP BASIS) Barrick Gold Corporation For the years ended December 31, 2002, 2001 and 2000 (in millions of United States dollars, except per share data) Gold sales (note 25) Costs and expenses Operating (notes 4 and 25) Amortization (note 25) Administration Exploration and business development Merger and related costs (notes 3 and 15) Provision for mining assets and other unusual charges (note 5) Interest and other income (note 6) Interest expense (note 16) Non-hedge derivative gains (losses) (note 23) Income (loss) before income taxes and other items Income taxes (note 7) Income (loss) before cumulative effect of changes in accounting principles Cumulative effect of changes in accounting principles (note 2) Net income (loss) for the year Earnings per share data (note 8): Net income (loss) before changes in accounting principles Basic and diluted Net income (loss) Basic and diluted The accompanying notes are an integral part of these consolidated financial statements. 2002 2001 2000 $ 1,967 $ 1,989 $ 1,936 1,071 519 64 104 (2) – 1,756 29 (57) (6) 177 16 193 – 193 0.36 0.36 $ $ $ 1,080 501 86 103 117 59 1,946 32 (25) 33 83 14 97 (1) 96 0.18 0.18 $ $ $ 950 493 75 149 – 1,627 3,294 14 (26) (5) (1,375) 209 (1,166) (23) $ (1,189) $ $ (2.18) (2.22) 64 B A R R I C K A N N U A L R E P O R T 2 0 0 2 CONSOLIDATED STATEMENTS OF CASH FLOWS (US GAAP BASIS) Barrick Gold Corporation For the years ended December 31, 2002, 2001 and 2000 (in millions of United States dollars) OPERATING ACTIVITIES Net income (loss) for the year Amortization Changes in capitalized mining costs Provision for mining assets and other unusual charges (note 5) Deferred income taxes (note 7) Other items (note 28) Net cash provided by operating activities INVESTING ACTIVITIES Property, plant and equipment Short-term investments (Increase) decrease in restricted cash Purchase of mining properties (note 3) Other Net cash used in investing activities FINANCING ACTIVITIES Proceeds from stock options exercised Long-term debt Proceeds Repayments Dividends Net cash used in financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents at beginning of year (note 27) Cash and equivalents at end of year (note 27) $ 1,044 $ The accompanying notes are an integral part of these consolidated financial statements. F I N A N C I A L S T A T E M E N T S 2002 2001 (note 2B) 2000 (note 2B) $ $ 193 519 29 – (75) (77) 589 (228) 159 – – 11 (58) 83 – (25) (119) (61) – 470 574 96 501 17 – (50) 24 588 (474) (153) (24) – 5 (646) 7 55 (152) (93) (183) (1) (242) 816 574 $ (1,189) 493 39 1,627 (287) 159 842 (612) 130 2 (141) 10 (611) 6 236 (187) (94) (39) (6) 186 630 816 $ B A R R I C K A N N U A L R E P O R T 2 0 0 2 65 F I N A N C I A L S T A T E M E N T S CONSOLIDATED BALANCE SHEETS (US GAAP BASIS) Barrick Gold Corporation At December 31, 2002 and 2001 (in millions of United States dollars) ASSETS Current assets Cash and equivalents Short-term investments (note 10) Accounts receivable (note 11) Inventories and other current assets (note 12) Property, plant and equipment (note 13) Capitalized mining costs Other assets (note 14) Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable Other current liabilities (note 15) Long-term debt (note 16) Other long-term obligations (note 17) Net deferred income tax liabilities (note 18) Total liabilities Shareholders’ equity Capital stock (note 19) Deficit Accumulated other comprehensive loss (note 9) Total shareholders’ equity Commitments and contingencies (note 22) Total liabilities and shareholders’ equity 2002 2001 $ 1,044 $ 30 72 206 1,352 3,322 272 315 574 205 60 223 1,062 3,621 301 218 $ 5,261 $ 5,202 $ 164 319 483 761 422 261 1,927 4,148 (689) (125) 3,334 $ 175 308 483 793 443 291 2,010 4,062 (763) (107) 3,192 $ 5,261 $ 5,202 The accompanying notes are an integral part of these consolidated financial statements. Signed on behalf of the Board Gregory C. Wilkins Director C. William D. Birchall Director 66 B A R R I C K A N N U A L R E P O R T 2 0 0 2 F I N A N C I A L S T A T E M E N T S CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS) (US GAAP BASIS) Barrick Gold Corporation For the years ended December 31, 2002, 2001 and 2000 (in millions of United States dollars) STATEMENT OF SHAREHOLDERS’ EQUITY Common shares (number in millions) At January 1 Issued for cash/on exercise of stock options Issued on purchase of mining property At December 31 Common shares (amount in millions) At January 1 Issued for cash/on exercise of stock options Issued on purchase of mining property At December 31 Retained earnings (deficit) At January 1 Net income (loss) Dividends At December 31 Accumulated other comprehensive loss (note 9) Total shareholders’ equity at December 31 STATEMENT OF COMPREHENSIVE INCOME (LOSS) Net income (loss) Foreign currency translation adjustments Transfers of realized (gains) losses on derivative instruments to earnings Change in fair value of cash flow hedges Additional minimum pension liability Transfers of realized (gains) losses on available-for-sale securities to earnings Unrealized losses on available for sale securities 2002 2001 2000 536 6 – 542 536 – – 536 534 1 1 536 $ 4,062 $ 4,051 $ 4,025 $ $ $ $ $ $ $ $ $ $ $ $ 86 - 4,148 (763) 193 (119) (689) (125) 3,334 2002 193 (21) (21) 28 (2) 4 (6) 11 - 4,062 (766) 96 (93) (763) (107) 3,192 9 17 4,051 517 (1,189) (94) (766) (95) 3,190 $ $ $ $ $ 2001 2000 96 (26) 25 – (5) (2) (4) 84 $ (1,189) (60) – – – (7) – $ (1,256) Comprehensive income (loss) $ 175 $ The accompanying notes are an integral part of these consolidated financial statements. B A R R I C K A N N U A L R E P O R T 2 0 0 2 67 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Barrick Gold Corporation Tabular dollar amounts in millions of United States dollars, unless otherwise shown. References to C$ and A$ are to Canadian and Australian dollars, respectively. 1 > NATURE OF OPERATIONS Barrick Gold Corporation (“Barrick” or the “Company”) particularly significant to us. References to the Company in these financial statements relate to Barrick engages in the production and sale of gold, including and its consolidated subsidiaries. We have reclassified related mining activities such as exploration, development, certain prior-year amounts to conform with the current mining and processing. We also use derivative instruments year presentation. in a risk management program that seeks to mitigate the effect of volatility in commodity prices, interest rates and The preparation of financial statements under foreign currency exchange rates on our business (refer US GAAP requires us to make estimates and to note 23). Our operations are mainly located in the assumptions that affect: United States, Canada, Australia, Peru, Tanzania, Chile > the reported amounts of assets and liabilities; and Argentina. They require specialized facilities and > disclosures of contingent assets and liabilities; and technology, and we rely on those facilities to support our > revenues and expenses recorded in each production levels. The market price of gold, quantities of reporting period. gold mineral reserves and gold production levels, cash operating costs, interest rates and the level of exploration The most significant estimates and assumptions that expenditures are some of the things that affect our affect our financial position and results of operations operating cash flow and profitability. Due to the global are those that use estimates of proven and probable nature of our operations, we are also affected by such gold reserves, and/or assumptions of future gold prices. things as fluctuations in foreign currency exchange rates, Such estimates and assumptions affect: political risk and varying levels of taxation. We seek to > the value of inventories (which are stated at the lower mitigate the risks associated with our business, but many of average cost and net realizable value); of the factors affecting these risks are beyond our control. > decisions as to when exploration and mine development 2 > SIGNIFICANT ACCOUNTING POLICIES A Basis of presentation costs should be capitalized or expensed; > whether property, plant and equipment and capitalized mining costs may be impaired; The United States dollar is the principal currency > our ability to realize income tax benefits recorded of our operations. We prepare and file our primary as deferred income tax assets; and consolidated financial statements in United States > the rate at which we charge amortization to earnings. dollars and under United States generally accepted accounting principles (“US GAAP”). We include We also estimate: consolidated financial statements prepared under > costs associated with reclamation and closure Canadian GAAP (in United States dollars) in our of mining properties; Proxy Statement that we file with various Canadian > remediation costs for inactive properties; regulatory authorities. Summarized below are the > the fair values of derivative instruments; and accounting policies under US GAAP that we consider > the likelihood and amounts associated with contingencies. 68 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S We regularly review the estimates and assumptions Revenue recognition that affect our financial statements; however, what In 2000 we implemented Staff Accounting Bulletin actually happens could differ from those estimates No. 101 (“SAB 101”), Revenue Recognition. Under SAB 101, and assumptions. B Accounting changes Deferred stripping costs we recognize revenue when we deliver gold bullion to counterparties. Previously, we recognized revenue when gold was in doré form, under long-standing industry practice. The effect of this change was Historically, we classified deferred stripping costs as part to increase our net loss by $25 million in 2000, of Property, plant and equipment on our consolidated including the cumulative effect of $23 million, and balance sheet. In 2002 we began classifying these costs basic net loss per share by $0.04. as a separate line item, Capitalized mining costs. Total capitalized mining costs at December 31, 2002 were C Basis of consolidation $272 million. The comparative amount at December 31, These consolidated financial statements include the 2001, of $301 million has also been reclassified. accounts of Barrick and its subsidiaries. Intercompany transactions and balances are eliminated upon Also, we historically classified expenditures for stripping consolidation. We control our subsidiaries through costs as part of purchases of property, plant and existing majority voting interests. Under long-standing equipment in Investing activities in our consolidated practice for extractive industries, we present our statement of cash flows. In 2002, we began classifying proportionate interest in the assets, liabilities, revenues, these expenditures as part of changes in Capitalized mining expenses and cash flows of unincorporated joint costs in Operating activities. Expenditures for stripping ventures in our financial statements. costs for the year ended December 31, 2002 were $121 million. We also reclassified the comparative amounts D Foreign currency translation for 2001 of $133 million and 2000 of $98 million. We made The functional currency of all our operations, except for these changes to reflect the operating nature of stripping our Argentinean operations where it is the Argentinean activities. These changes had no effect on earnings. peso, is the United States dollar (“the US dollar”). Except for our Argentinean operations, we remeasure Accounting for derivative instruments balances into US dollars as follows: We adopted Statement of Financial Accounting Standards > non-monetary assets and liabilities using historical No. 133, Accounting for Derivative Instruments and rates; Hedging Activities, and Statement of Financial Accounting > monetary assets and liabilities using period-end Standards No. 138, Accounting for Certain Derivative exchange rates; and Instruments and Certain Hedging Activities, (collectively > income and expenses using average exchange rates, FAS 133), on January 1, 2001. On adoption, we recorded except for expenses related to assets and liabilities the fair value of derivative instruments as follows: remeasured at historical exchange rates. At January 1, 2001 Hedge derivatives Carrying amount Fair value Adjustment Asset (liability) Loss Gains and losses arising from remeasurement of foreign currency financial statements into US dollars, and from foreign currency transactions, are included in earnings. Purchased gold call options $ 44 $ 5 $ (39)1 Non-hedge derivatives Written gold call options and total return swaps $ (42) Other derivatives $ – $ (42) $ (3) – (3)2 $ 1. Recorded in Other Comprehensive Income (OCI), net of tax benefits of $4 million. We also reclassified into OCI deferred gains on hedge contracts that had been closed out in previous years that totaled $35 million. 2. Recorded as a cumulative effect accounting change in earnings, net of tax benefits of $2 million. For our Argentinean operations, we translate assets and liabilities into US dollars using period-end exchange rates; and revenues and expenses using average rates. We record the resulting translation adjustments in a cumulative translation adjustments account in Other Comprehensive Income (OCI), a part of shareholders’ equity. B A R R I C K A N N U A L R E P O R T 2 0 0 2 69 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S After the merger with Homestake in 2001, various F Recently issued accounting pronouncements changes in economic facts and circumstances led FAS 143, Accounting for asset retirement obligations us to conclude that the functional currency of certain In June 2001, the FASB issued Statement No. 143, of its operations is the United States dollar and not Accounting for Asset Retirement Obligations (FAS 143), the local currency. These changes included the which addresses financial accounting and reporting for denomination of selling prices for gold production, obligations associated with the retirement of tangible and more use of United States dollar financing. long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the For periods before January 1, 2002, the financial retirement of long-lived assets that result from the statements of those operations were translated as acquisition, construction, development and/or the follows: assets and liabilities using period-end exchange normal operation of a long-lived asset. FAS 143 requires rates; and revenues and expenses at average rates. entities to record the fair value of a liability for an asset Translation adjustments were included in OCI. retirement obligation in the period in which it is E Other significant accounting policies capitalizes the cost by increasing the carrying amount Other aspects of our financial statements including our of the related long-lived asset. Over time, a liability other significant accounting policies, and the note and is increased each period to reflect an interest element page where they can be found are: considered in its initial measurement at fair value, and incurred. When a liability is initially recorded, an entity the capitalized cost is amortized over the useful life of Note Page the related asset. Upon settlement of the liability, Business combinations and property acquisitions . . . . . . . . .3 . . . . .71 we will record any gain or loss that occurs. FAS 143 is Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 . . . . .72 effective for financial statements issued for fiscal years Provision for mining assets and other unusual charges . . . . .5 . . . . .72 beginning after June 15, 2002. On adoption of FAS 143 Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 . . . . .72 in our balance sheet we will record an increase in pro- Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 . . . . .73 perty, plant and equipment by $39 million; an increase Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 . . . . .73 in other long-term obligations by $32 million; and an Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 . . . . .74 increase in deferred income tax liabilities by $3 million. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 . . . . .74 A $4 million credit for the cumulative effect of this Accounts receivable and revenue recognition . . . . . . . . . . . .11 . . . . .75 change will be recorded in the income statement. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 . . . . .75 Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . .13 . . . . .76 FAS 146, Accounting for costs associated Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 . . . . .76 with exit or disposal activities Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 . . . . .77 In June 2002, the FASB issued Statement No. 146, Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 . . . . .77 Accounting for Costs Associated with Exit or Disposal Reclamation and closure costs . . . . . . . . . . . . . . . . . . . . . . . . .17 . . . . .78 Activities (FAS 146). FAS 146 addresses issues relating Other post-retirement benefits . . . . . . . . . . . . . . . . . . . . . . . .17 . . . . .78 to the recognition, measurement, and reporting of costs Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 . . . . .79 associated with exit and disposal activities, including Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 . . . .80 restructuring activities. Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 . . . .80 Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 . . . . .82 FAS 146 requires that the initial liability for costs Pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 . . . . .82 associated with exit and disposal activities be measured Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 . . . .83 at fair value. It prohibits the recognition of a liability Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 . . . .86 based solely on an entity’s commitment to a plan, and Fair value of financial instruments . . . . . . . . . . . . . . . . . . . . .24 . . . . .92 requires that the liability for costs associated with exit Segment information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 . . . . .93 and disposal activities be re-evaluated each subsequent Joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 . . . .95 reporting period. FAS 146 requires costs for which Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 . . . .95 a liability is not recorded expensed as incurred, even 70 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S if those costs are incremental to other operating costs and will be incurred as a direct result of the plan. 3 > BUSINESS COMBINATIONS AND PROPERTY ACQUISITIONS FAS 146 is effective for exit or disposal activities A Homestake Mining Company initiated after December 31, 2002. Retroactive On December 14, 2001, a wholly-owned subsidiary application of FAS 146 is prohibited, so liabilities of Barrick merged with Homestake Mining Company recognized prior to the initial application of FAS 146 will (“Homestake”). Under the terms of the merger continue to be accounted for under existing guidance. agreement, we issued 139.5 million Barrick common shares in exchange for all the outstanding common FAS 148, Accounting for stock-based shares of Homestake, using an exchange ratio of 0.53:1. compensation – transition and disclosure The merger was accounted for as a pooling-of-interests. In December 2002, the FASB issued Statement No. 148, The consolidated financial statements give retroactive Accounting for Stock-Based Compensation – Transition effect to the merger, with all periods presented as and Disclosure – an amendment of FAS 123 (FAS 148). if Barrick and Homestake had always been combined. FAS 148 provides additional transition guidance for companies that elect to voluntarily adopt the fair value In 2001, we recorded charges for merger-related costs accounting provisions of FAS 123. FAS 148 does not totaling $117 million ($107 million after tax). These costs change the provisions of FAS 123 that permit companies included transaction costs of $32 million for investment to continue to apply the intrinsic value method under banking, legal, accounting and other costs directly APB 25, the method which we use. related to the merger. They also include integration and restructuring costs of $85 million, mainly for employee FAS 148 requires certain new disclosures that are termination costs. incremental to those under FAS 123. Those disclosures are intended to overcome concerns about the potential B Pangea Goldfields Inc. lack of comparability arising from the FASB’s decision On July 27, 2000, we acquired Pangea Goldfields Inc., to permit multiple transition methods. We adopted the an exploration company, for cash of $131 million. annual disclosure provisions of FAS 148 in these We accounted for the acquisition as a purchase, and financial statements. assigned values of $140 million to total assets acquired, including $16 million in cash and $9 million FIN 45, Guarantor’s accounting and disclosure to liabilities acquired. requirements for guarantees In November 2002, the FASB issued Interpretation C Round Mountain Mine No. 45, Guarantor’s Accounting and Disclosure On July 1, 2000, we acquired a further 25% interest Requirements for Guarantees (FIN 45). FIN 45 clarifies in the Round Mountain Mine for $43 million, increasing the requirements of Statement No. 5, Accounting for our ownership interest from 25% to 50%. The purchase Contingencies, relating to a guarantor’s accounting consideration consisted of 1.4 million newly issued for, and disclosure of, the issuance of certain types common shares and cash of $26 million. We accounted of guarantees. FIN 45 requires that upon issuance for the transaction as a purchase, and allocated of a guarantee, the guarantor must recognize a liability $3 million to working capital, $45 million to property, for the fair value of the obligation it assumes under plant and equipment and $5 million to reclamation that guarantee. The disclosure provisions of FIN 45 obligations. are effective for these financial statements, but the provisions for recognition and measurement are effective only for guarantees that are issued or modified after December 31, 2002. B A R R I C K A N N U A L R E P O R T 2 0 0 2 71 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 4 > OPERATING COSTS For the years ended December 31 Cost of goods sold Amortization of capitalized mining costs By-product revenues Royalty expenses Production taxes Reclamation and closure costs 2002 $ 964 2001 $ 944 2000 $ 841 150 (119) 37 5 34 150 (112) 39 5 54 137 (111) 42 6 35 $ 1,071 $ 1,080 $ 950 A Amortization of capitalized mining costs We charge most mine operating costs to inventory as incurred. However, we defer and amortize certain mining costs associated with open-pit deposits that have diverse ore grades and waste-to-ore ton ratios over the mine life. These mining costs arise from the removal of waste rock at our open-pit mines, and we commonly refer to them as “deferred stripping costs.” We record amortization of amounts deferred based on a “stripping ratio” using the units-of-production method. This accounting method results in the smoothing of these costs over the life of mine, rather than expensing them as incurred. Some mining companies expense these costs as incurred, which may result in the reporting of greater volatility in period to period results of operations. The application of our deferred stripping accounting policy in 2002 resulted in an increase in operating costs of $29 million compared to actual costs incurred (2001 – $17 million increase, 2000 – $39 million increase). Capitalized mining costs represent the excess of costs capitalized over amortization recorded, although it is possible that a liability could arise if cumulative amortization exceeds costs capitalized. The carrying amount of Capitalized mining costs is included with related mining property, plant and equipment for impairment testing purposes. Average stripping ratios1 For the years ended December 31 Betze-Post (Goldstrike) Pierina 2002 112:1 48:1 2001 98:1 21:1 2000 98:1 19:1 1. The stripping ratio is calculated as the ratio of total tons (ore and waste) of material to be moved compared to total recoverable proven and probable gold reserves. 72 B A R R I C K A N N U A L R E P O R T 2 0 0 2 The average remaining life of the above-mentioned open-pit mine operations for which we capitalize mining costs is 9 years. The full amount of stripping costs incurred will be expensed by the end of the mine lives. B Royalties Most of our properties are subject to royalty obligations based on minerals production at the properties, under various methods of calculation. The most significant royalties are at Goldstrike, Bulyanhulu and Pascua- Lama. Most Goldstrike production is subject to a net smelter return (NSR) or net profits interest (NPI) royalty payable on the value of mineral production. The highest Goldstrike royalties are a 5% NSR and a 6% NPI. Bulyanhulu is subject to an NSR-type royalty of 3%. A part of Pascua-Lama gold production will be subject to a gross proceeds sliding scale royalty, ranging from 1.5% to 10%, and a 2% NSR royalty on copper production. Another part of Pascua-Lama is subject to a 3% NSR royalty on extraction of all gold, silver, and other ores. 5 > PROVISION FOR MINING ASSETS AND OTHER UNUSUAL CHARGES For the years ended December 31 2002 2001 Provision for mining assets Inmet litigation (note 22) Other $ $ – – – – 2000 $ 1,6001 – 27 $ – 59 – $ 59 $ 1,627 1. In 2000, we completed a review of our property, plant and equipment that was mainly triggered by the level of gold prices at the time, using the policy described in note 13C. As a result, we reduced the carrying values of various assets to their estimated fair values. The review was triggered by a number of events, including our long-term view of the price of gold at the time of the review. We recorded a $1.6 billion non-cash provision to write down various assets, including the Pascua-Lama Project in Chile and Argentina; the Pierina property in Peru and certain exploration properties; low-grade stockpile inventories and the carrying amount of our SJ royalty claims at the Betze- Post Mine in the United States; and the Bousquet Mine in Canada. 6 > INTEREST AND OTHER INCOME For the years ended December 31 Interest income Foreign currency translation gains (losses) Other 2002 $ 28 2001 $ 36 2 (1) $ 29 $ (10) 6 32 2000 $ 49 (18) (17) $ 14 7 > INCOME TAXES For the years ended December 31 2002 2001 2000 8 > EARNINGS PER SHARE We compute basic earnings per share by dividing net income or loss (the numerator) by the weighted-average $ (14) $ (23) number of outstanding common shares for the period (the denominator). In computing diluted earnings per share, an adjustment is made for the dilutive effect of the exercise of stock options. In periods where a net loss is reported, such as in 2000, basic and diluted loss per share are the same because the effect of the exercise of stock options would be anti-dilutive. The weighted-average number of common shares outstanding for the year was 541 million shares (2001 – 536 million shares, 2000 – 535 million shares). The number of shares for the diluted net income per share calculation was 541 million shares (2001 – 538 million shares, 2000 – 535 million shares). Current Canada Foreign Deferred (note 18) Canada Foreign Income taxes $ $ (44) (15) (59) 45 30 75 16 (22) (36) 74 (24) 50 14 $ (55) (78) 68 219 287 $ 209 Because we operate in a specialized industry and in several tax jurisdictions, our income is subject to varying rates of taxation. Major items causing our income tax rate to differ from the Canadian federal statutory rate of 38% are: For the years ended December 31 2002 2001 2000 Income tax (expense) credit based on statutory rate $ (67) $ (32) $ 523 (Increase) decrease resulting from: Resource and depletion allowances 12 Earnings in foreign jurisdictions at different tax rates Provision for mining assets Non-deductible expenses Changes in valuation allowance Outcome of income tax uncertainties Other Income tax credit $ The main temporary differences and their tax effects are: 67 – (9) (43) 22 34 16 11 84 – (56) (45) – 52 14 $ 29 76 (331) (35) 27 – (80) $ 209 Amortization Reclamation costs Net operating losses Provision for mining assets Other $ 52 $ 21 $ (4) 22 – 5 (8) 37 – – 8 8 19 267 (15) $ 75 $ 50 $ 287 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B A R R I C K A N N U A L R E P O R T 2 0 0 2 73 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 9 > COMPREHENSIVE INCOME (LOSS) Comprehensive income consists of net income or accounted for as cash flow hedges; unrealized gains loss and other gains and losses that are excluded from and losses on investments; and foreign currency net income or loss. Other gains and losses consist translation adjustments. mainly of gains and losses on derivative instruments Parts of comprehensive income (loss) For the years ended December 31 2002 2001 2000 Pre-tax amount Tax expense (credit) Tax expense (credit) Pre-tax amount Tax expense (credit) $ – $ (60) $ Pre-tax amount $ (26) 29 – (4) (5) (2) (4) – 4 (21) – – – – $ (17) $ (12) $ (4) – 4 – – – – – – – – (7) – $ (67) $ – – – – – – – – 2002 Tax credit $ – (17) – – Total $ (144) 32 (7) (6) Pre-tax amount $ (123) 29 (5) (4) 2001 Tax credit $ – (4) – – Total $ (123) 25 (5) (4) $ (108) $ (17) $ (125) $ (103) $ (4) $ (107) Foreign currency translation adjustments $ (21) $ Transfers of realized (gains) losses on derivative instruments to earnings Change in fair value of cash flow hedges FAS 133 transition adjustment (note 2) Additional minimum pension liability Transfers of realized (gains) losses on available-for-sale securities to earnings Unrealized losses on available-for-sale securities Accumulated other comprehensive loss (OCI) At December 31 Foreign currency translation adjustments Derivative instruments Additional minimum pension liability Unrealized losses on available-for-sale securities 10 > SHORT-TERM INVESTMENTS Available-for-sale securities (25) 49 – (2) 4 (6) (1) $ Pre-tax amount $ (144) 49 (7) (6) At December 31 2002 2001 Commercial paper and term deposits1 Fixed-income securities 2 Total debt securities Equity securities 2 Fair value Losses in OCI $ $ – 7 7 23 30 $ $ – – – 6 6 Fair value $ 159 14 173 32 $ 205 Losses in OCI $ $ – – – 4 4 1. As part of our cash management program, we invest in commercial paper and term deposits with initial maturities in excess of three months, but less than one year. 2. Under a deferred compensation plan for certain former Homestake executives we hold a portfolio of marketable fixed-income and equity securities. Short-term investments, which are all classified as available-for-sale, are carried at fair value with unrealized gains and losses, net of tax effects recorded in OCI, a part of shareholders’ equity. The fair value of investments is determined by quoted market prices. We recognize in earnings all declines in fair value judged to be other than temporary. During the three years ended December 31, total proceeds from the sale of short-term investments were: 2002 – $223 million; 2001 – $24 million; and 2000 – $26 million. For purposes of calculating realized gains and losses, we use the average cost of securities sold. 74 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Realized gains and losses on investments The fair value of the embedded derivatives at For the years ended December 31 Gains Losses 2002 $ $ – 4 11 > ACCOUNTS RECEIVABLE At December 31 Amounts due from customers Taxes recoverable Other 2001 $ $ 2 – 2002 $ 30 12 30 2000 $ $ 7 – 2001 $ 38 11 11 Amounts due from customers We recognize revenue from the sale of gold and by-products when the following conditions are met: > persuasive evidence of an arrangement exists; > delivery has occurred under the terms of the arrangement; > the price is fixed or determinable; and > collectibility is reasonably assured. For gold bullion sold under forward sales contracts December 31, 2002, was $1 million (positive), and is recorded on the balance sheet in other derivative assets. Revenue from the sale of by-products such as silver and copper is credited against operating costs. $ 72 $ 60 Gold in process and ore in stockpiles 12 > INVENTORIES AND OTHER CURRENT ASSETS At December 31 Mine operating supplies Derivative assets (note 23) Prepaid expenses 2002 $ 100 2001 $ 134 59 37 10 57 17 15 $ 206 $ 223 Gold in process and ore in stockpiles We record gold in process, ore in stockpiles and mine operating supplies at the lower of average cost and net realizable value. For gold in process and ore in stockpiles, cost includes materials and labor as well as an allocation of amortization of property, plant or in the spot market, we recognize revenue on transfer and equipment. of title to the gold to counterparties. Our Eskay Creek and Bulyanhulu mines produce ore and concentrate containing both gold and silver. Our concentrate sales contracts with third-party smelters provide for final gold and silver pricing in a specified Gold in process and ore in stockpiles excludes $61 million (2001 – $46 million) of stockpiled ore that we do not expect to process in the next 12 months. This amount is included in other assets. We process ore in stockpiles under a life of mine plan that is future period based on spot market metals prices. We intended to optimize use of our known mineral reserves, record revenues under these contracts based on the present plant capacity and pit design. Historically, forward gold and silver prices at the time of shipment, the market price of gold has not significantly affected which is when transfer of legal title to concentrate the timing of processing of ore in stockpiles. passes to the third-party smelters. The terms of the contracts result in embedded derivatives, because of Our Goldstrike property is the only one that has the difference between the recorded one-month forward significant stockpiled ore. The stockpiles consist of two price and the final settlement price. These embedded ore types: ore that will require autoclaving, and ore derivatives are adjusted to fair value through non-hedge that will require roasting. Processing of roaster ore derivative gains and losses in earnings each period until commenced on start-up of the roaster facility in 2000. the date of final gold and silver pricing. We are now processing ore from both the autoclave and roaster stockpiles. We expect to fully process the At December 31, 2002, we had outstanding concentrate autoclave stockpile by 2009 and the roaster stockpile sales contracts for 865,000 ounces of silver recorded by 2016. at an average price of $4.52 per ounce and 35,000 ounces of gold recorded at an average price of $323 per ounce. B A R R I C K A N N U A L R E P O R T 2 0 0 2 75 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 13 > PROPERTY, PLANT AND EQUIPMENT We expense repairs and maintenance expenditures 2002 2001 as incurred. We capitalize major improvements and At December 31 Property acquisition and mine development costs Buildings, plant and equipment Accumulated amortization $ 4,233 $ 4,448 2,812 7,045 2,824 7,272 (3,723) (3,651) $ 3,322 $ 3,621 A Property acquisition and mine development costs We capitalize payments for the acquisition of land and mineral rights. After acquisition, a number of things affect the recoverability of the cost of land and mineral rights, and in particular 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. We capitalize mine development costs on our properties after proven and probable reserves have been found. Before finding proven and probable reserves, costs are considered exploration costs, which are expensed as incurred. We start amortizing capitalized costs when production begins. Amortization is calculated using the units-of- production method based on the estimated recoverable ounces of gold in proven and probable reserves. replacements that increase productive capacity or extend the useful life of an asset, and amortize them over the remaining estimated useful life of the related asset. C Property evaluations We review and test the carrying amounts of our mineral properties and related buildings, plant and equipment when events or changes in circumstances suggest that the carrying amount may not be recoverable. If we have reason to suspect an impairment may exist, we prepare estimates of future net cash flows that we expect to generate for the related asset or group of assets. The cash flow estimates are based on: > estimated recoverable ounces of gold (considering proven and probable mineral reserves); > estimated future commodity prices (considering historical and current prices, price trends and related factors); and > expected future operating costs, capital expenditures and reclamation expenditures. We record a reduction of the assets or group of assets to their estimated fair value as a charge to earnings, if the estimated future net cash flows are less than the carrying amount. We calculate fair value by discounting the estimated future net cash flows using a discount factor. The discount factor is our estimate of the risk- adjusted rate used to determine the fair value of our mining properties in a transaction between willing We capitalize financing costs, including interest, relating buyers and sellers. to mine development costs while development or construction activities at the properties are in progress. 14 > OTHER ASSETS Capitalization occurs without restriction to specific At December 31 2002 2001 borrowings. We stop capitalizing financing costs when Ore in stockpiles (note 12) $ the asset or mine is substantially complete and ready Taxes recoverable for its intended use. Derivative assets (note 23) Deferred income tax assets (note 18) B Buildings, plant and equipment We record buildings, plant and equipment at cost and amortize them net of their residual value, using the Note receivable Restricted cash Debt issue costs straight-line method over their estimated useful lives. Deferred stock compensation (note 20B) The longest estimated useful life for buildings and Prepaid pension asset (note 21) mill equipment is 25 years and for mine equipment Other 61 35 78 45 14 8 11 5 7 51 $ 46 40 40 – 17 12 11 8 5 39 15 years. $ 315 $ 218 76 B A R R I C K A N N U A L R E P O R T 2 0 0 2 15 > OTHER CURRENT LIABILITIES B Project financing – Bulyanhulu At December 31 Current part of reclamation and closure obligations (note 17) $ Merger and related costs 1 Litigation (note 22) Derivative liabilities (note 23) Income taxes payable Pension benefits (notes 17 and 21) Current part of long-term debt (note 16) Deferred revenue 2 Other 2002 2001 One of our wholly-owned subsidiaries, Kahama Mining 53 3 58 28 52 9 20 35 61 $ 80 65 56 13 43 1 9 30 11 Corporation Ltd. in Tanzania, has a limited recourse amortizing loan for $194 million. We guaranteed the loan until completion, which occurred in March 2003. After completion, the loan became non-recourse. The loan is insured for political risks equally by branches of the Canadian government and the World Bank. The interest rate, inclusive of political risk insurance premiums, is LIBOR plus 2.6% before completion, and increases after completion to about LIBOR plus 3.6%. The effective interest rate for 2002, $ 319 $ 308 including amortization of debt-issue costs and political 1. In 2002, cash payments of merger and related costs totaled $50 million. Other amounts totaling $10 million were settled through pension plan benefit enhancements. Excess accruals totaling $2 million have been recorded in 2002 earnings. 2. Deferred revenue will be recorded in earnings in: 2003 – $17 million; 2004 – $7 million; 2005 – $4 million; 2010 – $7 million. risk insurance, was 7.2% (2001 – 7.3%, 2000 – 9.2%). The effective interest rate includes payments made under a receive-floating, pay-fixed interest-rate swap which matches the loan principal over the term to repayment and through this we have fixed the rate for the term of the debt at 7%. 16 > LONG-TERM DEBT At December 31 Debentures Project financing – Bulyanhulu Variable rate bonds Capital leases Current part Interest expense 2002 $ 504 2001 $ 500 194 80 3 781 (20) 200 80 22 802 (9) Scheduled repayments for each of the next five years are: 2003 – $20 million, 2004 – $24 million, 2005 – $31 million, 2006 – $34 million, 2007 – $34 million, 2008 and thereafter – $51 million. C Variable rate bonds Certain of our wholly-owned subsidiaries have issued $ 761 $ 793 variable rate, tax-exempt bonds of $17 million (due 2004), $25 million (due 2029) and $38 million (due 2032) for a total of $80 million. We pay interest monthly N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31 2002 2001 2000 on the bonds based on variable short-term, tax-exempt Interest incurred Less: capitalized Interest expense A Debentures $ $ 59 (2) 57 $ $ 67 (42) 25 $ $ 70 (44) 26 obligation rates. The average interest rate for 2002 was 1.4% (2001 – 1.9%). No principal repayments are due until cancellation, redemption or maturity. D Credit facilities On April 22, 1997, we issued $500 million of redeemable, We have a credit and guarantee agreement with a group non-convertible debentures. The debentures bear interest of banks (the “Lenders”), which requires the Lenders to at 7.5% per annum, payable semi-annually, and mature make available to us a credit facility of up to $1 billion or on May 1, 2007. In 2002, we entered into interest-rate the equivalent amount in Canadian currency. We swap contracts as a fair value hedge of our interest renewed the Credit Agreement on April 29, 2002 for rate risk exposure on $250 million of the debentures, another five-year term. The Credit Agreement, which effectively converting them to floating-rate debt is unsecured, matures in April 2007 and has an interest instruments (note 23). Under the swaps, we receive fixed- rate of LIBOR plus 0.27% to 0.35% when used, and an rate interest receipts at 7.5% in exchange for floating-rate annual fee of 0.08%. We have not drawn any amounts interest payments of LIBOR plus a credit spread of 4.0%, under the Credit Agreement. which resulted in an effective rate of 5.7%. B A R R I C K A N N U A L R E P O R T 2 0 0 2 77 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 17 > OTHER LONG-TERM OBLIGATIONS At December 31 Reclamation and closure costs Pension benefits (note 21) Other post-retirement benefits Derivative liabilities (note 23) Restricted stock units (note 20) Other 2002 $ 249 2001 $ 267 55 28 58 7 25 62 32 60 8 14 We estimate that future reclamation and closure costs under present environmental regulations are $461 million. The major parts of this $461 million estimate are for: tailing and heap leach pad closure/ rehabilitation – $83 million; demolition of buildings/ mine facilities – $121 million; ongoing water treatment – $67 million; ongoing monitoring and care and main- tenance – $129 million; and other costs – $61 million. $ 422 $ 443 At December 31, 2002, we had accrued a total of $302 million (2001 – $347 million), including the A Reclamation and closure costs current part of $53 million. We accrue estimates of future reclamation and closure costs at active mines over the life of the mines as revenue is recognized. Each period we expense an B Other post-retirement benefits We provide post-retirement medical, dental, and life amount calculated using the units-of-production method insurance benefits to certain employees. We use the based on the latest estimates of future reclamation and corridor approach in the accounting for post-retirement closure costs and recoverable ounces of gold contained benefits, under which all actuarial gains and losses in proven and probable reserves. After closure we resulting from variances between actual results and record changes in estimates of reclamation and closure economic estimates or actuarial assumptions are costs in earnings at the time of revision. Our accounting deferred. We amortize the deferred amounts when the policy for reclamation and closure costs will change net gains or losses exceed 10% of the accumulated on adoption of FAS 143 in 2003 (refer to note 2). post-retirement benefit obligation at the beginning At December 31, 2002, accrued costs at inactive mines of the year. The amortization period is the average totaled $169 million (2001 – $250 million). remaining life expectancy of participants. For 2002, we recorded a benefit expense of $nil (2001 – $2 million Estimates of reclamation and closure costs reflect: credit, 2000 – $1 million expense). > work that is required under applicable laws and regulations; We have assumed a health care cost trend of 7% in > obligations under existing permits; and 2002, 7.5% in 2001 and 8% in 2000, decreasing > where applicable, government mandated ratability to 5% in 2006 and thereafter. The assumed assumptions and methodologies. 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, 2002 would have increased or decreased the post- retirement benefit obligation by $2 million and would have had no significant effect on the benefit expense for 2002. 78 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 18 > DEFERRED INCOME TAXES Net deferred income tax liabilities to about $1,251 million at December 31, 2002, and $1,499 million at December 31, 2001. If the undistributed 2002 2001 earnings of those foreign subsidiaries were not At December 31 Assets Operating loss carryforwards $ 389 $ 312 Reclamation and closure costs Property, plant and equipment Post-retirement benefit plan obligations Alternative minimum tax credit carryforwards Other Gross deferred tax assets Valuation allowances Net assets Liabilities Property, plant and equipment Other 82 93 46 110 43 763 (476) 287 (487) (16) 81 32 48 111 61 645 (433) 212 (444) (59) indefinitely invested, a deferred income tax liability of $63 million at December 31, 2002, and $75 million at December 31, 2001, would be recorded. Operating loss carryforwards amount to $1,456 million, of which $1,032 million do not expire and $424 million expire at various times over the next 20 years. Alternative minimum tax credit carryforwards amount to $110 million and do not expire. Our income tax returns for the major jurisdictions where we operate have been fully examined through the follow- ing years: Canada – 1997, United States – 1998 and Peru – 2000. Other than the matter described in note 22C $ (216) $ (291) relating to interest and penalties associated with Net deferred income tax liabilities consist of: a Peruvian tax assessment, we are not aware of any Non-current assets (note 14) Non-current liabilities 45 (261) – tax matters outstanding in any country in which we (291) operate that could potentially have a material adverse $ (216) $ (291) effect on our financial position or results of operations. A Recognition and Measurement B Valuation allowances We recognize deferred income tax assets and liabilities Because we operate in multiple tax jurisdictions, we for the future tax consequences of temporary consider the need for a valuation allowance on a differences between the carrying amounts of assets and country-by-country basis, taking into account the effects liabilities in our balance sheet and their tax bases. We of local tax law. When a valuation allowance is not measure deferred income tax assets and liabilities using recorded, we believe that there is sufficient positive enacted rates that apply to the years when we expect to evidence to support this conclusion. recover or settle the temporary differences. Our income tax expense or recovery includes the effects of changes When facts or circumstances change, we record an in our deferred income tax assets and liabilities. adjustment to a valuation allowance to reflect the We reduce deferred income tax assets by a valuation economic effects of the change. The main factors that allowance if we decide it is more likely than not that affect the amount of a valuation allowance are: some or all of the assets will not be realized. > expected levels of future taxable income; > opportunities to implement tax plans that affect We measure and recognize deferred income tax assets whether tax assets can be realized; and and liabilities based on: our interpretation of relevant > the nature and amount of taxable temporary tax legislation; our tax planning strategies; estimates of differences. the tax bases of individual assets and liabilities; and the deductibility of expenditures for income tax purposes. Levels of taxable income are affected by, among other We will recognize the effects of changes in our assess- things, prevailing gold prices; cash operating costs; ment of these estimates and factors when they occur. changes in proven and probable gold reserves; and changes in interest rates and foreign currency We have not recorded deferred income taxes relating to exchange rates. It is reasonably possible that undistributed earnings of foreign subsidiaries that are circumstances could occur resulting in a material indefinitely invested. Undistributed earnings amounted change in the valuation allowances. B A R R I C K A N N U A L R E P O R T 2 0 0 2 79 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 19 > CAPITAL STOCK A Authorized capital Our authorized capital stock includes an unlimited number of common shares, 9,764,929 First preferred shares, Series A (issued nil); 9,047,619 Series B (issued Summarized financial information for HCI For the years ended December 31 2002 2001 Total revenues and other income $ 203 $ 175 Less: costs and expenses Income (loss) before taxes 191 12 (1) $ $ 281 $ (106) $ (84) 2000 $ 203 233 (30) (30) $ $ nil); 1 Series C special voting share (issued 1); and Net loss 14,726,854 Second preferred shares Series A (issued nil). B Homestake Canada Inc. (“HCI”) Exchangeable Shares In connection with a 1998 acquisition, HCI issued 11.1 million HCI exchangeable shares. Each HCI At December 31 Assets Current assets Non-current assets Total assets exchangeable share is exchangeable for 0.53 of a Liabilities and shareholders’ equity Barrick common share at any time at the option of the Other current liabilities holder and has essentially the same voting, dividend Notes payable (payable in Canadian dollars), and other rights as 0.53 of a Barrick common share. At December 31, 2002, 1.6 million (2001 – 3 million) HCI exchangeable shares were outstanding, which are equivalent to 0.8 million Barrick common shares (2001 – 1.6 million common Other long-term liabilities Deferred income taxes Shareholders’ equity 2002 2001 $ 91 236 $ 43 345 $ 327 $ 388 75 407 18 122 76 416 12 121 (295) (237) $ 327 $ 388 shares). The equivalent common share amounts are C Dividends reflected in the number of common shares outstanding. In 2002, we declared and paid dividends in US dollars totaling $0.22 per share (2001 – $0.22 per share, At any time on or after December 31, 2008, or when 2000 – $0.22 per share). fewer than 1.4 million HCI exchangeable shares are outstanding, we have the right to require the exchange of each outstanding HCI exchangeable share for 0.53 20 > EMPLOYEE STOCK-BASED COMPENSATION A Common stock options of a Barrick common share. At December 31, 2002, 22 million common stock options were outstanding, expiring at various dates to December 2, 2012. The exercise price of the options is set at our closing share price on the day before the grant date. They vest over four years at a rate of one quarter each year, beginning in the year after granting, and are exercisable over 10 years. At December 31, 2002, 5 million (2001 – 9 million, 2000 – 6 million) common shares, in addition to those currently outstanding, were available for granting options. Besides the common stock options in the table on page 81, we are obliged to issue about 0.5 million common shares (2001 – 0.7 million common shares) in connection with outstanding stock options assumed as part of the Sutton acquisition. The options have an average exercise price of C$19.68 (2001 – C$19.34) and an average remaining term of three years (2001 – four years). 80 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Stock option activity (shares in millions) 2002 2001 2000 Shares (number) Average price Shares (number) Average price Shares (number) Average price C$ options At January 1 Granted Exercised Cancelled or expired At December 31 US$ options At January 1 Granted Exercised Cancelled or expired At December 31 19 6 (4) (2) 19 6 – (2) (1) 3 $ 24.71 $ 24.79 $ 33.99 – $ 11.99 $ 25.10 22 1 – (4) 19 4 2 – – 6 $ 24.32 $ 22.77 $ 29.66 $ 9.03 $ 13.44 $ 26.10 21 5 – (4) 22 3 1 – – 4 $ 24.24 $ 22.95 $ 32.77 $ 13.72 – $ 29.45 Stock options outstanding (shares in millions) Range of exercise prices Shares (number) Average price Average life (years) Shares (number) Average price Outstanding Exercisable C$ options $ 22.55 - $ 31.05 $ 31.25 - $ 44.25 US$ options $ 8.96 - $17.68 $ 17.75 - $ 40.66 17 2 19 2 1 3 $ 25.43 $ 39.46 $ 12.24 $ 25.22 8 4 8 5 2 4 7 2 9 1 1 2 $ 26.73 $ 39.84 $ 13.62 $ 25.47 Under APB 25, we recognize compensation cost for stock Option value information options in earnings based on the excess, if any, of the quoted market price of the stock at the grant date of the For the years ended December 31 (per share and option amounts in dollars) award over the option exercise price. Generally, the exercise price for stock options granted to employees equals the fair market value of our common stock at the date of grant, resulting in no compensation cost. FASB Statement No. 123 (Accounting for Stock-Based Compensation) (FAS 123) encourages, but does not Fair value per option Valuation assumptions: 2002 $ 6.40 2001 $ 5.10 2000 $ 5.90 Expected option term (years) Expected volatility Expected dividend yield Risk-free interest rate 6 40% 1.4% 5.0% 10 30% 1.4% 5.5% 6 30% 1.4% 6.0% require, companies to record compensation cost for stock- Pro forma effects based employee compensation plans based on the fair Net income (loss), as reported $ 193 $ 96 $(1,189) value of options granted. We have elected to continue to Stock-option expense (21) (31) (30) account for stock-based compensation using the intrinsic Pro forma net income (loss) $ 172 $ 65 $(1,219) value method prescribed in Accounting Principles Board Net income (loss) per share: Opinion No. 25 (Accounting for Stock Issued to Employees) (APB 25) and its related interpretations, and to provide disclosures of the pro forma effects of adoption had we recorded compensation expense under the fair value method. As reported 1 Pro forma 1 1. Basic and diluted. $ 0.36 $ 0.32 $ 0.18 $ 0.12 $ (2.22) $ (2.28) B A R R I C K A N N U A L R E P O R T 2 0 0 2 81 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B Restricted stock units In 2001, we put in place a restricted stock unit incentive 21 > PENSION PLANS A Defined benefit pension plans plan (RSU Plan). Under the RSU Plan, a participant is We have various qualified defined benefit pension plans granted a number of RSUs, where each unit has a value that cover certain of our United States employees and equal to one Barrick common share at the time of provide benefits based on employees’ years of service. grant. Each RSU, which vests and will be paid out on Our policy for these plans is to fund, at a minimum, the the third anniversary of the date of grant, has a value amounts necessary on an actuarial basis to provide equivalent to the market price of a Barrick common enough assets to meet the benefits payable to plan share. RSUs are recorded at their fair value on the grant members under the Employee Retirement Income date, with a corresponding amount recorded as deferred Security Act of 1974. Independent trustees administer compensation that is amortized on a straight-line basis assets of the plans, which are invested mainly in fixed- over the vesting period. Changes in the fair market income securities and equity securities. value of the units during the vesting period are recorded, with a corresponding adjustment to the As well as the qualified plans, we have nonqualified carrying amount of deferred compensation. Compen- defined benefit pension plans covering certain sation expense for the year ended December 31, 2002 employees and a director of the Company. An irrevocable was $3 million (2001 – $nil). At December 31, 2002, trust (“rabbi trust”) was set up to fund these plans. The the weighted average contractual life was two years. diversified assets held in this trust, which include cash At December 31, 2002, the fair value of outstanding of $1 million and short-term investments of $30 million RSUs was $7 million and is included in other long- are recorded in our consolidated balance sheet and term obligations. RSU activity Balance at December 31, 2000 Granted Balance at December 31, 2001 Cancelled Balance at December 31, 2002 RSUs (in thousands) Fair value per unit (in dollars) – 495 495 (30) 465 $ – 15.49 15.95 19.74 $ 15.41 accounted for under our accounting policies for such assets. At December 31, 2002, the fair value of assets held in the trust was $31 million (2001 – $47 million). Our pension expense includes the cost of employee benefits earned in the year, interest expense on the accrued benefit obligation, the expected return on the market value of plan assets, and amortization of deferred actuarial gains and losses. Actuarial gains and losses arise when the actual return on plan assets for a period differs from the expected return on plan assets for that period, and when actual experience causes the expected and actuarial accrued benefit obligations to differ at the end of the year. We amortize actuarial gains and losses over the average remaining life expectancy of participants. 82 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Pension expense Pension plans where ABO exceeds the fair For the years ended December 31 2002 2001 2000 value of plan assets Expected return on plan assets $ (17) $ (21) $ (21) At December 31 Service cost for benefits earned Interest cost on benefit obligation Prior service cost Actuarial gains Special termination charges 1 Effect of curtailments/settlements 3 16 – (1) – 1 2 $ 4 16 1 (2) 39 (4) 3 17 1 (1) 10 2 $ 33 $ 11 1. In 2001, the planned closure of certain mine sites caused some terminated employees at the sites to receive extra pension entitlements. As well, certain employees with change of control clauses in their employment agreements became entitled to enhanced pension benefits on the closing of the merger. We recorded a charge of $39 million included in merger and related costs to reflect the impact of these events. In 2000, we recorded a charge of $10 million for special termination benefits arising due to the closure of the Homestake mine in provisions for mining assets and other unusual charges. B 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 was $12 million in 2002, $12 million in 2001 and $11 million in 2000. C Defined benefit pension plan actuarial information Projected benefit obligation ABO Fair value of plan assets Benefit asset (liability) At December 31 Prepaid pension asset Accrued benefit plan liability – current Accrued benefit plan liability – non-current Additional minimum liability (note 9) 2002 $ 193 $ 193 $ 132 2001 $ 238 $ 236 $ 184 2002 2001 $ 7 (7) (48) (7) $ 5 (1) (57) (5) $ (55) $ (58) Actuarial assumptions For the years ended December 31 Discount rate Expected return on plan assets Compensation increases 2002 6.50% 8.50% 5.00% 2001 6.75% 8.50% 5.00% 2000 7.25% 8.50% 5.00% Sensitivity analysis of actuarial assumptions1 Effect on ABO Effect on earnings Expected return on plan assets Discount rate 1. Effect of a one-percent change $ – $ 18 $ 1 $ 3 Accumulated benefit obligation (ABO) 2002 2001 22 > COMMITMENTS AND CONTINGENCIES A Contingencies Balance at January 1 $ 279 $ 238 Certain conditions may exist as of the date the financial Service cost for benefits earned Interest cost on benefit obligation Plan amendments and special terminations Actuarial (gains) losses Benefits paid Curtailments Balance at December 31 Fair value of plan assets Balance at January 1 Actual return on plan assets Company contributions Benefits paid Balance at December 31 Funded status Unrecognized net actuarial (gains) losses Net liability recognized 3 16 – (1) (70) – 4 16 39 17 (24) (11) 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. Management and, where appropriate, legal counsel, assess such contingent liabilities, which inherently involves an exercise of judgement. $ 227 $ 279 $ 235 $ 255 proceedings that are pending against us or unasserted In assessing loss contingencies related to legal (2) 7 (70) $ 170 $ $ (57) 9 (48) 3 1 (24) $ 235 $ (44) (9) $ (53) 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. B A R R I C K A N N U A L R E P O R T 2 0 0 2 83 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S If the assessment of a contingency suggests that it is On February 23, 1998, Inmet filed suit against HCI in probable that a material loss has been incurred and the the British Columbia Supreme Court, disputing the amount of the liability can be estimated, then the termination of the agreement and alleging that HCI estimated liability is accrued in the financial statements. had breached the agreement. On January 15, 2002, If the assessment suggests that a potentially material the Supreme Court of British Columbia released its loss contingency is not probable but is reasonably decision in the matter and found in favor of Inmet and possible, or is probable but cannot be estimated, then against HCI. Specifically, the Court held that Inmet the nature of the contingent loss, together with an should be awarded equitable damages in the amount estimate of the range of possible loss, if determinable, of C$88.2 (US$59) million, which was accrued at are disclosed. Loss contingencies considered remote are December 31, 2001. The Court did not award Inmet generally not disclosed unless they involve guarantees, pre-judgement interest. Inmet requested the Court in which case we disclose the nature of the guarantee. to re-open the trial to let Inmet make submissions on B Environmental its claim for pre-judgement interest from the date of the breach by HCI. The request to re-open was denied Our mining and exploration activities are subject to by the Court on May 17, 2002. various federal, provincial and state laws and regulations governing the protection of the environment. These On February 7, 2002, HCI filed a Notice of Appeal of laws and regulations are continually changing and the decision with the British Columbia Court of Appeal. generally becoming more restrictive. We conduct our Inmet filed a Cross-Appeal of the decision regarding operations so as to protect public health and the pre-judgement interest. A letter of credit of about environment, and we believe that our operations are C$95 million was posted on August 20, 2002 by HCI materially in compliance with all applicable laws and with the British Columbia Court of Appeal, pending a regulations. We have made, and expect to make in the decision on the appeal. future, expenditures to meet such laws and regulations. Bre-X Minerals The Comprehensive Environmental Response, On April 30, 1998, we were added as a defendant in a Compensation and Liability Act imposes heavy liabilities class action lawsuit initiated against Bre-X Minerals Ltd., on persons who discharge hazardous substances. certain of its directors and officers or former directors The Environmental Protection Agency publishes a and officers and others in the United States District National Priorities List (“NPL”) of known or threatened Court for the Eastern District of Texas, Texarkana releases of such substances. Homestake’s former Division. The class action alleges, among other things, uranium millsite near Grants, New Mexico is listed on that statements made by us in connection with our the NPL. C Litigation and claims Inmet litigation efforts to secure the right to develop and operate the Busang gold deposit in East Kalimantan, Indonesia were materially false and misleading and omitted to state material facts relating to the preliminary due diligence In October 1997, Homestake Canada Inc. (“HCI”), a investigation undertaken by us in late 1996. wholly-owned subsidiary of Barrick, entered into an agreement with Inmet Mining Corporation (“Inmet”) to On July 13, 1999, the Court dismissed the claims against purchase the Troilus mine in Quebec for $110 million us and several other defendants on the grounds that plus working capital. In December 1997, HCI terminated the plaintiffs had failed to state a claim under United the agreement after deciding that, on the basis of due States securities laws. On August 19, 1999, the plaintiffs diligence studies, conditions to closing the arrangement filed an amended complaint restating their claims would not be satisfied. against us and certain other defendants and on June 14, 2000, filed a further amended complaint, the Fourth Amended Complaint. 84 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S On March 31, 2001, the Court granted in part and denied from what we have previously assumed with a resulting in part our Motion to Dismiss the Fourth Amended increase in current and deferred income taxes. While we Complaint. As a result, we remain a defendant in the believe the tax assessment is incorrect and we will case. We believe that the remaining claims against us appeal the decision, the full life of mine effect on our are without merit. We filed our formal answer to the current and deferred income tax liabilities of Fourth Amended Complaint on April 27, 2001, denying $141 million is recorded at December 31, 2002, as well all relevant allegations of the plaintiffs against us. as other payments of about $21 million due for Discovery in the case has been stayed by the Court periods through 2002. pending the Court’s decision on whether or not to certify the case as a class action. The amount of We intend to pursue all available administrative and potential loss, if any, which we may incur arising out judicial appeals. If we are successful on appeal and our of the plaintiffs’ claims is not presently determinable. original asset valuation is confirmed as the appropriate Blanchard complaint tax basis of assets, we would benefit from a $141 million reduction in tax liabilities recorded at December 31, On January 7, 2003, we were served with a Complaint 2002. The effect of this contingent gain, if any, will be for Injunctive Relief by Blanchard and Company, Inc. recorded in the period the contingency is resolved. (“Blanchard”), and Herbert Davies (“Davies”). The complaint, which is pending in the US District Court Under Peruvian law, we are not required to make for the Eastern District of Louisiana, also names payment pending the outcome of the appeal process, J.P. Morgan Chase & Company (“J.P. Morgan”) as the which routinely takes several years. defendant, along with an unspecified number of additional defendants to be named later. The complaint We have not provided for $51 million of potential alleges that we and bullion banks with which we entered interest and penalties assessed in the audit. Even if the into spot deferred contracts have manipulated the tax assessment is upheld, we believe that we will prevail price of gold, in violation of US antitrust laws and the on the interest and penalties part, because the Louisiana Unfair Trade Practices and Consumer assessment runs counter to applicable law and previous Protection Law. Blanchard alleges that it has been Peruvian tax audits. The potential amount of interest injured as a seller of gold due to reduced interest in gold and penalties will increase over time while we contest as an investment. Davies, a customer of Blanchard, the tax assessment. A liability for interest and penalties alleges injury due to the reduced value of his gold will only be recorded should it become probable investments. The complaint does not seek damages, but that SUNAT’s position on interest and penalties will be seeks an injunction terminating certain of our trading upheld, or if we exhaust our appeals. agreements with J.P. Morgan and other bullion banks. We intend to defend the action vigorously. Other Peruvian tax assessment From time to time, we are involved in various claims, legal proceedings and complaints arising in the ordinary On December 27, 2002, one of our Peruvian subsidiaries course of business. We are also subject to reassessment received an income tax assessment of $41 million, for income and mining taxes for certain years. We do excluding interest and penalties, from the Peruvian tax not believe that adverse decisions in any pending or authority SUNAT. The tax assessment relates to a threatened proceedings related to any potential tax recently completed tax audit of our Pierina Mine for the assessments or other matters, or any amount which 1999-2000 fiscal years. The assessment mainly relates we may be required to pay by reason thereof, will have to the revaluation of the Pierina mining concession and a material adverse effect on our financial condition or associated tax basis. Under the valuation proposed by future results of operations. SUNAT, the tax basis of Pierina assets would change B A R R I C K A N N U A L R E P O R T 2 0 0 2 85 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D Commitments In the most significant of these programs – the spot We have entered into various commitments in the deferred and variable-price sales contracts – the ordinary course of business, including commitments contracts set a price for future gold and silver sales to perform assessment work and other obligations with significant flexibility to capture gold price upside necessary to maintain or protect our interests in periods of higher prices. This effect is achieved in mining properties, financing and other obligations as a result of our strong balance sheet, large reserves to joint ventures and partners under venture and and diversified operations. partnership agreements, and commitments under federal and state/provincial environmental, health We mainly use over-the-counter (“OTC”) derivative and safety permits. 23 > DERIVATIVE INSTRUMENTS A Use of derivative instruments contracts. These privately negotiated agreements, which provide superior terms compared to exchange-traded contracts, allow us to obtain favorable credit, tenor and flexibility terms. We do not enter into derivative We use derivative financial instruments to reduce instruments which we would consider leveraged. or eliminate the inherent risks of certain identifiable transactions and balances that occur in the normal B Accounting for derivative instruments course of our business. The inherent risks in these and hedging activities transactions and balances arise from changes in Under US GAAP rules, companies are required commodity prices (gold and silver), interest rates and to include on their balance sheet the fair value of foreign currency exchange rates. The purpose of our derivative instruments, which are defined under FAS 133. derivative program is to ensure that disadvantageous This definition excludes certain derivative instruments changes in the values of cash flows from these from its scope, including instruments that meet the transactions and balances are offset by changes in the definition of “normal sales contracts”, and whose values of the derivatives. We do not hold derivatives for obligations are met by physical delivery of gold or silver, the purpose of speculation; our derivative program is as set out in paragraph 10(b). Our spot deferred and designed to enable us to plan our operations on the variable price sales contracts meet the terms of this basis of secure assumptions that will not be jeopardized paragraph, so FAS 133 does not apply to them. by future movements of gold and silver prices, interest We apply our normal revenue recognition principles rates and currency exchange rates. to our normal sales contracts, which results in recognition of proceeds from the contracts as revenue In the normal course of our business, the main types of at the date of physical delivery. derivatives we hold and/or issue are: Spot deferred and variable-price sales contracts: These contracts provide for the sale of future gold production in fixed quantities with delivery dates at our discretion over a period of up to 15 years. Interest rate swaps: These instruments are used to counteract the volatility of variable short-term interest rates by substituting fixed interest rates over longer terms on cash and short-term investments. Foreign currency contracts: These instruments are used for the cash flows at our operating mines from forecasted expenditures denominated in Canadian and Australian dollars to insulate them from currency fluctuations. Gold lease rate swap contracts: These contracts are used to manage gold lease rate exposure. 86 B A R R I C K A N N U A L R E P O R T 2 0 0 2 All other derivatives are recognized on our balance We formally document all relationships between sheet at their fair value as either an asset or a liability. derivative instruments and the items they are hedging, On the date we enter into a derivative contract, as well as the risk-management goals and strategy for we designate the derivative as either: entering into hedge transactions. This documentation > a fair value hedge of a recognized asset or liability; includes linking all derivatives designated as fair-value, > a cash flow hedge of either a forecasted transaction cash flow, or foreign-currency hedges to either specific or the variability of cash flows associated with a assets and liabilities in the balance sheet, specific firm recognized asset or liability; commitments or specific forecasted transactions. > a foreign currency cash flow hedge of forecasted transactions; or For these documented relationships, we formally assess > an instrument that is held for non-hedging purposes. (both at the start of the hedge and on an ongoing basis) whether the derivatives used in hedging transactions Fair-value hedges of recognized assets or liabilities: are highly effective in offsetting changes in the fair we record in earnings any changes in the fair value value or cash flows of hedged items, and whether those of the derivatives as they occur, along with changes derivatives are expected to remain highly effective in in the fair value of the hedged asset or liability. the future. If it is clear that a derivative is not highly Derivatives that qualify as cash flow hedges: we record effective as a hedge, we stop hedge accounting changes in the fair value of the derivative in Other prospectively. Comprehensive Income (OCI) until earnings are affected by the forecasted transaction. Other circumstances under which we stop hedge Interest-rate swaps designated as hedges of future accounting prospectively include: interest receipts arising on our cash and short-term > a derivative expires or is sold, terminated, or investments: gains and losses on the derivatives are exercised; recorded in OCI until the related interest receipts are > it is no longer probable that the forecasted transaction recorded in earnings, at which time the gains and losses will occur; or are transferred to interest income. > if we decide to remove the designation as a hedge Foreign-currency contracts for Canadian or Australian from a derivative. capital and operating expenditures at our operating mines: gains and losses on the derivatives are recorded If it is clear that a forecasted transaction will not occur in OCI until these costs are recorded in earnings, by the originally specified time, or within a further at which time the gains and losses are transferred two-month period, gains and losses accumulated in OCI to amortization or operating costs. are recognized at once in earnings. Non-hedge derivatives: Changes in the fair value are recorded in earnings as they occur. In all situations in which hedge accounting stops and a derivative remains outstanding, future changes in its All cash flows relating to derivative instruments are fair value are recognized in earnings as they occur. included under operating cash flows. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B A R R I C K A N N U A L R E P O R T 2 0 0 2 87 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C Gold and silver contracts outstanding as at December 31, 2002 Maturity/Scheduled for delivery in 2003 2004 2005 2006 2007 2008+ Total Gold contracts Spot deferred contracts Ounces (thousands) Average price per ounce Variable price gold sales and option contracts With “caps” Ounces (thousands) Average price per ounce at cap expiry date With “caps” and “floors” Ounces (thousands) Cap price per ounce Floor price per ounce Total gold ounces (thousands) Average price per ounce Silver contracts Spot deferred contracts Ounces (thousands) Average price per ounce Written silver call options Ounces (thousands) Average exercise price per ounce Total silver ounces (thousands) Average price per ounce 2,800 $ 340 1,350 $ 345 1,550 $ 335 1,540 $ 338 1,500 $ 340 7,200 $ 343 15,940 $ 341 – – – – – 250 300 300 250 $ 344 $ 310 $ 317 $ 332 900 2,000 $ 369 $ 345 150 $ 310 $ 280 3,200 $ 339 11,000 $ 4.95 3,750 $ 5.27 14,750 $ 5.03 – – – – – – – – – – – – 1,650 $ 339 1,850 $ 332 1,790 $ 337 1,500 $ 340 8,100 $ 346 9,000 $ 5.14 5,000 $ 5.28 14,000 $ 5.19 9,000 $ 5.14 2,000 $ 5.00 11,000 $ 5.11 3,300 $ 5.19 3,000 $ 5.19 – – – – 3,300 $ 5.19 3,000 $ 5.19 – – – – – – 150 $ 310 $ 280 18,090 $ 341 35,300 $ 5.09 10,750 $ 5.22 46,050 $ 5.12 We also have off-take contracts which allow (but do The largest single counterparty as of December 31, not commit) us to sell 1.7 million ounces of gold spread 2002 made up 13% of outstanding gold sales over 10 years, at then prevailing spot prices. commitments. 88 B A R R I C K A N N U A L R E P O R T 2 0 0 2 Spot deferred gold sales contracts Variable-price gold sales contracts We have entered into spot deferred gold sales contracts, Variable price gold sales contracts are contracts to with various counterparties, that fix selling prices at deliver a specified quantity of gold on a future date interim delivery dates for future gold production, and determined by us. The contracts have a final delivery which act as an economic hedge against possible price date of up to 15 years from the start date, but we have fluctuations in gold. The contracts have a final delivery the right to set a delivery date at any time during this date of up to 15 years from the start date, but we have 15-year period. All of the variable-price gold sales the right to set a delivery date for any time during contracts have expected delivery dates beyond 2007. this period. At the time an interim delivery date is The contract price equals the gold spot price on the rescheduled, the contract price is adjusted based on the interim delivery date subject to a specified maximum difference between the prevailing forward gold market (“cap”) based on market conditions in the years shown price and the original contract price. in the table on page 88, plus a fixed premium payable to us. The contract price will be adjusted in the same The average price of the spot deferred gold sales manner as price adjustments to spot deferred contracts contracts in the table on page 88 reflects fixed prices for the period from these interim delivery dates to the at interim delivery dates and expected future price expected delivery date beyond 2007. Certain of these assumptions for periods where expected delivery dates contracts also have a specified minimum (“floor”) price. differ from interim delivery dates. The large majority of contracts are fixed through 2006. The expected Spot deferred silver sales contracts and written prices incorporate an average gold lease rate silver call options assumption of 1.5% and assumptions of US dollar Spot deferred silver sales contracts have the same interest rates consistent with market quotations for delivery terms and pricing mechanism as spot deferred such rates. Variations between the gold lease rate and gold sales contracts. A group of these contracts totaling interest rate assumptions and the actual gold lease 14.3 million ounces of silver are accounted for as normal rates and interest rates will affect the final realized sales contracts, as we physically deliver silver production selling prices. Gold lease rate exposure is accounted for into the contracts. For a separate group of contracts separately from our spot deferred gold sales contracts, totaling 21 million ounces, we have elected hedge and the economic impact flows through our earnings accounting treatment, and we designated these contracts each quarter as part of non-hedge derivative gains as cash flow hedges beginning on November 8, 2002. (losses). This gold lease rate exposure is 6.4 million ounces spread from 2004 to 2012, mainly for contracts Changes in fair value of our written silver call options with expected delivery dates beyond 2006. are recorded in earnings as they occur. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B A R R I C K A N N U A L R E P O R T 2 0 0 2 89 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D Other derivative instruments outstanding as at December 31, 2002 2003 2004 2005 2006 2007 2008+ Total Maturity Interest rate contracts Receive fixed – swaps and swaptions Notional amount (millions) Fixed rate (%) Pay fixed – swaps and swaptions Notional amount (millions) Fixed rate (%) Net notional position Total return swaps Notional amount (millions) Foreign currency contracts Canadian dollar forwards C$ (millions) Average price (US¢) Canadian dollar min-max contracts C$ (millions) Average cap price (US¢) Average floor price (US¢) Australian dollar forwards A$ (millions) Average price (US¢) Australian dollar min-max contracts A$ (millions) Average cap price (US¢) Average floor price (US¢) Fuel contracts Barrels WTI (thousands) Cap Floor $ 250 3.5% $ 75 2.7% $ 100 3.0% $ 475 5.6% – – – – $ 100 $ 475 – – $ 250 – – – 75 17 $ $ $ 118 0.64 $ 91 0.63 – – – – – – – – – – – – – – – – - – $ 101 0.65 $ 173 0.65 0.63 $ 175 0.51 $ 311 0.51 $ 283 0.51 $ 10 0.52 $ 339 $ 10 $ 10 $ 10 0.55 0.52 240 30 18 $ $ 0.52 0.51 – – – 0.52 0.51 – – – 0.52 0.51 – – – – – $ 344 5.6% $ (344) – – – – – – – – – – – – – – $ 900 4.5% $ 344 5.6% $ 556 $ 17 $ 310 0.64 $ 173 0.65 0.63 $ 779 0.51 $ 369 0.55 0.52 240 30 18 $ $ – – – – – – – – – – – – – – Our interest rate and foreign currency contracts are > we have elected receive fixed interest rate swaps recorded at fair value on our balance sheet, with with a total notional amount of $650 million to be changes in fair value recorded in earnings as they accounted for as cash flow hedges of expected future occur, with the following exceptions: interest receipts arising on our cash and short-term > we have elected cash flow hedge accounting investments (note 28); and we have elected receive treatment for Canadian dollar foreign currency fixed interest rate swaps with a total notional amount contracts with a total notional amount of of $250 million to be accounted for as a fair value C$457 million, and Australian dollar foreign hedge of fixed-rate debentures (refer to note 16A). currency contracts with a total notional amount > we have elected an amortizing pay fixed interest rate of A$1,065 million; swap with a total notional amount of $194 million as at December 31, 2002 to be accounted for as a cash flow hedge of future interest payments relat- ing to the project financing for Bulyanhulu (refer to note 16B). 90 B A R R I C K A N N U A L R E P O R T 2 0 0 2 E Unrealized fair value of derivative instruments In the next twelve months, we expect to transfer gains (excluding normal sales contracts) of $27 million from OCI to earnings. For the year ended 2002 2001 $ (16) $ (42) At January 1 Derivative instruments entered into or settled Change in fair value of derivative instruments: Non-hedge derivative gains (losses) Cash flow hedges Fair value hedges At December 31 (2) (6) 49 4 29 $ (7) 33 – – December 31, 2002, the amount of hedge ineffectiveness recorded and recognized in non-hedge derivative gains (losses) was a loss of $1 million. G Non-hedge derivative gains (losses) For the years ended December 31 Commodity contracts $ (16) Currency contracts Interest and lease rate contracts 2002 (2) 8 (12) (6) $ $ 2001 $ 57 (15) (9) $ 33 The fair values of recorded derivative related assets and liabilities reflect the netting of the fair values of individual derivative instruments, and amounts due H Credit and market risks By using derivative instruments, we expose ourselves to credit and market risk. Market risk is the risk that the value of a financial instrument might be adversely affected by a change in commodity prices, interest rates, gold lease rates, or currency exchange rates. We manage the market risk associated with commodity prices, interest rate, gold lease rate, and foreign currency contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. to/from counterparties that arise from derivative instruments, when the conditions of FIN No. 39, Offsetting of Amounts Related to Certain Contracts, have been met. Amounts receivable from counterparties that have been offset against derivative liabilities totaled $16 million at December 31, 2002. F Change in fair value of cash flow hedge contracts Commodity contracts Foreign currency contracts Interest rate contracts At January 1, 2001 $ (4) Losses transferred to earnings 29)1 At December 31, 2001 $ 25 $ – – – – – – $ Change in fair value (4) 33 20 Gains transferred Total $ (4) $ 29 25 49 to earnings (12)1 (7)2 (6)3 (25) At December 31, 2002 $ 9 $ 26 $ 14 $ 49 1. 2. 3. Included under revenues and by-product credits Included under operating expenses Included under interest income N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B A R R I C K A N N U A L R E P O R T 2 0 0 2 91 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Credit risk is the risk that a counterparty might fail to fulfill its performance obligations under the terms of a 24 > FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is defined as the value at which positions derivative contract, or in the case of total return swaps, could be closed out or sold in a transaction with a the risk that a deterioration in credit quality of the willing and knowledgeable counterparty over a period underlying reference asset, or a credit default event, will of time consistent with our risk management or give rise to a loss under the derivative instrument. If investment strategy. a counterparty fails to fulfill its performance obligations under a derivative contract, our credit risk will equal The accounting for an asset or liability may differ based the fair value gain in a derivative. For our total return on the type of instrument and/or its use in a risk swaps, the maximum amount of credit risk is limited management or investing strategy. The measurement to the notional amount of the contract, plus or minus approaches used in financial statements include unrealized gains or losses. When the fair value of a the following: derivative contract is positive, this indicates that the > recorded at fair value on the balance sheet with counterparty owes us, thus creating a repayment risk changes in fair value recorded each period in for us. When the fair value of a derivative contract the earnings; is negative, we owe the counterparty and, therefore, > recorded at fair value on the balance sheet with we assume no repayment risk. We minimize our credit changes in fair value recorded each period in a (or repayment) risk in derivative instruments by: separate component of shareholders’ equity and > entering into transactions with high-quality as part of other comprehensive income; counterparties whose credit ratings are generally > recorded at cost (less other-than-temporary “AA” or higher; impairments) with changes in fair value not recorded > limiting the amount of exposure to each counterparty; in the financial statements but disclosed in the > monitoring the financial condition of counterparties; notes thereto; or and > recorded at the lower of cost or market. > ensuring that the reference assets in total return swaps are highly diversified so that concentrations Fair value is based on quoted market prices, where of credit risk do not arise. available. If listed prices or quotes are not available, fair value is based on internally developed models that When we have more than one outstanding derivative primarily use market-based or independent information transaction with the same counterparty and we also as inputs. These methods may produce a fair value have a legally enforceable master netting agreement calculation that may not be indicative of net realizable with that counterparty, the net credit exposure value or reflective of future fair values. represents the net of the positive and negative exposures with that counterparty. When there is a net negative exposure, we regard our credit exposure to the counterparty as being zero. The net mark-to- market position with a particular counterparty represents a reasonable measure of credit risk when there is a legally enforceable master netting agreement (i.e., a legal right to a setoff of receivable and payable derivative contracts) between ourselves and that counterparty. Our policy is to use master netting agreements with all counterparties. 92 B A R R I C K A N N U A L R E P O R T 2 0 0 2 Fair value information At December 31 Financial assets Cash and equivalents 1 Accounts receivable 1 Available-for-sale securities 2 Derivative assets 3 Financial liabilities Accounts payable 1 Long-term debt 4 Derivative liabilities 3 2002 2001 Carrying amount Estimated fair value Carrying amount Estimated fair value $ 1,044 $ 1,044 $ 574 $ 574 72 30 115 72 30 115 $ 1,261 $ 1,261 $ 164 781 86 $ 164 858 86 60 46 57 737 175 802 73 $ $ 60 46 57 737 175 853 73 $ $ $ 1,031 $ 1,108 $ 1,050 $ 1,101 1. Fair values of cash and deposits with banks, accounts receivable and accounts payable approximate their carrying amounts due to their short-term nature and generally negligible credit losses. 2. Our investment in debt and equity securities are recorded at their estimated fair value. Quoted market prices, when available, are used to determine fair value. If quoted market prices are not available, then fair values are estimated by using quoted prices of instruments with similar characteristics or discounted cash flows. 3. The fair value for derivative instruments is determined based on liquid market pricing as evidenced by exchange traded prices, broker-dealer quotations or related input factors which assume all counterparties have the same credit rating. 4. The fair value of long-term debt is based on current market interest rates, adjusted for our credit quality. 25 > SEGMENT INFORMATION We operate in the gold mining industry and our Mines in the United States. Our “other” segment operations are managed on a district basis. The includes mainly operations which have been or are Goldstrike District includes the Betze-Post and Meikle being closed. Income statement information For the years ended December 31 2002 2001 2000 2002 2001 2000 2002 2001 2000 Gold sales Operating costs Segment income before income taxes Goldstrike Pierina Bulyanhulu Kalgoorlie Eskay Creek Hemlo Plutonic Round Mountain Other $ 676 303 134 124 121 97 105 132 275 $ 767 297 56 117 98 93 89 116 356 $ 784 272 – 128 101 92 82 73 404 $ 440 $ 473 $ 401 $ 96 78 84 16 65 58 79 45 35 80 16 61 49 77 41 – 76 7 56 54 50 155 244 265 89 46 16 21 57 22 36 32 58 $ 156 $ 255 77 4 20 42 22 28 21 38 55 – 34 36 26 18 11 58 $ 1,967 $ 1,989 $ 1,936 $ 1,071 $ 1,080 $ 950 $ 377 $ 408 $ 493 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B A R R I C K A N N U A L R E P O R T 2 0 0 2 93 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Asset information Segment assets Amortization Segment capital expenditures For the years ended December 31 2002 2001 Goldstrike Pierina Bulyanhulu Pascua-Lama Kalgoorlie Eskay Creek Hemlo Plutonic Round Mountain Other $ 1,496 $ 1,617 $ 546 644 192 232 258 60 59 79 234 726 659 218 247 313 69 51 95 147 2002 147 161 $ 2001 138 175 $ 2000 128 176 $ 40 – 19 48 10 11 21 62 17 – 17 40 10 12 18 74 – – 18 58 10 10 12 81 2002 2001 2000 46 5 56 11 14 8 6 20 8 54 $ 122 $ 176 12 153 69 6 10 6 11 15 70 49 203 107 15 6 5 12 3 36 $ 3,800 $ 4,142 $ 519 $ 501 $ 493 $ 228 $ 474 $ 612 Cash and short-term investments 1,074 Other 387 779 281 Enterprise total $ 5,261 $ 5,202 Geographic information For the years ended December 31 2002 2001 2002 2001 2000 Assets Gold sales United States $ 1,834 $ 1,873 $ Peru Australia Canada Tanzania Chile/Argentina Other 733 472 533 678 245 766 731 470 525 666 257 680 905 303 316 299 134 4 6 $ 1,041 $ 1,007 297 288 269 56 38 – 272 291 283 – 83 – $ 5,261 $ 5,202 $ 1,967 $ 1,989 $ 1,936 Segment income before income taxes For the years ended December 31 2002 Segment total $ 377 $ 2001 408 2000 493 $ Provision for mining assets and other unusual charges: Pascua-Lama Goldstrike Pierina Other – – – – Exploration and business development Merger and related costs Corporate expenses, net Income taxes Net income (loss) (104) 2 (98) 16 193 $ $ – – – (59) (103) (117) (47) 14 96 (1,036) (300) (184) (107) (149) – (115) 209 $ (1,189) 94 B A R R I C K A N N U A L R E P O R T 2 0 0 2 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 26 > JOINT VENTURES Our major interests in joint ventures are our 50% interest in the Kalgoorlie Mine in Australia; our 50% interest in the Round Mountain Mine in the United States; and our 50% interest in the Hemlo Mine in Canada. Summary financial information for joint ventures (100%) Income statement and cash flow information Balance sheet information At December 31 Assets Inventories Property, plant and equipment Other assets Liabilities Current liabilities For the years ended December 31 2002 2001 2000 Long-term obligations 2002 2001 $ $ $ 46 553 79 678 116 67 183 $ $ $ 88 658 48 794 124 78 202 Revenues Costs and expenses Net income Operating activities 1 Investing activities 1 Financing activities 1 1. Net cash inflow (outflow) $ $ $ $ $ 650 582 68 175 (54) – $ $ $ $ $ 578 522 56 163 (78) – $ $ $ $ $ 494 426 68 42 (68) – 28 > SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31 Components of other net operating activities Merger and related costs Reclamation costs Non-cash charges (credits): Foreign currency translation adjustments (note 6) (Gains) losses on short-term investments (note 10) Gains on sale of property, plant and equipment Amortization of deferred stock compensation (note 20) Cumulative effect of changes in recognition policies (note 2) Changes in operating assets and liabilities: Accounts receivable Inventories and other current assets Accounts payable and other current liabilities Payments of merger and related costs Derivative instruments Payments of reclamation and closure costs Other items Other net operating activities Cash payments included in operating activities: Interest, net of amounts capitalized Income taxes 27 > CASH AND EQUIVALENTS Cash and equivalents include cash, term deposits and treasury bills with original maturities of less than 90 days. We anticipate holding these cash balances for an extended period of time. We have entered into receive fixed interest rate swaps with a total notional amount of $650 million that have been designated, and are effective, as cash flow hedges of expected future floating rate interest receipts. These swaps mature at various times from 2004 to 2007 (refer to note 23). 2002 2001 2000 $ $ $ $ (2) 34 (2) 4 (4) 3 – (12) 32 50 (50) (22) (70) (38) (77) 57 46 $ 117 54 11 (1) (9) – 1 (2) 67 (135) (13) 16 (35) (47) 24 24 37 $ $ $ $ $ $ $ – 35 35 (7) (8) – 23 21 (33) 81 – 13 (39) 38 159 22 39 B A R R I C K A N N U A L R E P O R T 2 0 0 2 95 M I N E R A L R E S E R V E S A N D M I N E R A L R E S O U R C E S GOLD MINERAL RESERVES AND MINERAL RESOURCES T he table on the next page sets experience. These figures are estimates, forth Barrick’s interest in the however, and no assurance can be total proven and probable gold given that the indicated quantities of mineral reserves at each property. For gold will be produced. Gold price fluctua- further details of proven and probable tions may render mineral reserves mineral reserves and measured, indica- containing relatively lower grades of ted and inferred mineral resources by gold mineralization uneconomic. category, see pages 97 to 99. Moreover, short-term operating factors relating to the mineral reserves, such The Company has carefully prepared as the need for orderly development and verified the mineral reserve and of ore bodies or the processing of new mineral resource figures and believes or different ore grades, could affect the that its method of estimating mineral Company’s profitability in any particular reserves has been verified by mining accounting period. DEFINITIONS A MINERAL RESOURCE is a concen- tration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geologi- cal evidence and knowledge. Mineral resources are sub-divided, in order of increasing geological confidence, into inferred, indicated and measured categories: An inferred mineral resource is that part of a mineral resource for which quantity and grade or qual- ity can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appro- priate techniques from locations such as outcrops, trenches, pits, workings and drill holes. An indicated mineral resource is that part of a mineral resource for which quantity, grade or qual- ity, densities, shape and physical characteristics can be estimated with a level of confidence suffi- cient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable explo- ration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, work- ings and drill holes that are spaced closely enough for geo- logical and grade continuity to be reasonably assumed. A measured mineral resource is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics are so well established that they can be estimated with confidence suffi- cient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geologi- cal and grade continuity. A MINERAL RESERVE is the economically mineable part of a measured or indicated mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that eco- nomic extraction can be justified. A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined. Mineral reserves are subdivided in order of increasing confidence into probable mineral reserves and proven min- eral reserves: A probable mineral reserve is the economically mineable part of an indicated, and in some circumstances, a measured min- eral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, eco- nomic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A proven mineral reserve is the economically mineable part of a measured mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that eco- nomic extraction can be justified. 96 B A R R I C K A N N U A L R E P O R T 2 0 0 2 > Summary Gold Mineral Reserves and Mineral Resources1 2002 Tons (000s) Grade (oz/ton) Ounces (000s) Based on attributable ounces UNITED STATES Betze-Post Meikle Goldstrike Property Total Round Mountain (50%) Marigold (33%) CANADA Eskay Creek Hemlo (50%) Holt-McDermott SOUTH AMERICA Pascua-Lama Veladero Pierina Alto Chicama AUSTRALIA Plutonic Lawlers Darlot Yilgarn District Total Kalgoorlie (50%) Cowal AFRICA Bulyanhulu OTHER TOTAL (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) (proven and probable) (mineral resource) 107,130 47,617 9,770 12,926 116,900 60,543 96,057 27,282 26,351 43,248 1,433 480 19,726 6,678 847 755 296,411 242,686 254,311 213,971 70,343 41,072 120,948 81,172 13,976 26,682 3,407 10,705 8,202 4,225 25,585 41,612 96,898 48,690 75,922 64,673 27,420 9,018 - 1,816 1,229,152 883,696 0.150 0.070 0.398 0.396 0.171 0.139 0.020 0.012 0.026 0.014 0.998 0.442 0.107 0.119 0.182 0.254 0.057 0.029 0.037 0.024 0.051 0.016 0.054 0.037 0.181 0.130 0.149 0.131 0.155 0.131 0.168 0.130 0.057 0.054 0.037 0.034 0.425 0.465 - 0.389 0.071 0.047 M I N E R A L R E S E R V E S A N D M I N E R A L R E S O U R C E S 2001 Grade (oz/ton) 0.151 0.069 0.439 0.433 0.173 0.147 0.019 0.015 0.027 0.014 1.245 0.504 0.116 0.067 0.214 0.237 0.057 0.030 0.043 0.030 0.053 0.015 - - 0.186 0.134 0.143 0.195 0.166 0.118 0.171 0.141 0.061 0.079 0.049 0.031 0.428 0.465 0.111 0.141 0.077 0.054 Ounces (000s) 16,433 3,450 3,946 5,847 20,379 9,297 2,245 493 680 632 1,775 290 2,517 1,203 293 518 16,862 7,166 8,416 3,954 4,748 1,332 - - 1,588 2,686 505 854 1,341 549 3,434 4,089 5,724 9,303 2,770 2,133 12,009 4,308 420 1,773 82,272 46,491 Tons (000s) 108,854 49,861 8,992 13,512 117,846 63,373 118,489 32,857 25,177 44,115 1,426 575 21,788 17,823 1,371 2,188 296,411 242,686 196,573 133,003 89,233 89,056 - - 8,526 19,991 3,539 4,386 8,062 4,654 20,127 29,031 93,641 118,443 56,395 68,413 16,051 3,321 3,888 5,119 19,939 8,440 1,875 333 678 621 1,430 212 2,118 798 154 192 16,862 6,962 9,384 5,154 3,602 649 6,535 3,043 2,533 3,470 509 1,401 1,269 552 4,311 5,423 5,551 2,621 2,835 2,222 11,653 4,195 - 706 86,927 41,571 28,026 9,255 3,795 12,555 1,070,298 863,373 1. As at December 31, 2002, except for Alto Chicama which is as at January 31, 2003. B A R R I C K A N N U A L R E P O R T 2 0 0 2 97 M I N E R A L R E S E R V E S A N D M I N E R A L R E S O U R C E S > Gold Mineral Reserves1 Based on attributable ounces (000s) (oz/ton) (000s) (000s) (oz/ton) (000s) (000s) (oz/ton) (000s) PROVEN PROBABLE TOTAL Tons Grade Ounces Tons Grade Ounces Ton Grade Ounces UNITED STATES Betze-Post Meikle Goldstrike Property Total Round Mountain (50%) Marigold (33%) CANADA Eskay Creek Hemlo (50%) Holt-McDermott SOUTH AMERICA Pascua-Lama Veladero Pierina Alto Chicama AUSTRALIA Plutonic Lawlers Darlot Yilgarn District Total Kalgoorlie (50%) Cowal AFRICA 60,229 2,641 62,870 47,282 3,700 575 11,708 23 37,738 19,123 29,232 - 2,983 1,456 3,776 8,215 34,580 6,197 0.132 0.512 0.148 0.017 0.032 1.483 0.116 0.174 0.062 0.046 0.068 - 0.146 0.134 0.133 0.138 0.052 0.044 7,924 1,352 9,276 815 120 853 1,359 4 2,355 877 1,994 46,901 7,129 54,030 48,775 22,651 0.173 0.356 8,127 2,536 107,130 9,770 0.197 10,663 116,900 0.022 0.025 1,060 558 858 8,018 824 0.672 0.095 0.182 577 759 150 258,673 0.056 14,507 96,057 26,351 1,433 19,726 847 296,411 254,311 70,343 120,948 235,188 41,111 - 120,948 436 195 501 1,132 1,788 271 10,993 1,951 4,426 17,370 62,318 69,725 0.036 0.039 0.054 0.191 0.161 0.174 0.183 0.060 0.037 8,507 1,608 6,535 2,097 13,976 314 768 3,179 3,763 2,564 3,407 8,202 25,585 96,898 75,922 0.150 0.398 0.171 0.020 0.026 0.998 0.107 0.182 0.057 0.037 0.051 0.054 0.181 0.149 0.155 0.168 0.057 0.037 16,051 3,888 19,939 1,875 678 1,430 2,118 154 16,862 9,384 3,602 6,535 2,533 509 1,269 4,311 5,551 2,835 Bulyanhulu 1,846 0.397 733 25,574 0.427 10,920 27,420 0.425 11,653 TOTAL 263,089 0.082 21,577 966,063 0.068 65,350 1,229,152 0.071 86,927 1. Mineral reserves (“reserves”) have been calculated as at December 31, 2002 (except for Alto Chicama, which was calculated as at January 31, 2003) 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 U.S. Securities and Exchange Commission applies different standards in order to classify mineralization as a reserve. Accordingly, Alto Chicama and Veladero are classified for U.S. reporting purposes as mineralized material. Calculations have been prepared by employees of Barrick under the supervision of Alan R. Hill, P.Eng., Executive Vice-President, Development of Barrick and/or Alexander J. Davidson, P.Geol., Senior Vice-President, Exploration of Barrick. Except with respect to the Australian properties, reserves have been calculated using an assumed long-term average gold price of US$300 and a silver price of US$4.75. Reserves at Kalgoorlie assumed a gold price of US$297 (A$550 and an exchange rate of $0.54 $US/$A). Such 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. 98 B A R R I C K A N N U A L R E P O R T 2 0 0 2 M I N E R A L R E S E R V E S A N D M I N E R A L R E S O U R C E S > Gold Mineral Resources1 MEASURED (M) INDICATED (I) Tons Grade Ounces Tons Grade Ounces Based on attributable ounces (000s) (oz/ton) (000s) (000s) (oz/ton) (000s) (M) + (I) Ounces (000s) INFERRED Tons Grade Ounces (000s) (oz/ton) (000s) UNITED STATES Betze-Post Meikle Goldstrike Property Total Round Mountain (50%) Marigold (33%) CANADA Eskay Creek Hemlo (50%) Holt-McDermott SOUTH AMERICA Pascua-Lama Veladero Pierina Alto Chicama AUSTRALIA Plutonic Lawlers Darlot Yilgarn District Total Kalgoorlie (50%) Cowal AFRICA Bulyanhulu OTHER TOTAL 16,445 1,932 18,377 13,545 - - 0.069 0.584 0.123 0.008 - - 888 0.128 - - 3,962 9,000 8,599 - 4,523 2,178 1,157 7,858 14,558 1,588 0.055 0.023 0.016 - 0.073 0.154 0.175 0.111 0.054 0.041 1,139 1,129 2,268 104 - - 114 - 216 209 137 - 331 336 202 869 791 65 29,955 3,175 33,130 3,910 13,665 382 1,789 246 111,883 126,760 31,339 56,352 14,826 6,201 3,012 24,039 27,353 33,623 0.070 0.393 0.101 0.018 0.016 0.401 0.075 0.248 0.029 0.024 0.016 0.035 0.132 0.126 0.112 0.128 0.054 0.035 2,092 1,249 3,341 72 219 153 134 61 3,271 3,051 489 1,998 1,956 779 338 3,073 1,488 1,190 - - - - - - 4,765 1,085 0.352 0.335 1,678 364 3,231 2,378 5,609 176 219 153 248 61 1,217 7,819 9,036 9,827 29,583 96 4,001 509 3,487 3,260 626 126,841 78,211 1,134 1,998 24,820 7,333 2,326 56 9,715 6,779 29,462 2,287 1,115 540 3,942 2,279 1,255 1,678 364 0.074 0.351 0.313 0.016 0.014 0.615 0.137 0.257 0.027 0.024 0.020 0.042 0.161 0.123 0.214 0.152 0.050 0.033 90 2,741 2,831 157 402 59 550 131 3,475 1,894 23 1,045 1,183 286 12 1,481 342 967 4,253 0.592 2,517 731 0.468 342 78,375 0.061 4,773 470,321 0.044 20,582 25,355 334,998 0.048 16,216 1. As at December 31, 2002, except for Alto Chicama which is as at January 31, 2003. Resources which are not reserves do not have demonstrated economic viability. B A R R I C K A N N U A L R E P O R T 2 0 0 2 99 S U P P L E M E N T A L I N F O R M A T I O N SUPPLEMENTAL INFORMATION > 4-Year Historical Review1 (US GAAP basis, unless otherwise indicated) Operating results (in millions) Gold sales Net income (loss) Operating cash flow Capital expenditures Per share data Net income (loss) Cash dividends Operating cash flow Book value Financial position (in millions) Cash and short-term investments Total assets Working capital Long-term debt 2 Shareholders’ equity Operational statistics (unaudited) Gold production (thousands of ounces) Total cash operating costs per ounce Average price realized per ounce of gold sold Average spot price of gold per ounce Gold reserves (proven and probable) 2002 2001 2000 1999 $ 1,967 $ 1,989 $ 1,936 $ 2,057 193 589 228 0.36 0.22 1.09 6.15 1,074 5,261 869 761 3,334 5,695 177 339 310 $ $ $ $ $ 96 588 474 0.18 0.22 1.10 5.96 $ (1,189) 842 612 $ (2.22) $ 0.22 1.57 5.95 244 676 643 0.45 0.20 1.28 8.45 $ 779 $ 822 $ 766 5,202 579 793 3,192 6,124 162 317 271 $ $ $ 5,393 576 901 3,190 5,950 155 334 279 $ $ $ 6,791 646 803 4,514 5,801 152 351 279 $ $ $ (thousands of ounces)3 86,927 82,272 79,300 78,049 Other Net debt to total capitalization 4 Shares outstanding (millions) (7%) 542 1% 536 2% 536 1% 534 1. All amounts prior to 2001 have been restated to reflect the merger with Homestake as a pooling-of-interests (see note 3 to notes to consolidated financial statements). Information for all years has been derived from audited financial statements, except as indicated. 2. Long-term debt excludes current portion of $20 million in 2002, $9 million in 2001, $3 million in 2000 and $37 million in 1999. 3. Reserves calculated in accordance with National Instrument 43-101, as required by Canadian securities regulatory authorities. 4. Net debt to total capitalization is the ratio of debt less cash and short-term investments to debt plus shareholders’ equity. 100 B A R R I C K A N N U A L R E P O R T 2 0 0 2 CORPORATE GOVERNANCE 2002 saw a sharpened focus on corpo- rate governance in the United States and Canada, with the New York Stock Exchange proposing new corporate gov- ernance standards, including standards aimed at expanding the independent/ unrelated element on boards and board committees. Barrick is undertaking its own review of Company corporate governance practices in light of the recent regulatory initiatives. Although as a regulatory matter, the new NYSE standards would not be directly applica- ble to Barrick as a Canadian company, allowing for an appropriate transition period, the Board intends to adopt corporate governance practices consistent with such standards to the extent practical for our Company. The Board established a separate Corporate Governance and Nominating Committee in December 2002. Prior to that time, the corporate governance and nominating functions had been performed by the Compensation Committee. Currently, the Corporate Governance and Nominating Committee is developing a set of corporate gover- nance principles for Barrick and also intends to develop a code of business conduct and ethics. COMPOSITION OF THE BOARD Barrick’s Board is currently comprised of 13 directors, with the size and composition of the Board reflecting a breadth of backgrounds and experience deemed important for effective gover- nance of an international corporation in the mining industry. With the assistance of the Corporate Governance and Nominating Committee, the Board of Directors has considered the relation- ship to Barrick of each of the current directors and has determined that five of the 13 directors are “unrelated.” Allowing for an appropriate transition period, the Board will move toward a composition that puts unrelated/inde- pendent directors in the majority. The Company has an experienced Board that has made a significant contribution to Barrick’s success, acting without constraint in its access to information, in its deliberations and in its ability to satisfy the mandate established by law to supervise the business and affairs of Barrick. COMMITTEES OF THE BOARD CORPORATE GOVERNANCE AND NOMINATING COMMITTEE (M.A. Cohen, A.A. MacNaughton, G.C. Wilkins) Assists the Board in establishing Barrick’s corporate governance policies and practices. The Committee also identifies individuals qualified to become members of the Board, and reviews the composi- tion and functioning of the Board and its Committees. AUDIT COMMITTEE (H.L. Beck, C.W.D. Birchall, P.A. Crossgrove) Reviews the Company’s financial state- ments and management’s discussion and analysis of financial and operating results, and assists the Board in its over- sight of the integrity of Barrick’s financial statements and other relevant public disclosures, the Company’s compliance with legal and regulatory requirements relating to financial reporting, the external auditors’ qualifications and independence, and the performance of the internal and external auditors. COMPENSATION COMMITTEE (A.A. MacNaughton, M.A. Cohen, P.A. Crossgrove, J.L. Rotman) Assists the Board in monitoring, reviewing and approving Barrick’s compensation policies and practices, and administering Barrick’s share compensation plans. The Committee is responsible for reviewing and recommending director and senior management compensation and for succession planning with respect to senior executives. EXECUTIVE COMMITTEE (G.C. Wilkins, A.A. MacNaughton, B. Mulroney, P. Munk) Exercises all the powers of the Board (except those powers specifically reserved by law to the Board of Directors) in the management and direction of business during intervals between meetings of the Board of Directors. ENVIRONMENTAL, OCCUPATIONAL, HEALTH AND SAFETY COMMITTEE (P.A. Crossgrove, J.K. Carrington, M.A. Cohen, J.E. Thompson) Reviews environmental and occupational health and safety policies and programs, oversees the Company’s environmental and occupational health and safety performance, and monitors current and future regulatory issues. FINANCE COMMITTEE (C.W.D. Birchall, A.A. MacNaughton, A. Munk, G.C. Wilkins) Reviews the Company’s investment strategies, hedging program and general debt and equity structure. C O R P O R A T E G O V E R N A N C E A N D C O M M I T T E E S O F T H E B O A R D B A R R I C K A N N U A L R E P O R T 2 0 0 2 101 B O A R D O F D I R E C T O R S BOARD OF DIRECTORS HOWARD L. BECK, Q.C. Toronto, Ontario Chairman, Wescam Inc. Mr. Beck was a founding Partner of the law firm Davies, Ward & Beck. He has been on the Barrick Board since 1984. C. WILLIAM D. BIRCHALL Nassau, Bahamas Corporate Director Mr. Birchall has had a long association with Barrick as one of the original Board members of the Company. TYE W. BURT Toronto, Ontario Executive Director, Corporate Development Barrick Gold Corporation Mr. Burt was appointed Executive Director, Corporate Development of Barrick in December 2002. Previously he has served as Chairman of Deutsche Bank Canada and Managing Director of Deutsche Bank’s Global Metals and Mining Group. JOHN K. CARRINGTON Thornhill, Ontario Vice Chairman and Chief Operating Officer, Barrick Gold Corporation Mr. Carrington was appointed a Vice Chairman of the Company in March 1999 in addition to his role as Chief Operating Officer, which he assumed at the end of 1996. He has been a member of the Barrick Board since 1996. MARSHALL A. COHEN, O.C. Toronto, Ontario Counsel, Cassels Brock & Blackwell Mr. Cohen served the Government of Canada for 15 years in a number of senior positions including Deputy Minister of Finance. He has been a Director of Barrick since 1988. PETER A. CROSSGROVE Toronto, Ontario Chairman, Masonite International Corporation Mr. Crossgrove has been involved in a number of mining companies. He has been a Director of Barrick since 1993. JOSEPH L. ROTMAN, O.C. Toronto, Ontario Chairman and Chief Executive Officer, Roy-L Capital Corporation Mr. Rotman has been a Director of Barrick since its inception. JACK E. THOMPSON Alamo, California Vice Chairman, Barrick Gold Corporation Mr. Thompson was appointed to the Board in December 2001 upon the completion of the merger with Homestake Mining Company. Prior to that time, Mr. Thompson was Chairman and Chief Executive Officer of Homestake. GREGORY C. WILKINS Toronto, Ontario President and Chief Executive Officer, Barrick Gold Corporation Mr. Wilkins was Executive Vice President and Chief Financial Officer of Barrick until his appointment at Horsham (subsequently TrizecHahn Corporation) in September 1993. He has been a member of the Board since 1991. ANGUS A. MACNAUGHTON Danville, California President, Genstar Investment Corporation Mr. MacNaughton has been a member of the Board since 1986. THE RIGHT HONOURABLE BRIAN MULRONEY, P.C., LL.D. Montreal, Quebec Senior Partner, Ogilvy Renault Mr. Mulroney was Prime Minister of Canada from 1984 to 1993. He joined the Barrick Board in 1993 and is Chairman of the Company’s International Advisory Board. ANTHONY MUNK Toronto, Ontario Managing Director, Onex Investment Corp. Mr. Munk became a member of the Board of Directors in 1996. He is a Partner of Onex Corporation, a diversified manufacturing and service company. PETER MUNK, O.C. Toronto, Ontario Chairman, Barrick Gold Corporation Mr. Munk is the founder and Chairman of the Board of Barrick Gold Corporation. He is also the founder and Chairman of Trizec Properties, Inc. 102 B A R R I C K A N N U A L R E P O R T 2 0 0 2 O F F I C E R S A N D I N T E R N A T I O N A L A D V I S O R Y B O A R D OFFICERS PETER MUNK Chairman JACK E. THOMPSON Vice Chairman GREGORY C. WILKINS President and Chief Executive Officer JOHN K. CARRINGTON Vice Chairman and Chief Operating Officer PATRICK J. GARVER Executive Vice President and General Counsel ALAN R. HILL Executive Vice President, Development TYE W. BURT Executive Director, Corporate Development MICHAEL J. BROWN Vice President, United States Public Affairs ALEXANDER J. DAVIDSON Senior Vice President, Exploration JAMIE C. SOKALSKY Senior Vice President and Chief Financial Officer AMMAR AL-JOUNDI Vice President and Treasurer M. VINCENT BORG Vice President, Corporate Communications ANDRÉ R. FALZON Vice President and Controller GORDON F. FIFE Vice President, Organizational Effectiveness JAMES FLEMING Vice President, Communications GREGORY A. LANG Vice President, Australian Operations JOHN T. MCDONOUGH Vice President, Environment STEPHEN A. ORR Vice President, North American Operations RAYMOND W. THRELKELD Vice President, Project Development DAVID W. WELLES Vice President and Tax Counsel RICHARD S. YOUNG Vice President, Investor Relations SYBIL E. VEENMAN Associate General Counsel and Secretary INTERNATIONAL ADVISORY BOARD The International Advisory Board was established to provide advice to Barrick’s Board of Directors and management as the Company expands internationally. CHAIRMAN THE RIGHT HONOURABLE BRIAN MULRONEY Former Prime Minister of Canada MEMBERS SECRETARY WILLIAM S. COHEN United States Chairman and Chief Executive Officer, The Cohen Group HONOURABLE PAUL G. DESMARAIS, SR. Canada Director and Chairman of Executive Committee, Power Corporation of Canada KARL OTTO PÖHL Germany Senior Partner, Sal. Oppenheim Jr. & Cie. THE HONORABLE ANDREW YOUNG United States Chairman, GoodWorks International VERNON E. JORDAN, JR. United States Senior Managing Director, Lazard Freres & Co., LLC and Of Counsel to Akin, Gump, Strauss, Hauer & Feld, LLP PETER MUNK Canada Chairman, Barrick Gold Corporation and Chairman, Trizec Properties, Inc. LORD CHARLES POWELL OF BAYSWATER KCMG United Kingdom Chairman, Sagitta Asset Management Limited B A R R I C K A N N U A L R E P O R T 2 0 0 2 103 S H A R E H O L D E R I N F O R M A T I O N SHAREHOLDER INFORMATION Shares traded on five major Common Shares (millions) international stock exchanges Outstanding at > New York > Toronto > London > Paris > Swiss Ticker Symbol ABX Number of Registered Shareholders 27,755 Index Listings > S&P Global 1200 Index > S&P/TSX 60 Index > S&P/TSX Composite Index > S&P/TSX Canadian Materials Index > S&P/TSX Canadian Gold Index > FT of London Gold Index > Philadelphia Gold/Silver Index 2002 Dividend Per Share US$0.22 > Share Trading Information Toronto Stock Exchange Quarter First Second Third Fourth New York Stock Exchange Quarter First Second Third Fourth Share Volume (millions) 2002 2001 148 188 199 163 698 74 109 100 105 388 Share Volume (millions) 2002 2001 155 190 273 144 762 90 118 108 112 428 December 31, 2002 542* Weighted average – 2002 Basic and fully diluted 541* The Company’s shares were split on a two-for-one basis in 1987, 1989 and 1993. * Includes shares issuable upon conversion of HCI (Homestake Canada Inc.) convertible shares. > Volume of Shares Traded (millions) TSE NYSE 2002 698 762 2001 388 428 > Closing Price of Shares December 31, 2002 TSE NYSE C$24.35 US$15.41 High Low 2002 2001 2002 2001 C$31.20 C$27.48 C$25.35 C$21.10 36.05 28.92 26.09 29.65 28.59 28.25 27.30 22.52 21.85 21.65 21.95 22.15 High Low 2002 2001 2002 2001 US$19.50 US$17.59 US$15.90 US$13.70 23.49 19.61 16.74 19.37 17.98 17.95 17.18 13.46 13.82 13.72 14.20 13.96 104 B A R R I C K A N N U A L R E P O R T 2 0 0 2 S H A R E H O L D E R I N F O R M A T I O N DIVIDEND PAYMENTS For information on such matters as In 2002, the Company paid a cash share transfers, dividend cheques and dividend of $0.22 per share - $0.11 change of address, inquiries should on June 14 and $0.11 on December 20. be directed to the Secretary of Barrick A cash dividend of $0.22 per share or the Transfer Agents. was paid in 2001 - $0.11 on June 15 and $0.11 on December 14. TRANSFER AGENTS AND REGISTRARS DIVIDEND POLICY CIBC Mellon Trust Company The Board of Directors reviews the P.O. Box 7010 dividend policy semi-annually based Adelaide Street Postal Station on the cash requirements of the Toronto, Ontario M5C 2W9 Company’s operating assets, exploration Telephone: (416) 643-5500 and development activities, as well Toll-free throughout North America: as potential acquisitions, combined with 1-800-387-0825 the current and projected financial Fax: (416) 643-5501 position of the Company. FORM 40-F Email: inquiries@cibcmellon.com Web site: www.cibcmellon.com Annual Report on Form 40-F is filed Mellon Investor Services, L.L.C. with the United States Securities and 85 Challenger Road Exchange Commission. This report will Overpeck Center be made available to shareholders, Ridgefield Park, New Jersey 07660 without charge, upon written request to Telephone: (201) 329-8660 the Secretary of the Company at the Toll-free within the United States Corporate Office. and Canada: 1-888-835-2788 OTHER LANGUAGE REPORTS Web site: www.melloninvestor.com French and Spanish versions of this annual report are available from Investor ANNUAL MEETING Relations at the Corporate Office. The Annual General Meeting of Shareholders will be held on SHAREHOLDER CONTACTS Wednesday, May 7, 2003 at 10:00 a.m. Shareholders are welcome to contact in the Canadian Room, Fairmont Royal the Company for information York Hotel, Toronto, Ontario. or questions concerning their shares. For general information on the Company, contact the Investor Relations Department. B A R R I C K A N N U A L R E P O R T 2 0 0 2 105 C O R P O R A T E I N F O R M A T I O N CORPORATE INFORMATION CORPORATE DATA Auditors PricewaterhouseCoopers LLP Toronto, Canada Investor Relations Contact: Richard S. Young Vice President, Investor Relations Telephone: (416) 307-7431 Fax: (416) 861-0727 Email: ryoung@barrick.com Kathy Sipos Manager, Investor Relations Telephone: (416) 307-7441 Fax: (416) 861-0727 Email: ksipos@barrick.com Sandra Grabell Investor Relations Specialist Telephone: (416) 307-7440 Fax: (416) 861-0727 Email: sgrabell@barrick.com Toll-free number within Canada and United States: 1-800-720-7415 Email: investor@barrick.com Web site: www.barrick.com CORPORATE OFFICE Barrick Gold Corporation BCE Place Canada Trust Tower 161 Bay Street, Suite 3700 P.O. Box 212 Toronto, Canada M5J 2S1 Telephone: (416) 861-9911 Fax: (416) 861-2492 MINING OPERATIONS North America Goldstrike Property: Betze-Post Mine and Meikle Mine P.O. Box 29 Elko, Nevada U.S.A. 89803 Stephen Lang Vice President and General Manager Telephone: (775) 738-8043 Fax: (775) 738-7685 Round Mountain Gold P.O. Box 480 Round Mountain Nevada U.S.A. 89045 Mike Doyle General Manager Telephone: (775) 377-2366 Fax: (775) 377-3240 Eskay Creek No. 1 Airport Way P.O. Box 3908 Smithers, B.C. Canada V0J 2N0 Steve Job General Manager Telephone: (604) 515-5227 Fax: (604) 515-5241 Hemlo Operations P.O. Bag 500 Marathon, Ontario Canada P0T 2E0 Vern Baker General Manager Telephone: (807) 238-1100 Fax: (807) 238-1050 Holt-McDermott Mine P.O. Box 278 Kirkland Lake, Ontario Canada P2N 3H7 Brian Grebenc General Manager Telephone: (705) 567-9251 Fax: (705) 567-6867 South America Chilean Operations Av. Ricardo Lyon 222 Piso II. Providencia Santiago, Chile Raymond Threlkeld Vice President, Project Development Telephone: (56-2) 340-2022 Fax: (56-2) 233-0188 Pierina Mine Pasaje Los Delfines, 159 2do Piso Urb. Las Gardenias Lima 33, Peru Igor Gonzales Vice President and General Manager Telephone: (51-1) 275-0600 Fax: (51-1) 275-0249 East Africa Bulyanhulu Mine International House, Level 2 Shaaban Robert Street/ Garden Avenue P.O. Box 1081 Dar es Salaam, Tanzania Roy Meade Senior Vice President and General Manager Telephone: (255-22) 123-181 Fax: (255-22) 123-245 Australia Australian Operations 2 Mill Street 10th Floor Perth, WA 6000 Australia Gregory Lang Vice President, Australian Operations Telephone: (61-8) 9212-5777 Fax: (61-8) 9322-5700 106 B A R R I C K A N N U A L R E P O R T 2 0 0 2 Y. L A E S N Y L E C O J , A R D N A X E L O A S E L I : n o i t c u d o r P I N G S E D Y E K O V E L A D : n o i t c e r i D t r A e t a i c o s s A . C N I I S E T A C O S S A N G S E D K R A M E S I , D G R K R A M E S E N N A D I : n o i t c e r i D t r A & n g i s e D . E F R A C S : t n e m e g a n a M j t c e o r P d n a y g e t a r t S F O R W A R D - L O O K I N G S T A T E M E N T S Certain statements included herein, including those regarding production and costs and other statements that express management’s expectations or estimates of our future performance, constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. 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 management are inherently subject to significant business, economic and competitive uncertainties and contingencies. In particular, our Management’s Discussion and Analysis includes many such forward-looking statements and we caution you that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of Barrick to be materially different from our estimated future results, performance or achievements expressed or implied by those forward-looking statements and our forward-looking statements are not guarantees of future performance. These risks, uncertainties and other factors include, but are not limited to: changes in the worldwide price of gold or certain other commodities (such as silver, copper, diesel fuel and electricity) and currencies; changes in interest rates or gold lease rates that could impact realized prices under our forward sales program; legislative, political or economic developments in the jurisdictions in which Barrick carries on business; operating or technical difficulties in connection with mining or development activities; the speculative nature of gold exploration and development, including the risks of diminishing quantities or grades of reserves; and the risks involved in the exploration, development and mining business. These factors are discussed in greater detail in Barrick’s most recent Form 40-F/Annual Information on file with the U.S. Securities and Exchange Commission and Canadian provincial securities regulatory authorities. Barrick expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise. Printed in Canada. You can contact us toll-free within Canada and the United States at 1.800.720.7415 e-mail us at investor@barrick.com visit our investor relations web site www.barrick.com 

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