Barrick Gold Corp.
Annual Report 2003

Plain-text annual report

I B A R R C K G O L D C O R P O R A T O N I 2 0 0 3 A n n u a l R e p o r t What we said. What we did. What’s next. A Progress Report You can contact us toll-free within Canada and the United States: 800-720-7415 email us at: investor@barrick.com visit our investor relations website: www.barrick.com BARRICK GOLD 2003 Annual Report T36264-Barrick AR Cvr.indd 1 T36264-Barrick AR Cvr.indd 1 3/10/04 12:08:22 PM 3/10/04 12:08:22 PM BARRICK AT A GLANCE Barrick Gold Corporation is among the world’s largest gold producers in terms of market capitalization, production and reserves. Barrick operates a low-cost portfolio of 12 mines and four major development projects on four continents. Combined with the industry’s only A-rated balance sheet and an aggressive exploration program, these assets position Barrick to prosper in the years ahead. In 2003 Barrick produced 5.51 million ounces of gold at an average total cash cost of $189 per ounce1 – the lowest cash cost among senior gold producers. The Company’s development plan is expected to add four major new mines – Veladero, Alto Chicama, Cowal, and Pascua-Lama – between 2005 and 2008. Together, these mines are projected to produce approximately 2 million- plus ounces of gold annually. Their average cost will be well below our current cash cost over their fi rst decade of operation, augmenting the quality and profi tability of Barrick’s existing production portfolio. Barrick’s shares trade under the ticker symbol ABX on the Toronto, New York, London and Swiss stock exchanges, as well as the Paris Bourse. 1. See page 58 for a discussion of non-GAAP measures. Global Diversifi cation 28% 44% North America South America 60% 20% 15% 13% Australia East Africa 13% 7% North America South America Australia East Africa fi g. 1 2003 Reserves fi g. 2 2004E Production Barrick’s diversified portfolio provides a truly global presence on four continents. Contents Financial Highlights Letter to Shareholders Operations Review Reserves: Replacement and Growth Operational Review Financial Strategy pg. 1 pg. 2 pg. 11 pg. 13 pg. 18 pg. 20 Management’s Discussion and Analysis Financial Statements Notes to Financial Statements Reserves Board of Directors and Officers Shareholder Information Corporate Information pg. 21 pg. 64 pg. 68 pg. 109 pg. 116 pg. 118 pg. 120 . d t L , a d a n a C f o e n w o B : g n i t n i r P . c n I e l b a e v o M : g n i t t e s e p y T . c n I s i s e n e G : n g i s e D d n a t p e c n o C n o i t a r o p r o C d l o G k c i r r a B 4 0 0 2 t h g i r y p o C © r e p a p d e l c y c e r n o a d a n a C n i d e t n i r P Forward-Looking Statements 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 and electricity) and currencies; 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 Form on file with the US 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. T36264-Barrick AR Cvr.indd 2 T36264-Barrick AR Cvr.indd 2 3/10/04 12:27:47 PM 3/10/04 12:27:47 PM FINANCIAL HIGHLIGHTS 2003 Year in Review Barrick met its production and total cash cost targets for the year, as it advanced its development plans to bring four major new mines into production beginning in 2005. Financial Highlights (in millions of US dollars, except per share data) (US GAAP basis) Gold Sales Net Income for the Year Operating Cash Flow Operating Cash Flow Excluding Inmet Settlement Cash and Equivalents Shareholders’ Equity Net Income per Share (Diluted) Operating Cash Flow per Share Operating Cash Flow per Share Excluding Inmet Settlement1 Dividends per Share Operating Highlights Gold Production (thousands of ounces) Average Realized Gold Price per Ounce Total Cash Costs per Ounce1 Total Production Costs per Ounce1 2003 2002 2001 $2,035 $1,967 $1,989 200 521 607 970 3,494 0.37 0.97 1.13 193 589 589 1,044 3,334 0.36 1.09 1.09 96 588 588 779 3,192 0.18 1.10 1.10 0.22 0.22 0.22 5,510 $366 $189 $279 5,695 6,124 $339 $177 $268 $317 $162 $247 Reserves: Proven and Probable (thousands of ounces) 85,952 86,927 82,272 Gold Hedge Position (millions of ounces) 15.5 18.1 24.1 Financial Review > In 2003 gold revenue increased, as rising spot gold prices more than offset lower production due to the planned closure of five mines in 2002. > Earnings were slightly higher in 2003 compared to 2002, as higher realized gold prices combined with a $71 million non-hedge derivative gain, and $39 million in asset sales more than offset higher total cash costs per ounce, $33 million higher exploration and business development costs and a $16 million charge related to the settlement of the Inmet litigation. > In 2003 operating cash flow was slightly lower than 2002. Excluding the impact of the $86 million Inmet settlement, operating cash flow was higher than 2002, as higher realized gold prices more than offset increased total cash costs and higher cash payments for income taxes. > Over the course of the year, the Company bought back 8.75 million common shares at a total cost of $154 million. > The year-end gold hedge position declined to 15.5 million ounces, down 2.6 million ounces from the previous year-end. The position has been reduced by 8.6 million ounces, or 36%, over the past two years. 1. See page 58 for a discussion of non-GAAP measures. 1 LETTER TO SHAREHOLDERS A Progress Report What we’ve accomplished and the changes we’ve made, as Barrick builds our next generation of mines. Dear Shareholders: Together, we’ve come through a milestone year, both for Barrick and for the gold industry. We are encouraged by the strong gold environment we experienced in 2003, and are poised to benefit in 2004 and beyond from the transformation of our Company that is well underway. That transformation will continue in 2004 as we build our four exciting new development projects, and extend the life and contributions of our existing properties. As a company, we are focused on broadening our leadership position in the industry. This process has involved implementing major changes – including a new organizational design, strengthened operations and new financial strategies. To be sure, this past year saw significant economic and political uncertainty, leading, in part, to the improved gold price. With continued pressure on the US dollar and the war in Iraq, gold played its historic role as a safe haven and store of value in difficult times, reaching an almost 14-year high of $415. Based on our reading of the fundamentals, we see the rally as sustainable, with significant upside potential. When you couple gold’s strengths with those of Barrick, you can see why we believe strongly that this is a great time to be building new mines and bringing new ounces into production. As you’ll notice from this year’s cover, our approach in this report is to start with what we said we’d do, report on what we did – both in terms of work completed and work 2 LETTER TO SHAREHOLDERS underway – and share with you our plan for what’s next, to restore our company to its historic position as the investment of choice in the world gold industry. This, then, is a progress report in every sense of that term: Not simply a report on what we’ve accomplished – but on the changes we’ve made, and the opportunities we’re creating as Barrick works to build its future. What We Said. Our fundamentals are strong. With the portfolio of assets Barrick had in place in 2003, our focus was on execution: Delivering at our existing mines, advancing our development projects, and making new exploration discoveries. We also felt strongly that we needed to review our financial strategies and change our corporate organization to fit the global company we’ve become. Our view was that if we were diligent in doing these things, shareholders would appreciate that Barrick has the assets, the experience and the strategy to create value now and in the future. What We Did. If 2003 was the year to execute – we did. We met our targets, producing 5.51 million ounces at $189 an ounce1, making Barrick the lowest-cost senior producer in the industry. We earned $200 million, 37 cents per share, with operating cash flow of $521 million. And we delivered that performance during a period of transition for our company and our industry. $ 425 400 375 350 325 300 275 2002 2003 2004 fi g. 3 Gold Price Performance The current gold rally appears to be sustainable, with significant upside potential 1. See page 58 for a discussion of non-GAAP measures. 3 LETTER TO SHAREHOLDERS New decentralized structure For over a decade after its founding, Barrick was essentially a one-mine company, with no operations outside North America. Over time, we expanded through acquisition and exploration – first to South America, then to Africa and Australia and more recently to Russia, giving us a truly global presence. Yet our organizational structure did not evolve with our operational reach. In response, in 2003 we reorganized the Company into three regions – North America, South America and Australia/Africa to better fit our growing global footprint, and we’re supporting those regional operations with financial management and technical expertise from our corporate center. Under this new structure, each region has responsibility for life-of-mine activities, from development to closure, reporting directly to our new Chief Operating Officer, Peter Kinver, who joined us during the year. We have been pleased with the smooth transition as Peter took the reins from John Carrington effective with the new year, and we’re equally pleased that John will stay on through 2004. Overall mine performance on track We’re already beginning to see the benefits of this new structure. Of our 12 mines, eight met or exceeded our expectations in 2003. Goldstrike in Nevada led with another 2-million-ounce year – its eighth straight – while Pierina in Peru continued to outperform expectations, producing over 900,000 ounces. Our Australian operations, led by Kalgoorlie, delivered a record year in terms of production and were on target for costs. At the two properties that presented our principal challenges, Meikle in Nevada and Bulyanhulu at Tanzania, we worked diligently to overcome our operating issues, ending the year with Meikle stabilized and Bulyanhulu ready to improve its performance this year. “In 2003, Barrick’s total cash costs were the lowest of any senior producer in the gold industry.” 4 LETTER TO SHAREHOLDERS “We made signifi cant advances on our development projects as we prepare to bring four major new mines into production, beginning in 2005.” Development projects advanced Equally important, during 2003 we made significant advances on all properties in Barrick’s development pipeline, as we prepare to bring four major new mines into production over the next four years. Veladero in Argentina began construction in the fourth quarter of 2003. At the adjacent Pascua project on the Chile/Argentina border, we are near finalizing our optimization study, scheduled for completion in mid-2004. At Alto Chicama in Peru, we submitted our Environmental Impact Statement and completed all public hearings, while at Cowal in Australia, we largely completed the permitting and engineering phases. As you’ll see below, even since the close of 2003 we’ve made significant progress moving our projects toward production. When fully operational, our four new mines represent a combined 2 million-plus ounces of new production annually – the best pipeline of new projects in the gold mining industry. In addition, as 2003 closed, we added a fifth project to our pipeline: Tulawaka – a small, high-return property in Tanzania, which we expect will commence production within a year. Our mix of properties across the globe speaks to the strength and flexibility of this Company to take on projects of different sizes in different areas and still achieve profitable growth. Continued investment in exploration We also continued our aggressive exploration efforts in 2003, maintaining one of the industry’s largest exploration budgets. We’ve sustained our exploration program through the tough times in the gold business, and we’ve seen that investment pay off – for example, with Alto Chicama, the industry’s biggest grassroots discovery in the past decade. Our strategy is to have projects at all stages of the exploration continuum, from grassroots to predevelopment, to continually feed our pipeline of projects and replace mines that mature. In 2003 we also forged new strategic partnerships in Russia and Mongolia, opening a window onto some of the world’s most prospective land positions. 5 LETTER TO SHAREHOLDERS “In 2003 we adopted a no-hedge policy.” In recent years, our large gold reserve base has given us the option of drilling when and where it proves most efficient and economic for the Company. During 2003 Barrick virtually replaced its production, remaining at 86 million ounces at year-end1. In addition, we had 25 million ounces of resources at year-end. In 2004 our focus will be on moving resources to reserve status while we bring additional reserves into production. Continued financial strength One of the reasons Barrick has been able to advance an ambitious exploration and development program is the financial strength we’ve built over the years, with the industry’s only A-rated balance sheet and nearly $1 billion in cash. We also improved our capital structure and lowered our cost of capital through a share buyback in 2003. By year’s end, we had repurchased 8.8 million common shares at an average price of $17.56 per share. New no-hedge gold policy For most of Barrick’s history, forward sales were a significant element in providing the Company the predictable revenue that helped fuel our growth. Barrick has a solid portfolio of assets and a very strong financial position, so as times changed and market sentiment imposed a penalty on derivatives of all types, we took a major step in late 2003, adopting a no-hedge gold policy. This means that we will not add any new ounces to the program, and will pursue opportunities to reduce our position to zero over time. The flexibility in our hedge contracts enables us to deliver gold whenever we choose over the ten-year terms of the contracts, allowing us to exploit market volatility in reducing the position. During the year Barrick reduced its hedge position by 2.6 million ounces to 15.5 million ounces and has reduced its position by 36%, or 8.6 million ounces, over the last two years. At year-end the Company’s hedge position was just 14% of reserves and measured and indicated resources. We’re confident that our strong balance sheet gives us all the flexibility we need to move our development projects into production, finance our world-class exploration program, and support our corporate development initiatives. 1. For a breakdown of reserves and resources by category and a discussion of the differences in reported reserves under Canadian and US rules see page 109. 6 LETTER TO SHAREHOLDERS What’s Next. If 2003 was a time of transition, 2004 will be a Year of Building Mines: A time for getting shovels in the ground not only at Veladero and Tulawaka, but at Alto Chicama and Cowal as well. At Pascua, we expect Board approval for the project in the first half of this year, and we anticipate developing a large-scale district where mine life is measured not in years but decades. All told, these five projects represent more than 2 million ounces annually, beginning with our first pour at Tulawaka in early 2005, followed later in the year by production at Veladero and Alto Chicama, at Cowal in early 2006, and Pascua as early as 2008. We’ll also be making a significant investment in exploration in 2004, with 95 active projects underway in nine countries, and a team dedicated to making the world’s next big gold find another Barrick discovery. Just as 2003 saw the Company adopt a new organizational design better suited to our global footprint, we recognize the need to manage our capital globally – from project financing to managing risks associated with currency and interest rate fluctuations. Through 2004, you’ll continue to see reductions in our gold hedge book in keeping with our new no-hedge policy. Overall, Barrick’s financial strategy is focused on combining the strong cash flows from our current operations with our financial strength and flexibility to bring four major new mines into production over the next four years. Barrick has the financial strength to finance our projects in a manner that best mitigates risk, and run our existing operations at the same time without issuing a single new share. “Barrick possesses the industry’s only A-rated balance sheet – evidence that our fi nancial strength will support the building of our new mines.” 7 LETTER TO SHAREHOLDERS Peter Munk (left) and Gregory C. Wilkins (right). Social responsibility Finally, we’ll continue to manage our business in a manner that best serves our shareholders, our employees and the interests of the communities in which we operate. In an effort to strengthen and broaden the Board, Barrick welcomed Gustavo Cisneros, head of one of South America’s largest conglomerates, as an independent board member in July 2003, and since year-end we’ve added a second independent Board member, Peter Godsoe, Chairman of ScotiaBank. Amidst this transformation, one thing about Barrick remains emphatically the same: Our constant commitment to Social Responsibility, and to protecting the health and safety of our employees. It’s our strong belief that Barrick offers a compelling investment package: A proven portfolio of mines producing steady cash flow, the best suite of new mines coming into production, an aggressive exploration program promising reserve growth – with the right people in the right places at all levels of the Company to make it all work. That’s why we believe Barrick stands now at the threshold of a new era, one that will see significant benefits delivered to our shareholders. Peter Munk Chairman Gregory C. Wilkins President and Chief Executive Officer March 1, 2004 8 To succeed as a global leader in the gold industry requires fi ve key competencies. As our performance attests, we excel in many of these areas. Where we do not, we’re working to strengthen our skill set – with a passion to succeed. 1. The ability to develop properties Barrick’s environmental, permitting, engineering and construction expertise, backed by our long-standing commitment to Social Responsibility, is our calling card in the countries in which we operate. 2. Excellent operational skills In 2003, our portfolio of 12 operating mines met our overall targets, producing 5.51 million ounces, at $189 per ounce – the lowest cash cost of any senior producer. 3. Pro-active management team In 2003, Barrick made significant progress getting the right people into the right places at all levels of the Company, and implementing a new regional Organization Design that fits our global footprint and positions us to manage our future growth. 4. Proven ability to find new ounces Barrick’s experienced exploration team, backed by the Company’s consistent commitment to exploration, produced the largest grassroots gold discovery in the last decade. 5. Financial strength, in service of growth Barrick possesses the industry’s only A-rated balance sheet, with no net debt – evidence that our financial engine allows us to invest to improve our existing properties, sustain our exploration effort, and bring new mines online without having to issue a single new share. Social Responsibility the Barrick Way For Barrick, responsibility is sound business practice that goes to the core of who we are and what we do. We recognize that responsible behavior is our calling card, opening up opportunities to create value for our shareholders and generate sustainable development in the communities and countries where we operate. Responsibility means: Promoting the safety and health of our employees globally. Barrick undertook a comprehensive self-examination of its global operation’s safety and health programs during 2003. The result: A significantly revised safety and health system that will be implemented in 2004. The process involved critique and consultation across all operating and managerial levels to achieve Barrick’s philosophy that “No job is ever worth doing in an unsafe way.” Partnering with communities to promote the well-being of children in Peru. Barrick built a public school which provides children living near the Pierina mine with an education from kindergarten through high school, with a commitment to continue to build and equip new classrooms as required. To extend our community work, Barrick has partnered with WorldVision to bring development programs, with a special focus on the needs of children, to the communities around the Pierina Mine. Funding health care initiatives where they are urgently needed in Tanzania. Through our on-site clinic, our health initiatives at our Bulyanhulu Mine are affording the greater community access to state-of-the-art health care prevention techniques, diagnosis, and treatment. The Barrick-owned Kahama Mining Company, operators of the Bulyanhulu Mine, has also funded renovations and donated equipment to nearby government health centers and the district hospital. Kahama Mining is also partnering with AMREF – the African Medical and Research Foundation – in its health- education initiatives in Tanzania, with a special focus on tuberculosis, malaria and AIDS prevention. Promoting diversity in the workplace and partnering with aboriginal groups in Canada. In 2003, Barrick continued its long- standing support for the Tahltan First Nation’s communities in the vicinity of the Eskay Creek Mine in British Columbia. Mining jobs and apprenticeship programs for Tahltans are only the start of our commitment. Last year, support included a substantial financial contribution to assist the Dease Lake Community in their fundraising efforts toward construction of a community recreation center, as well as general assistance for the Tahltan First Nation people through the Barrick-Tahltan Legacy fund. Protecting the environment through innovative technology in Australia. Barrick’s Lawlers operation in Western Australia received the 2003 Golden Gecko Award for environmental excellence for innovative on-site landfill design. This site was also awarded the 2003 Golden Gecko Certificate of Merit for a scientific study on the uptake of heavy metals by plants. 10 OPERATIONS REVIEW Barrick’s Portfolio of Properties 2003 Performance, 2004 Prospects 2003 demonstrated the value of having a diversified portfolio of properties. Overall, Barrick’s 12 operating mines reported a solid year, producing 5.51 million ounces of gold, at an average total cash cost of $189 an ounce1, in line with our targets. 2003 production was 3% lower than the prior year, primarily due to the closure of five mines depleted in 2002. For the year, eight of Barrick’s mines met or exceeded expectations, with significant increases in production at Betze-Post and Kalgoorlie offsetting a decrease in production at Meikle and Bulyanhulu, where efforts were improving performance by year’s end. Total cash costs for 2003 – although the lowest for all senior gold producers – were 7% higher than 2002. Below-plan performance at Meikle and Bulyanhulu plus increased royalty and mining tax payments due to rising gold prices more than offset decreased total cash costs at Round Mountain and Kalgoorlie. North America Barrick’s North American region consists of the Betze-Post and Meikle Mines (which collectively constitute the Goldstrike Property), Round Mountain and Marigold in the US, plus the Hemlo, Eskay Creek and Holt-McDermott Mines in Canada. North America is Barrick’s largest producing region, accounting for 60% of overall production. It contains proven and probable gold reserves representing 28% of our reserve base, or 24.2 million ounces.2 In 2003, North America produced 3.26 million ounces at average cash costs of $209 per ounce. At the Company’s North American operations, production is projected to decline in 2004, as increased production and lower costs at Meikle and Hemlo will only partially offset decreased production at Betze-Post and Eskay Creek. In 2004, the Region is expected to produce between 2.95 and 3.02 million ounces, at an average total cash cost of $223 to $232 per ounce. 1. See page 58 for a discussion of non-GAAP measures. 2. For a breakdown of reserves and resources by category and a discussion of the differences in reported reserves under Canadian and US rules see page 109. 11 OPERATIONS REVIEW South America South America consists of the Pierina Mine and three significant development projects: Alto Chicama, Veladero and Pascua-Lama. (See “A Year of Building Mines,” page 14.) In 2003, South America’s Pierina Mine produced 912,000 ounces at an average total cash cost of $83 per ounce, up from 898,000 ounces in the prior year at $80 per ounce. The region contains 44% of the Company’s overall proven and probable gold reserves, or 37.9 million ounces. In South America, 2004 production will be substantially lower than in 2003. While Pierina was able to sustain production at the 900,000-ounce level for a full three years longer than originally planned, the mine will step down in 2004 to the 640,000 to 645,000-ounce range, as mining moves to reserve grade. While it remains one of the lowest-cost gold mines in the world, Pierina’s total cash costs will rise from $83 per ounce to $95 to $100 per ounce, primarily as a result of fewer ounces produced. Australia/Africa Barrick’s Australia/Africa region consists of the Kalgoorlie, Plutonic, Darlot and Lawlers Mines in Australia, and the Bulyanhulu Mine in Tanzania. Two development projects – Tulawaka in Tanzania and Cowal in Australia – are projected to commence production in early 2005 and 2006, respectively. In 2003, Australia/Africa production reached 1.34 million ounces of gold at an average cash cost of $210 per ounce, compared to 1.28 million ounces at $196 per ounce for 2002. The region contains 28% of the Company’s overall proven and probable gold reserves, or 23.8 million ounces. In the Australia/Africa region for 2004, Barrick’s five Australian operations are projecting collective production to range between 1.31 and 1.34 million ounces, at increased total cash costs of $219 to $233 per ounce. 2004 Prospects Overall for 2004, the Company anticipates production of 4.9 to 5.0 million ounces at an average cash cost of $205 to $215 per ounce, as it continues construction on its pipeline of new mines, several of which are scheduled to enter production in 2005. At year-end 2003, proven and probable gold reserves remained virtually unchanged compared to 2002, at 86 million ounces. At a $375 gold price reserves are estimated at 92 million ounces. Two of the Company’s deposits contain significant silver that materially affect their valuation. Pascua-Lama’s contained silver within reported gold reserves is one of the largest in the world with 584 million contained ounces1, while Eskay Creek has 43 million contained ounces. 1. See page 113 for details. 12 RESERVES: REPLACEMENT AND GROWTH Exploration Seeking the Next New Find Barrick has the lowest finding costs, at $11 per ounce historically. Over the past half decade, as other senior producers significantly cut back exploration spending, Barrick maintained a consistent commitment to finding new ounces. Barrick has already seen the first fruits of that investment with the Alto Chicama discovery in 2001, the industry’s largest grassroots gold find in a decade. Barrick spent $137 million in 2003 on exploration, development and business development, and we expect to make another $110 million investment in 2004 (see fig. 4). The Company is exploring more than 95 projects in 9 countries, targeting 2-million-plus ounce deposits. Beyond our high-priority focus on six countries – Peru, Chile, Argentina, the US, Tanzania and Australia – we also forged new strategic partnerships in 2003 in Russia and Mongolia to open a window onto some of the world’s most prospective land positions. Barrick has a robust and balanced pipeline of regional exploration projects (see fig. 5), building from grassroots and target delineation through drill testing and advanced exploration to reserve development. We have a disciplined exploration strategy that aims to maximize our chance of near-term discovery by having the best people on the best projects and advancing the best projects up the pipeline faster. Advanced exploration in 2004 will be focused on the Carlin Trend properties in Nevada, the Alto Chicama district in Peru, the Bulyanhulu district in Tanzania and Eskay Creek in Canada. Earlier stage exploration carried out in 2003 on properties in Australia, Chile, Argentina and Peru delineated targets for detailed follow- up in 2004. 2004 will also see a focus on bringing the Company’s inferred and refractory resources in and around our operating mines and development projects into reserves. While no company can predict when the next new deposit will be found, we are doing all we can to ensure that the next big find will be a Barrick discovery. 23% 55% 12% 10% Minesite Regional Business Development Alto Chicama 26% 19% 21% 19% 15% Reserve Development Advanced Drilling Drill Testing Target Delineation Grassroots fi g. 4 % of Exploration and Business Development Spending 2004E fi g. 5 Breakdown of Regional Portion 2004E 13 RESERVES: REPLACEMENT AND GROWTH Project Development A Year of Building Mines Barrick’s development program moves into high gear in 2004, as the Company accelerates work to bring five new mines into production from 2005 to 2008: The 28-million-ounce Veladero/Pascua-Lama District on the Chile/Argentina border, Alto Chicama in Peru, Cowal in Australia and Tulawaka in Tanzania. In addition to the construction work already underway at Veladero, Cowal and Tulawaka, the first half of 2004 should see construction commence at Alto Chicama following the approval of our Environmental Impact Statement (EIS), with teams on the ground working toward their 2005 start date. (from left to right) Heavy mining equipment arrives at the site of Veladero’s open pit. Crews prepare an access road in Peru. Technicians drill wells that will deliver process water to Cowal. At the Pascua-Lama property in the Veladero/Pascua-Lama District, we’re near completion of an optimization study, with the aim of submitting the project for Board approval in the first half of this year. Each of the new operations will be an open-pit mine, with synergies expected at several of the properties located near existing Barrick operations. Once fully operational, the five new mines in Barrick’s pipeline are projected to produce 2 million-plus ounces of gold a year at an average cash cost well below our current cash costs, with higher production and lower costs in the early years. 14 RESERVES: REPLACEMENT AND GROWTH Veladero With over 11 million ounces of gold reserves, Veladero will be the foundation of one of the world’s newest and largest gold districts, totaling 28 million ounces of reserves. Description > Located in San Juan Province, Argentina; part of 28-million-ounce Veladero/Pascua-Lama District, situated at the northern end of the El Indio Belt, straddling the border of Chile and Argentina > Valley-fill heap leach operation with two-stage crushing, similar to Barrick’s Pierina Mine Background > Merger with Homestake Mining Company in December 2001 gave Barrick 100% of Veladero; formerly a joint venture owned 40% and 60% by Barrick and Homestake, respectively Current Mineralization Status Activities Underway > Proven and probable gold reserves of 11.1 million ounces; gold mineral resource of 1.5 million ounces > EIS approval received October 15, 2003 > Access road and camp construction commenced late 2003; completion expected May 2004 > Full project construction commenced November 2003 > Presently under construction: Truck shop, civil work preparation of valley-fill heap leach pad, primary and secondary crushing facilities and construction of the Merril-Crowe recovery plant > Prestrip activities will begin second quarter 2004 with the delivery of the initial fleet of ten 240-ton haul trucks, front-end loaders and a hydraulic shovel Timeline > Production targeted to commence late 2005 Capital Cost Estimate Production Profi le > $460 million > Gold production is expected to average 525,000 – 550,000 ounces per year at an average cash cost of $155 – $165 per ounce1, 2 over the first ten years (higher production and lower costs are expected in the early years) Pascua-Lama Situated 6 kilometres from Veladero, Pascua-Lama (current gold reserves 17 million ounces) expected to contribute low-cost gold production for decades. Description > The 28-million-ounce Veladero/Pascua-Lama District is situated at the northern end of the El Indio Belt, straddling the border of Chile and Argentina > Barrick plans to develop Pascua as part of a unified district, starting with Veladero Background > Barrick acquired the Pascua property through the Lac Minerals Ltd. purchase in 1994, at which time, the property had proven and probable reserves of 1.8 million ounces Current Mineralization Status > Proven and probable reserves of 16.9 million ounces; gold mineral resource of 3.5 million ounces > Contained silver within reported gold reserves of 584 million ounces (296 million tons at a grade of 1.97 ounces per ton at an expected recovery rate of 78%) 1. See page 58 for a discussion of non-GAAP measures. 2. Subject to exchange rate fluctuations and applicable export duties. 15 RESERVES: REPLACEMENT AND GROWTH Pascua-Lama (cont’d) Activities Underway Timeline > Optimizing feasibility study by: Evaluating synergies with Veladero and evaluating the impact of the peso devaluation on the project’s economics > Complete optimization in first half of 2004 > Production targeted to commence as early as 2008 Capital Cost/ Production > The optimization study due to be completed in second quarter 2004 will determine the optimal cash cost, production profile and capital required to bring Pascua-Lama into production in 2008 Alto Chicama The gold industry’s largest new grassroots discovery in a decade, Alto Chicama will benefit from design synergies at Barrick’s Pierina Mine. Description > Located in North-central Peru, about 175 kilometres from Barrick’s Pierina Mine > Oxide mineralization similar to Pierina, with high-grade gold surface outcroppings and good metallurgy > Open pit – crushing/leaching Background > Barrick announced the Alto Chicama discovery on April 23, 2002 Current Mineralization Status > Proven and probable gold reserves of 7.2 million ounces1; gold mineral resource of 1.7 million ounces > Excellent exploration potential within a 15 km radius of Lagunas Norte Activities Underway Timeline Capital Cost Estimate Production Profi le > EIS submitted in late September 2003; public audiences held mid-November 2003 > All metallurgical work completed > Basic engineering concluded September 2003; detail engineering 40% progress to date > Powerline currently initiating construction bidding process > Condemnation drilling concluded > Construction to begin following EIS approval, anticipated by mid-2004 > Production targeted to commence third quarter 2005 > $340 million > Gold production is expected to average 535,000 – 560,000 ounces per year at an average cash cost of $135 – $145 per ounce over the first decade (higher production and lower costs are expected in the earlier years, as mining begins on high-grade surface outcroppings) 1. For Canadian purposes only. For US reporting purposes, Industry Guide 7 as interpreted by the Staff of the US SEC applies different standards in order to classify mineralization as a reserve. Accordingly, Alto Chicama is classified for US reporting purposes as mineralized material. 16 RESERVES: REPLACEMENT AND GROWTH Cowal Planned as an open-pit mine, Cowal will constitute an important addition to Barrick’s Australian operations. Description > Located in Central New South Wales (NSW), Australia, 350 kilometres west of Sydney Background > Acquired as part of Barrick’s merger with Homestake Mining Company on Dec. 14, 2001 > Open-pit Current Mineralization Status Activities Underway Timeline Capital Cost Estimate Production Profi le > Proven and probable reserves of 2.5 million ounces; gold mineral resource of 1.6 million ounces > Native Title Agreement signed in May 2003; Mining Lease granted in June 2003 > Optimization study completed fourth quarter 2003 > Construction of infrastructure commenced January 2004 > Commencement of construction, first quarter 2004 > Production targeted to commence mid-2006 > $270 million > Gold production is expected to average 220,000 – 230,000 ounces at an average cash cost of $235 – $245 per ounce1 over the first decade 1. Subject to exchange rate fl uctuations. Tulawaka Tulawaka, Barrick’s second mine in Africa, is a small, high-return property that is part of the Company’s plans to develop the vast potential of the Lake Victoria Gold District. Description > Located in West Tanzania approximately 120 kilometres from the Bulyanhulu Mine Background > Barrick acquired 70% of the project through the acquisition of Pangea Minerals Ltd. in 1999 > Open-pit operation, majority of gold recovered using gravity separation technology Current Mineralization Status Activities Underway > Proven and probable reserves (70% share) of 368,000 ounces; gold mineral resource of 45,000 ounces > Installation of permanent camp facilities during the March – June period 2004 > Detail design was initiated in December and will continue through April 2004 > Installation of process plant and off-site facilities during the May – November period 2004 Timeline > Commissioning will proceed in November 2004, with production targeted Capital Cost Estimate Production Profi le to commence in early 2005 > $34 million for (70%) project development > Gold production is expected to average 70,000 – 75,000 ounces (70% share) annually, for 4 years, at an average cash cost of $170 – $180 per ounce 17 OPERATIONAL OVERVIEW North America Goldstrike Property Goldstrike Open Pit Goldstrike Underground Round Mountain Mine Eskay Creek Mine Operational Summary For year ending December 31 Operational Statistics Tons Mined (000’s) Tons Processed (000’s) Grade Processed (ounces per ton) Recovery Rate (percent) Gold Production (000’s of ounces) Mineral Reserves* (000’s of ounces) 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 143,324 144,533 141,693 142,898 11,663 11,960 10,041 10,322 0.22 0.20 83.6% 85.7% 2,111 2,050 0.19 0.16 82.0% 83.3% 1,559 1,410 19,145 19,939 15,685 16,051 1,631 1,635 1,622 1,638 0.39 0.43 88.3% 91.3% 552 640 3,460 3,888 24,563 31,573 31,470 31,111 0.02 0.02 – – 393 378 1,583 1,875 Financial Statistics Production costs per ounce Cash Operating Costs Royalties and Production Taxes Total Cash Costs Amortization and Reclamation Total Production Costs Capital Expenditures (millions) 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 $220 209 $215 221 $234 184 $150 172 18 9 238 218 72 77 $310 295 $51 46 18 7 233 228 53 58 $286 286 $23 12 19 14 253 198 122 121 $375 319 $28 34 23 15 173 187 54 69 $227 256 $6 8 Barrick’s Total Production (ounces) Barrick’s Total Cash Costs (per ounce) 5,510,162 $189 Barrick’s Total Mineral Reserves (ounces) 85,952,000 18 272 254 275 256 1.43 1.50 93.7% 93.7% 352 359 941 1,430 $48 36 4 4 52 40 132 134 $184 174 $5 8 OPERATIONAL OVERVIEW South America Africa Australia Hemlo Mine Holt- McDermott Mine Pierina Mine Bulyanhulu Mine Kalgoorlie Mine Plutonic Mine Darlot Mine Lawlers Mine 4,178 4,114 1,971 1,906 0.14 0.15 95.0% 94.7% 268 269 1,744 2,118 557 520 559 520 0.17 0.17 94.3% 94.6% 90 84 55 154 39,501 32,311 – – 0.07 0.08 – – 912 898 945 944 980 1,075 0.36 0.39 88.1% 86.1% 314 356 2,768 3,602 10,907 11,653 48,677 46,324 14,180 14,289 7,171 7,051 0.07 0.06 85.8% 82.6% 436 360 5,894 5,551 3,010 3,532 0.12 0.01 89.9% 89.5% 334 307 2,646 2,533 876 840 879 849 0.18 0.18 96.9% 97.2% 155 145 1,135 1,269 1,152 4,746 806 718 0.13 0.16 95.8% 97.3% 99 113 402 509 $218 216 $239 173 8 8 226 224 40 40 $266 264 $10 6 – – 239 173 131 96 $370 269 $- 7 $83 80 – – 83 80 182 191 $265 271 $17 5 $235 190 $201 215 $185 175 $156 160 $241 171 8 9 193 184 31 38 $224 222 $44 20 8 8 164 168 52 47 $216 215 $7 7 8 8 249 179 42 42 $291 221 $14 7 * For reserve table see page 110. 11 8 246 198 123 102 $369 300 $36 56 8 7 209 222 48 57 $257 279 $14 14 19 Financial Strategy “Barrick’s rating refl ects its strong production profi le, favorable cost position, good reserve position, favorable political risk profi le and strong balance sheet.” - Moody’s Investor Service Global strategy to support growth Our financial strategy is designed to provide New no-hedge gold policy In 2003, our financial strength enabled us to the sound foundation and resources to bring institute a no-hedge gold policy, a significant four major mines into production over the next departure from Barrick’s previous practice. While four years, fund one of the largest exploration hedging has helped us sustain predictable revenue programs in the industry – and continue to grow flows for most of our history, as a mature, financially our business on a global basis. Combined with strong Company with a strong production portfolio our financial strength and flexibility, $1 billion in and development pipeline, we simply don’t need cash, the industry’s only A-rating and no net debt, gold hedging as we did when we were essentially a and strong cash flow generation, Barrick is well one-mine company. Financial risk management has positioned to seize new opportunities. given the Company the ability to grow reserves and Just as we adopted a new operational design to manage our global footprint in the past year, we are focused on managing our capital globally – from production, allowing us to significantly increase our leverage to the gold price. We have more than four out of every five ounces of reserves currently unhedged. project financing to managing risks associated Our track record in global financial management, with currency and interest rate fluctuations. the flexibility to finance new mines, to buy back Financial flexibility The key benefit of financial strength is the flexibility it provides us to achieve our growth objectives. Specifically: > Flexibility gives us liquidity – the advantages that come from having strong operational cash flow, nearly $1 billion in cash and a $1 billion undrawn line of credit. > Flexibility in our forward sales program gives us the discretion to decide when within about a ten-year timeframe to deliver production against hedge contracts. > Finally, flexibility gives us the ability to finance the building of four major new mines without the need to issue a single new share. shares, to move into new regions with non-recourse financing and ultimately to grow this Company at reduced financial risk: These are the true signs of our ability to manage our capital structure optimally – and prudently grow the Company to maximize shareholder returns. 18% 82% Hedged Gold Ounces Unhedged Gold Ounces fi g. 6 Gold Reserves Hedge Position With more than four out of every five ounces of reserves currently unhedged, Barrick has significant leverage to the gold price. 20 Management’s Discussion and Analysis of Financial and Operating Results Contents Business Overview Financial Results Overview pg. 22 pg. 25 Cash Flow Statement Liquidity and Capital Resources Factors that May Affect Future Results pg. 27 Operating Activities Income Statement Gold Production and Sales Cost of Sales and Other Operating Expenses Amortization Exploration, Development and Business Development Administration Interest Expense Other Income/Expense Non-Hedge Derivative Gains Income Taxes Statement of Comprehensive Income pg. 30 pg. 30 pg. 31 pg. 38 pg. 38 pg. 39 pg. 39 pg. 39 pg. 39 pg. 40 pg. 41 Investing Activities Financing Activities Balance Sheet Canadian Supplement Critical Accounting Policies and Estimates Off-Balance Sheet Arrangements Forward Gold Sales Contracts Contractual Obligations and Commitments Quarterly Information Non-GAAP Performance Measures Outstanding Share Data pg. 41 pg. 41 pg. 43 pg. 43 pg. 44 pg. 44 pg. 44 pg. 45 pg. 51 pg. 51 pg. 55 pg. 57 pg. 58 pg. 61 This portion of our Annual Report provides a financial statements and notes thereto for the discussion and analysis of our financial condition year ended December 31, 2003 (collectively, our and results of operations to enable a reader to “Financial Statements”), which are included in assess material changes in financial condition this Annual Report. You are encouraged to review and results of operations for the year ended our Financial Statements in conjunction with December 31, 2003, compared to those of the preceding year. This Management’s Discussion your review of this Management’s Discussion and Analysis. Certain notes to our financial statements and Analysis has been prepared as of March 4, are specifically referred to in this Management’s 2004. The consolidated financial statements pre- Discussion and Analysis and such notes are incor- pared in accordance with US generally accepted porated by reference herein. All dollar amounts in accounting principles (US GAAP) are on pages 64 this Management’s Discussion and Analysis are in to 67. This Management’s Discussion and Analysis millions of US dollars, unless otherwise specified. is intended to supplement and complement our 21 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Business Overview Company Overview Barrick Gold Corporation is among the world’s Producing Mines Our existing portfolio of operating mines mainly largest gold producers in terms of market capitali- includes mature properties with stable production zation, gold production and reserves. Our operating volumes. Most of the mines are currently processing mines and development projects are concentrated in three primary regions: North America, Australia/ Africa, and South America. In 2003, 59% of our ore at or near the average reserve grade. The mines produce at relatively low total cash costs per ounce1 compared to other senior gold producers, and they gold production came from North America. As are presently generating substantial amounts of our development projects commence production operating cash flow, which is available to fund our over the next several years, we expect that our development projects and other growth oppor- South American region will make up an increasing tunities that may arise. We closed five mines in proportion of our annual gold production. 2002, on depletion of their reserves, which had We earn the majority of our revenue and generate cash flow from the production and sale of gold in both doré and concentrate form. Certain of our mines, in particular, Pierina and Eskay Creek, produce significant quantities of silver as a by- product, the revenue from which is deducted from operating costs, and therefore affects our cash operating costs per ounce. This will also be the case with two of our development projects – Pascua-Lama and Veladero. Key Performance Drivers The key drivers of financial performance in our business include realized gold sales prices, gold production volumes and production costs per ounce. We focus on optimizing these performance drivers to maximize the profit contribution and operating cash flow generated by our mines. Because we operate in a capital-intensive industry, we invest significant amounts each year at our operating mines to maintain our productive capacity (referred to as “sustaining capital”); and also for mine expansion and to build new mines. Consequently, amortization expense forms a large component of our costs to produce gold. the effect of lowering our annual gold production by about 0.3 million ounces in 2003. Overall, our total gold production decreased by 0.2 million ounces to 5.51 million ounces as our other mines produced 0.1 million more ounces of gold in 2003 compared with 2002. Due to the effect of mine sequencing over the last few years, the ore processed at Goldstrike, our largest mine, has been above the average reserve grade. However, as ore grades at Goldstrike have trended towards average reserve grades, we have experienced higher operating costs per ounce and lower annual pro- duction volumes. To some extent, we have been successful in mitigating the effects of these trends through cost management initiatives. In 2004, a continuation of the trend of declining grades at Goldstrike, together with Pierina production mov- ing into lower grade areas, will lead to a further decline in production and increase in total cash costs per ounce1. We expect that in 2004, our total production will fall by about 0.5 to 0.6 million ounces and our average total cash costs will increase by about $15 to $25 per ounce1. 1. For an explanation of our use of non-GAAP performance measures, refer to pages 58 to 61. 22 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Exploration and Mine Development We also focus on finding new gold reserves. To the realized gold sales prices in excess of market prices. The flexibility of our program has also extent we can add gold reserves at our existing allowed us to participate in a gold price rally, as operations, we extend the lives of our mines and we saw in 2003, when there was a substantial generate additional cash flow, increasing the rate upward shift in market gold prices. Our 2003 of return on the capital we have invested. Prior to earnings benefited from rising gold prices, with an the recent gold price rally, the industry experi- average realized price of $366 per ounce, compared enced an extended period of low gold prices. In to an average spot gold price of $363 per ounce, contrast to many producers we have made a sus- an 8% increase from 2002. During first quarter tained investment in our exploration program. This 2004, spot gold prices were in the $400 per ounce program resulted in a major new gold discovery – range and many industry observers expect this Alto Chicama in Peru. By the end of 2003, our gold price rally to be sustained, with the outlook work at Alto Chicama allowed us to add 7.2 million for market gold prices generally positive. ounces to reserves (for Canadian reporting pur- poses). At the end of 2003, we had proven and probable reserves of 86 million ounces of gold, based on a $325 gold price, after producing 5.51 million ounces in 2003 (6.5 million contained ounces), compared to reserves (for Canadian report- ing purposes) of 86.9 million ounces in 2002 based on a $300 gold price. Several of our deposits contain a significant amount of silver within our reported gold mineral reserves, which is or will be produced as a by-product of the gold reserves. For example, Pascua-Lama contains 584 million ounces of silver. In recognition of these market realities, we announced a No-Hedge policy on gold in fourth quarter 2003, under which we will not add any new gold hedge contracts and we expect to reduce our gold hedge position to zero over time. The unique flexibility in our gold hedge contracts enables us to deliver gold whenever we choose over the primarily ten-year terms of the contracts, allowing us to exploit gold market volatility in reducing the gold hedge position. In 2003, we reduced our gold hedge position by 14% or 2.6 million ounces. At the end of 2003, our gold We have a mine development program that we hedge position represented 18% of our gold expect to contribute to production, earnings and reserves (for Canadian reporting purposes), which cash flow, beginning with Veladero and Alto means that 82% of our gold reserves are unhedged Chicama in 2005. By 2007, we expect this develop- and exposed to changes in gold prices. One of our ment pipeline to contribute a significant amount goals is a further reduction in the size of our gold of gold production annually to our portfolio. hedge position; to that end, we have targeted a Commodity Price Risk Our revenues are significantly impacted by the minimum 1.5 million ounce reduction in the posi- tion during 2004. The actual reduction may be higher than the target, depending on market con- market price of gold, and to a lesser extent the ditions. By choosing to deliver a portion of our market price of silver. We have historically used an gold production into our gold hedge position to extensive gold hedging program to manage our achieve our target, we may realize less than the exposure to market gold prices. This program has market price of gold for this portion of our pro- provided substantial benefits to us in the form of duction, depending on market conditions. 23 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS We also consume other commodities at our opera- ounce higher in 2003. Our currency hedge posi- tions in the process of producing gold. These com- tions provide a significant level of protection for modities include diesel fuel, electricity, propane our Australian and Canadian dollar costs for the and consumables such as acid and lime. Changes equivalent of about three years. in the cost of these commodities impact our costs to produce gold. To the extent any such changes had a significant impact on our cash costs in 2003 compared to 2002, the changes are highlighted in this Management’s Discussion and Analysis. At the end of 2003, we had approximately C$1.0 bil- lion of our Canadian dollar exposures hedged at $0.68 (88% of expected total local capital and oper- ating costs over the next three years) and approxi- mately A$1.4 billion of our Australian dollar We use forward silver sales contracts to sell a exposures hedged at $0.57 (73% of expected total portion of our annual silver production. These local capital and operating costs over the next three contracts act as an economic hedge of our expo- years). Included in other comprehensive income at sure to changes in market silver prices. December 31, 2003 were unrealized pre-tax gains Currency Risk Although we operate on four continents, all our on currency hedge contracts totaling $280 million that will be matched with our operating costs over primarily the next three years to offset the impact of revenues and approximately 70% of our cash the strengthening Australian and Canadian dollar. expenditures are denominated in US dollars. We may add to our currency hedge position during Nearly half of our production comes from our 2004, subject to market conditions and depending United States mines, while most of our Peruvian upon the outlook for the US dollar. and Tanzanian operating and capital expenditures – such as diesel fuel, reagents and equipment – are denominated in United States dollars. Our main foreign currency exposures relate to cash expenditures at our Canadian and Australian mines that are denominated in local currencies. Like many other gold producers, our operations in Australia and Canada are affected by the perfor- mance of the Australian and Canadian dollar against the US dollar as our functional currency is the US dollar and a portion of our cash operating costs are denominated in the local currencies. Over the last two years, the Australian dollar has strengthened by 48% and the Canadian dollar by 23%. In 2003, our local currency costs were hedged at rates better than current market rates and we recorded hedge gains in our cash operat- ing costs totaling $65 million. If we had not hedged our exposure to a weakening US dollar, our total cash costs would have been $12 per Interest Rate Risk Our interest rate exposure mainly relates to the mark-to-market value of derivative instruments, the fair value and ongoing payments under gold lease rate and US dollar interest-rate swaps, and interest receipts on our cash balances. In general, we are adversely affected by declining interest rates because we earn interest on our cash balances at market rates. Through our interest rate hedge pro- gram, we have been able to mitigate the impact of falling US dollar interest rates on these cash bal- ances. On $650 million of our cash balances, we have fixed the interest return we are earning through 2006 – 2007 at 3.4%, with the remaining cash balances generating interest income at vari- able US dollar interest rates. Low interest rates also limit the growth in prices that we can expect to receive for any gold delivered under existing forward sales contracts in our hedging program. 24 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS A large portion of our $760 million of long-term debentures where we have converted the interest debt obligations are at fixed interest rates and are rate from fixed to floating rates, and our $80 mil- therefore not affected by changes in market interest lion of variable-rate bonds. rates. The exceptions are $350 million of our Financial Results Overview For the years ended December 31 (in millions of US dollars, except per share and per ounce data) 2003 2002 2001 Gold sales Average spot gold price per ounce Average realized gold price per ounce Net income Net income per share – basic and diluted Operating cash flow Operating cash flow excluding Inmet settlement1 Total assets Total long-term debt Cash dividends per common share $ 2,035 363 366 200 0.37 521 607 5,362 760 0.22 $ 1,967 310 339 193 0.36 589 589 5,261 781 0.22 $ 1,989 271 317 96 0.18 588 588 5,202 802 0.22 1. For an explanation of our use of non-GAAP performance measures, refer to pages 58 to 61. Income Statement Earnings in 2003 were slightly higher than the At our current mines, cash operating costs per ounce excluding royalties and production taxes prior year. We benefited from higher spot gold were $7 per ounce higher in 2003, mainly due to prices, which enabled us to realize a $27 per higher costs at Meikle and Bulyanhulu, which ounce higher selling price for our gold production added $39 million to our cash operating costs. (an increase in revenue of $150 million in compar- ison to 2002). However, in a higher spot gold price environment, we pay higher royalties, production taxes and income taxes. Royalties and production taxes increased by $5 per ounce, or $23 million, over the prior year, and our underlying effective income tax rate increased from 3% in 2002 to 20% in 2003, an increase of $38 million. We continued to invest heavily in exploration, mine development and business development in 2003, with a $33 million increase in costs over the prior year. Under US GAAP, development costs are expensed until mineralization is classified as proven and probable reserves for US reporting purposes. In 2003, we expensed $54 million of development costs, mainly at Veladero and Alto As a result of the closure of five mines in 2002 on Chicama, compared with $52 million in 2002. depletion of their reserves, we produced and sold The $24 million increase in exploration costs to 3% fewer ounces in 2003 compared to the prior $62 million, accounts for most of the increase in year. These five closed mines generated a profit exploration, development and business develop- contribution, before tax, of $42 million in 2002. ment expense year over year. 25 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Earnings in both years included various items that there as a proven and probable reserve, $16 mil- significantly impacted the comparability of our lion in Australia due to higher levels of taxable results year on year. In 2003, the major items income in a higher gold price environment, and included gains of $71 million on non-hedge $21 million in North America following a cor- derivatives and gains totaling $39 million on the porate reorganization. In 2002, we recorded a sale of various assets, offset by a $36 million credit of $22 million due to the outcome of vari- higher charge for reclamation and closure costs ous tax uncertainties. These credits were offset by following a change in accounting policy for these valuation allowances against unrecognized tax types of costs. We also recorded tax credits of losses. The material items are explained in this $62 million in 2003. We released valuation Management’s Discussion and Analysis. We have allowances totaling $15 million in Argentina fol- summarized these items below to assist a reader in lowing the decision to begin construction at understanding the effect of the items on earnings. Veladero and the classification of mineralization Effect on earnings increase (decrease) ($ millions) For the years ended December 31 2003 2002 2001 Pre-tax Post-tax Pre-tax Post-tax Pre-tax Post-tax Non-hedge derivative gains (losses) Inmet litigation costs Gains on asset sales Gains (losses) on investments Changes in asset retirement obligation estimates Severance costs Cumulative effect of accounting changes Merger and related costs Tax credits Tax losses not recognized Impact of accounting change for reclamation costs $ 71 (16) 39 (12) $ 60 (11) 31 (12) (10) (9) (17) – 62 (23) (36) (10) (6) (17) – 62 (23) (25) $ (6) – 8 (4) – – – 2 22 (43) – $ 6 – 5 (4) – – – 2 22 (43) – $ 33 (59) 9 2 – – (1) (117) – (45) $ 21 (41) 6 2 – – (1) (117) – (45) – – Cash Flow Statement We generated $68 million less operating cash flow Both our cash expenditures for investing and financing activities increased in 2003. In part, this in 2003 compared to the prior year. Excluding the was as a result of increased capital spending with $86 million settlement of the Inmet litigation, our the construction start up at Veladero and $154 mil- operating cash flow would have been $18 million lion spent on our share buy-back program. higher in 2003. Higher realized gold selling prices in 2003 were partly offset by higher total cash costs and higher payments of income taxes. 26 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Factors that May Affect Future Results There are numerous factors, outside our control, beyond our control. These include industry factors that could cause results to differ significantly such as: industrial and jewelry demand; the level from our expectations. Some of these factors are of demand for gold as an investment; central bank described below. Derivative instrument risks, lending, sales and purchases of gold; speculative including credit, market, and liquidity risks, are trading; and costs of and levels of global gold described in note 11(g) to our consolidated finan- production by producers of gold. Gold prices cial statements. By their very nature, and as noted under “Forward- looking statements” on the inside back cover of this Annual Report, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that predictions, fore- casts, and projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on such statements in this Management’s Discussion and Analysis as a number of important factors could cause actual results to differ materially from the plans, objectives, goals, targets, expectations, estimates and intentions expressed in such forward-looking statements. Industry and non-company factors As a gold mining company conducting business in the United States, Canada, Australia, Peru, Chile, Argentina, Tanzania and other countries, our rev- enues and earnings are affected by the condition of the economic and business environments specific to the geographic regions in which we operate. Factors such as commodity prices (gold and silver), interest rates, inflation and exchange rates impact the busi- ness and economic environment and ultimately the performance of our business in each region. Our business is affected by the world market price of gold and other commodities as described on page 23. Gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, all of which are may also be affected by macroeconomic factors, including: expectations of the future rate of infla- tion; the strength of, and confidence in, the US dollar, the currency in which the price of gold is generally quoted, and other currencies; interest rates; and global or regional, political or economic uncertainties. Our business is also affected by the market prices of other commodities produced as by-products at our mines, such as silver and cop- per, as well as commodities which are consumed or otherwise used in connection with our opera- tions, such as diesel fuel and electricity. Prices of such commodities are also subject to volatile price movements over short periods of time and are affected by factors that are beyond our control. We have some protection from falling market gold prices under our gold hedge position, but if the world market price of gold were to drop and the prices realized by us on gold sales were to decrease significantly and remain at such a level for any substantial period, or proceeds from the sale of by-products were to decrease significantly, or the cost of other commodities consumed were to increase significantly, our profitability and cash flow would be negatively affected. In such circum- stances, we may determine that it is not economi- cally feasible to continue commercial production at some or all of our operations or develop some or all of our projects, which could have an adverse impact on our financial performance and results of operations. 27 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS We conduct mining and development activities in and regulations governing the protection of the many countries. Mining investments are subject to environment, waste disposal, worker safety, mine the risks normally associated with any conduct of development and protection of endangered and business in foreign countries including: uncertain protected species. We have made, and expect to political and economic environments; war and make in the future, significant expenditures to civil disturbances; changes in laws or policies comply with such laws and regulations. Future of particular countries; foreign taxation; delays changes in applicable laws, regulations and per- in obtaining or the inability to obtain necessary governmental permits; limitations on the repa- mits or changes in their enforcement or regulatory interpretation could have an adverse impact on the triation of earnings; and increased financing costs of compliance and therefore adversely impact costs. These risks may limit or disrupt projects, our financial condition or results of operations. The restrict the movement of funds or result in the costs and delays associated with compliance with deprivation of contract rights or the taking of these laws and regulations could stop us from pro- property by nationalization or expropriation ceeding with the development of a project or the without fair compensation. operation or further development of a mine or Our earnings are affected by the monetary policies increase the costs of development of a project. of the Board of Governors of the Federal Reserve Although we take what we believe to be reason- System in the United States. Bond and money able measures designed to ensure compliance with market expectations about inflation and central governing statutes, laws, regulations and regula- bank monetary policy decisions have an impact on tory policies in the jurisdictions in which we con- the level of interest rates, and gold lease rates, duct business, there is no assurance that we will which can have an impact on earnings. always be in compliance or deemed to be in com- Our business is affected by the levels of market interest rates and gold lease rates, as described on page 24. A significant, prolonged decrease in interest rates could have a material adverse impact on the interest earned on our cash balances. A significant prolonged decrease in interest rates and/or increase pliance. Accordingly, it is possible that we could receive a judicial or regulatory judgment or deci- sion that results in fines, damages and other costs that would have a negative impact on our earnings. Company-specific factors Our financial performance will be influenced in gold lease rates could have a material adverse by our ability to execute the development of impact on the difference between the forward gold our new mines and also the success of our explo- price over the current spot price (“contango”), and ration program. ultimately, the realized price under our fixed-price forward gold sales contracts. Our ability to sustain or increase our present levels of gold production is dependent in part on the Changes in the statutes, regulations and regulatory successful development of new ore bodies and/or policies that govern our business activities in the expansion of existing mining operations. The eco- geographic regions where we operate could impact nomic feasibility of development projects is based our results. Our domestic and foreign mining operations and exploration activities are subject to extensive laws upon many factors, including: the accuracy of reserve estimates; estimated metallurgical recov- eries; estimated capital and operating costs of such 28 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS projects; foreign currency exchange rates; and Our actual production may vary from estimates for future gold and silver prices. Development projects a variety of reasons, including: actual ore mined are also subject to the successful completion of fea- varying from estimates of grade, tonnage, dilution sibility studies, issuance of necessary governmental and metallurgical and other characteristics; short- permits, acquisition of satisfactory surface or other term operating factors relating to ore reserves, land rights and availability of adequate financing. such as the need for sequential development of ore Development projects have no operating history upon which to base estimates of future cash flow. It is possible that actual costs and economic returns may differ materially from our estimates or that we could fail to obtain the governmental approvals necessary for the operation of a project. It is not unusual in the mining industry for new mining operations to experience unexpected problems during the start-up phase and to require more capital than anticipated. Gold exploration is highly speculative in nature. Our exploration projects involve many risks and are frequently unsuccessful. Once a site with gold min- eralization is discovered, it may take several years bodies and the processing of new and different ore grades; risks and hazards associated with mining; natural phenomena, such as inclement weather conditions, floods, and earthquakes; and unex- pected labour shortages or strikes. Cash costs of production may be affected by a variety of factors, including: changing waste-to-ore ratios, ore grade, metallurgy, labour costs, the cost of supplies and services, and foreign currency exchange rates. The accounting policies and methods we utilize determine how we report our financial condition and results of operations, and they may require management to make estimates or rely on assump- tions about matters that are inherently uncertain. from the initial phases of drilling until production is Our financial condition and results of operations possible. Substantial expenditures are required to are reported using accounting policies and methods establish proven and probable reserves and to con- prescribed by US GAAP. In certain cases, US GAAP struct mining and processing facilities. As a result allows accounting policies and methods to be of these uncertainties, there is no assurance that selected from two or more alternatives, any of current or future exploration programs will be suc- which might be reasonable yet result in our report- cessful and result in the expansion or replacement ing materially different amounts. Management of current production with new reserves. exercises judgment in selecting and applying our Our financial performance will be influenced by our ability to achieve production and operating cost targets. We prepare estimates of future production and total cash costs of production for our operations. No assurance can be given that such estimates will be achieved. Failure to achieve production or total cash cost estimates could have an adverse impact on our future cash flows, earnings, and financial condition. accounting policies and methods to ensure that, while US GAAP compliant, they reflect our best judgment of the most appropriate manner in which to record and report our financial condition and results of operations. As detailed on pages 45 to 51, certain accounting policies and estimates have been identified as being “critical” to the presentation of our finan- cial condition and results of operations as they 29 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS (1) require management to make particularly sub- reserves unprofitable to develop at a particular site jective and/or complex judgments about matters or sites for periods of time. This could cause us to that are inherently uncertain and (2) carry the like- reduce our reserves, which could have a negative lihood that materially different amounts could impact on our financial results. Failure to obtain be reported under different conditions or using necessary permits or government approvals could different assumptions and estimates. The most also cause us to reduce our reserves. There is no critical estimate that affects our reporting of assurance that we will obtain indicated levels of financial performance is the quantity of gold min- recovery of gold or the prices assumed in deter- eral reserves at our mineral properties. mining gold reserves. Mineral reserves and mineral resources are esti- Other factors mates, and no assurance can be given that the Other factors that may affect future results include indicated content of gold will be produced. changes in tax laws, technological changes, Fluctuations in the price of gold or by-product employee relations, the validity of mining claims minerals, such as silver and copper, may render and the title to our properties and competition mineral reserves containing relatively low grades of with other mining companies. gold mineralization uneconomic. Moreover, short- term operating factors relating to the mineral reserves, such as the need for orderly development of ore bodies or the processing of new or different ore grades, may cause mineral reserves to be reduced or for us to be unprofitable in any partic- ular accounting period. We caution that the foregoing discussion of fac- tors that may affect future results is not exhaus- tive. When relying on forward-looking statements to make decisions with respect to Barrick, investors and others should carefully consider the foregoing factors, other uncertainties and potential events, and other external and company-specific factors Estimated reserves may have to be recalculated that may adversely affect future results and the based on actual production experience. Market market valuation placed on our common shares. We price fluctuations of gold and silver, as well as do not undertake to update any forward-looking increased production costs or reduced recovery statements, whether written or oral, that may be rates, may render the present proven and probable made from time to time by us, or on our behalf. Income Statement Gold Production and Sales In 2003, we produced 0.2 million fewer ounces of a rising trend again in 2005 as our development projects begin production. Beginning in 2005 gold than in 2002 following the closure of five and through 2007, as our development projects mines in 2002 on depletion of their reserves. We commence operations, we are targeting a rise in expect gold production to decline again in 2004 our production profile to between 6.8 and 7.0 mil- by about 0.5 to 0.6 million ounces, before starting lion ounces by 2007. 30 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS In 2003, market gold prices rose to their highest of 1.5 million ounces in our gold hedge position, level since 1997, averaging $363 per ounce, com- with the ultimate price realized depending upon pared to 2002, when spot gold averaged $310 per market conditions and the actual contracts into ounce. Through selling a large portion of our gold which we deliver. production at spot gold prices, combined with the delivery of a portion of our production into our forward sales program, we realized an average price of $366 per ounce. This compares to an average realized price of $339 per ounce in 2002, when gold prices were lower and most of our gold pro- duction was sold under our higher priced forward sales contracts. As spot gold prices increase, the value of our gold mineral reserves and amount of operating cash flows rises. The unrealized mark-to-market loss on our fixed-price forward gold sales contracts also rises. The unrealized mark-to-market value changed from an unrealized loss of $639 million at the end of 2002 to an unrealized loss of $1,725 million at the end of 2003, primarily due to increasing spot When spot gold prices are higher than the price gold prices (year end spot gold prices, 2003 – under our forward sales contracts, as occurred in $415 compared to 2002– $347). Mark-to-market 2003, we can choose to sell all of our gold produc- value represents the replacement value of these tion into the spot market at the higher price and contracts based on current market levels, and does deliver into our forward sales contracts at a future not represent an economic obligation for payment. date. We expect to deliver a component of our For additional detail see “Off-Balance Sheet gold production into our fixed-price forward sales Arrangements – Key Contract Terms and Condi- contracts in 2004 at prices below recent spot tions – Significance of mark-to-market gains and market prices to achieve our targeted reduction losses” on page 54. Cost of Sales and Other Operating Expenses For the years ended December 31 Total cash production costs – per US GAAP Accretion expense and reclamation costs at our operating mines 2003 2002 $ 1,065 (14) $ 1,065 (37) Total cash production costs – per Gold Institute Production Cost Standard1 $ 1,051 $ 1,028 Ounces sold (thousands) Total cash costs per ounce sold – per US GAAP (dollars) Total cash costs per ounce sold – per Gold Institute Production Cost Standard1 (dollars) 5,554 $ 192 5,805 $ 183 $ 189 $ 177 31 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Total Cash Costs per Gold Institute Production Cost Standard1 ($/oz) For the years ended December 31 Cost of sales at market foreign exchange rates Gains realized on currency hedge contracts By-product credits Cash operating costs Royalties Production taxes Total cash costs 2003 $ 210 (12) (21) 177 9 3 2002 $ 191 (1) (20) 170 6 1 $ 189 $ 177 1. We report total cash costs per ounce data calculated in accordance with The Gold Institute Production Cost Standard (the “Standard”). Adoption of the Standard is voluntary, but we understand that most senior gold producers follow the Standard when reporting cash cost per ounce data. The data does not have a meaning prescribed by US GAAP and therefore amounts presented may not be comparable to data presented by gold producers who do not follow the standard. Total 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 costs. We have also presented a GAAP measure of cost per ounce as required by securities regulations that govern non-GAAP performance measures. Within this disclosure document our discussion and analysis is focused on the “total cash cost” measure as defined by the Standard, but the most directly comparable financial measure calculated and presented in accordance with GAAP is also provided throughout. See pages 58 to 61 for further information on non-GAAP performance measures. In 2003, we produced 3% less gold than in 2002. In 2004, we expect to produce 4.9 to 5.0 million Most of our mines exceeded their 2002 production ounces at total cash costs of between $205 and levels in 2003, particularly Goldstrike Open Pit $215 per ounce. The decrease in production from and Kalgoorlie. We experienced lower production 2003 is primarily due to expected lower grades at at Goldstrike Underground and Bulyanhulu. Both Pierina and Goldstrike Open Pit. Total cash costs of these mines had operational difficulties during are expected to be higher as we expect to mine 2003 which are discussed in more detail in their and process more lower-grade ore at these mines respective regional sections. The overall decrease in in 2004. The achievement of these production and gold production compared with 2002 is primarily cost targets is subject to the successful execution related to the closure of several mines in the sec- of our mining plan for 2004 at each of our oper- ond half of 2002 on depletion of their reserves. ating mines. These mines produced 0.3 million ounces in 2002. Our production and cost targets assume current Total cash costs were 7% higher in 2003 pri- marily because of the operational difficulties at levels of plant capacity and performance. They are dependent on our ability to execute our mine plan, Goldstrike Underground and Bulyanhulu; mining which in turn could be affected by variations in and processing more lower grade ore in 2003 at modeled versus actual grade, actual processing some mines; plus higher royalty and mining pro- plant performance and the cost of consumables and duction tax expenses due to higher spot gold other cost inputs such as diesel and energy costs. prices in 2003. 32 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS North America For the years ended December 31 Goldstrike Open pit Underground Goldstrike property total Eskay Creek Round Mountain Hemlo (50% owned) Holt-McDermott Marigold (33% owned) Production (attributable ounces) Total Cash Costs – per Gold Institute Production Cost Standard1($/oz) Total Cash Costs – per US GAAP ($/oz) 2003 2002 2003 2002 2003 2002 1,559,461 551,664 1,409,985 640,336 2,111,125 352,070 392,649 267,888 89,515 47,396 2,050,321 358,718 377,747 269,057 83,577 27,422 $ 233 253 $ 228 198 $ 234 253 $ 232 199 238 52 173 226 239 171 218 40 187 224 173 187 237 53 177 227 240 172 222 41 202 227 176 194 3,260,643 3,166,842 $ 209 $ 193 $ 211 $ 198 1. For an explanation of our use of non-GAAP performance measures, refer to pages 58 to 61. In both 2003 and 2002, we hedged substantially all of our total cash costs that are denominated in Goldstrike – Open Pit The increase in production in 2003 compared Canadian dollars, and therefore our total cash with 2002 was due to higher ore grades mined costs were not significantly affected by changes in from the pit. The mine produced 60,000 ounces market currency exchange rates in 2003. However, more than the original plan for 2003, at margin- our total cash costs are impacted by changes in ally higher total cash costs. Higher than planned the average exchange rates under our currency ore tons and grades were mined from the Northeast hedge contracts. The average currency exchange and 8th West laybacks, resulting in 15% higher rate under our hedge contracts was $0.65 in 2003 grades processed for the year when compared compared with $0.64 in 2002. The effect of the with 2002, which was also better than the original difference in this exchange rate on total cash costs plan for 2003. The 2% increase in total cash costs was an increase of about $3 per ounce at our during 2003 compared to the prior year was Canadian mines. In 2004, the average currency mainly due to higher processing costs ($15 million exchange rate under our currency hedge contracts or $9 per ounce), and higher royalties and produc- is $0.67. The change in this average exchange rate tion taxes ($19 million or $11 per ounce), offset in 2004 compared with 2003 is expected to cause by the effect of higher ore grades, which caused a about a $3 per ounce increase in total cash costs $7 per ounce decrease in total cash costs. Higher at our Canadian mines in 2004. processing costs reflected increased acid consump- tion ($2 million or $2 per ounce) related to high carbonate material mined, as well as higher acid prices ($6 million or $4 per ounce) and propane prices ($2 million or $2 per ounce), offset by lower mining costs ($16 million or $10 per ounce), facil- itated by in-pit dumping and a reduced fleet size. 33 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Production for 2004 is expected to be in the range of 1,340,000 to 1,360,000 ounces of gold at total Eskay Creek Gold production in 2003 decreased by 2% cash costs in the range of $250 to $260 per ounce. compared to the prior year, primarily due to an Expected cost and production changes in 2004 anticipated grade reduction, partially offset by an are mainly as a result of the plan to mine closer to increase in the mining rate. Production for 2003 reserve grades. Actual total cash costs in 2004 will was essentially in line with the original plan for be affected by changes in the amount of royalty the year. The increase in costs for the year com- and production tax expenses, which in turn are pared to 2002 is mainly attributable to lower pro- affected by the market price of gold. Goldstrike – Underground During 2003, the mine produced 14% fewer ounces than the previous year, and 68,000 ounces less than the original plan for 2003 due to ground con- ditions, infrastructure completion, and remnant mining constraints. On a combined basis, these factors caused total cash costs to be about $49 per ounce higher than the previous year, combined with higher royalty and production tax expenses ($4 million or $6 per ounce). The same factors also caused total cash costs for 2003 to be about 16% higher than the original plan for the year. Production and costs continue to be affected by ground conditions at Rodeo and the mining of remnant blocks at Meikle. Ground support reha- bilitation efforts are ongoing and have proven suc- cessful in providing increases to Rodeo production. Remnant mining at Meikle has been re-sequenced to maximize ore recovery and ground stability. Production for 2004 is expected to be in the range of 590,000 to 610,000 ounces of gold at total cash costs in the range of $245 to $255 per ounce. Higher production assumes that we will achieve higher recoveries and expected cost improvements assume both higher recoveries and less depend- ence on mining remnant stopes. Our actual total cash costs in 2004 will also be affected by the actual amounts of royalty expenses and pro- duction taxes, which in turn are affected by the market price of gold. duction levels, combined with higher average smelter costs due to higher penalties for mercury and other impurities ($10 per ounce higher). Total cash costs for the year were about 19% better than the original plan for the year due to the impact of higher silver by-product credits. Eskay Creek produces a significant quantity of silver as a by-product (17 million ounces in 2003). Total cash costs per ounce are significantly affected by both the quantity of silver produced and realized silver sales prices. In 2003, we produced 0.8 million ounces less silver than the previous year due to lower silver ore grades, which was partly offset by an increase in realized silver sales prices from $4.74 per ounce to $4.84 per ounce, resulting in a $4 per ounce increase in total cash costs. Production for 2004 is expected to be in the range of 300,000 to 310,000 ounces of gold at higher total cash costs of between $100 and $105 per ounce. Expected lower production and higher costs assume that we will be mining lower grade ores and mining further away from primary facili- ties. Our actual total cash costs in 2004 will also be affected by the quantity of silver produced as a by-product and realized silver selling prices, which in turn will be affected by silver spot market prices. 34 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Round Mountain (50% owned) The increase in ounces produced during 2003 compared to 2002 resulted from higher recoveries from the dedicated leach pad. The mine produced 8% more gold than the original plan for 2003, at 13% lower total cash costs than plan. A draw down in circulating gold loadings due to a carbon plant expansion, increased side slope leaching, and continued production from a non-active leach pad all contributed to higher recoveries. In 2003 total cash costs decreased by 7% due to higher produc- tion levels, which included production of more low-cost ounces as a result of improved recoveries from the leach pads. Our share of production for 2004 is expected to be in the range of 355,000 to 365,000 ounces of gold at total cash costs between $205 and $215 per ounce. Production is expected to decrease in 2004 due to a lower contribution from leach pad recov- eries. Expected higher total cash costs per ounce in 2004 are a result of expected lower production levels and increased processing of stockpiled ore. South America For the years ended December 31 Production (attributable ounces) Total Cash Costs – per Gold Institute Production Cost Standard1 ($/oz) Total Cash Costs – per US GAAP ($/oz) 2003 2002 2003 2002 2003 2002 Pierina 911,723 898,228 $ 83 $ 80 $ 87 $ 101 1. For an explanation of our use of non-GAAP performance measures, refer to pages 58 to 61. 2003 production was 2% higher than the prior year due to an 18% increase in productivity. 2002, we produced 0.6 million fewer silver ounces, partly offset by increased silver prices, which caused Production and total cash costs in 2003 were essen- a $2 per ounce increase in total cash costs. tially in line with the original plan for the year. The mine successfully implemented improvements to the crusher system, which has increased tons placed on the pad. The increased tonnage was off- set by planned lower grades, which caused a $1 per ounce increase in total cash costs. Pierina also pro- duces a quantity of silver as a by-product (1.7 mil- lion ounces in 2003). Total cash costs per ounce are affected by both the quantity of silver produced and realized silver sales prices. In 2003, compared to 2003 was the mine’s last year of production in the 900,000-ounce range. In 2004, the mine is expected to experience lower production levels as mining moves to lower grade areas in the open pit. Due mainly to lower expected ore grades, the mine is expected to produce between 640,000 and 645,000 ounces of gold with total cash costs between $95 and $100 per ounce in 2004. 35 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Australia/Africa For the years ended December 31 Plutonic Darlot Lawlers Kalgoorlie (50% owned) Bulyanhulu Production (attributable ounces) Total Cash Costs – per Gold Institute Production Cost Standard1 ($/oz) Total Cash Costs – per US GAAP ($/oz) 2003 2002 2003 2002 2003 2002 333,947 154,977 99,223 436,098 1,024,245 313,551 307,377 145,443 113,291 360,025 926,136 356,319 $ 193 164 249 209 200 246 $ 184 168 179 222 196 198 $ 193 165 250 212 203 260 $ 186 170 184 228 200 199 1,337,796 1,282,455 $ 210 $ 196 $ 216 $ 199 1. For an explanation of our use of non-GAAP performance measures, refer to pages 58 to 61. In both 2003 and 2002, we hedged substantially pits; additional costs for pumping pit water com- all of our total cash costs that are denominated in bined with restricted mining rates from cyclonic Australian dollars, and therefore our total cash storms earlier this year; and costs incurred to main- costs were not significantly affected by changes in tain pit slope stability. Total cash costs in 2003 market currency exchange rates in 2003. However were in line with the original plan for the year. our total cash costs are impacted by changes in the average exchange rates under our currency hedge contracts. The average currency exchange rate under our hedge contracts was $0.55 in 2003 compared with $0.54 in 2002. The effect of the difference in this exchange rate on total cash costs was an increase of about $4 per ounce at our Australian mines. In 2004, the average currency exchange rate under our currency hedge contracts is $0.58. The change in this average exchange rate in 2004 compared with 2003 is expected to cause about an $11 per ounce increase in total cash costs at our Australian mines in 2004. Plutonic In 2003, production was 9% higher than 2002 and 13% higher than the original plan for the year, due to an increase in processing of higher-grade underground ore. In 2002, a substantial low-grade stockpile was processed. Higher total cash costs per ounce in 2003 compared with 2002 were primarily due to mining various lower-grade open Production for 2004 is expected to be between 315,000 and 320,000 ounces of gold at total cash costs between $185 and $195 per ounce. The expected production decrease is due primarily to a decrease in open pit ore tons mined. Total cash costs are expected to be 4% lower as a result of the benefits of a paste fill plant commissioned in third quarter 2003. Expected benefits from this plant include improved ore recovery, reduced min- ing dilution and improved mining flexibility, which are expected to result in lower total cash costs. Kalgoorlie (50% owned) In 2003, the mine produced 21% more gold than the prior year and 27% higher than the original plan for the year, due to higher ore grades and bet- ter gold recovery rates. Kalgoorlie is an open-pit mine that was historically an underground mine. As areas of the old underground mine are exca- vated through open-pit mining, mining captures high-grade pillars that result in higher processed 36 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS ore grades. Operating improvements, higher ore 88.1%, with a positive impact on total cash costs grade and lower sulphur content contributed to per ounce. higher gold recoveries. The 6% lower total cash costs compared to the prior year, 12% lower than the original plan for the year, was mainly due to the impact of higher ore grades ($36 per ounce decrease) and improved recovery rates ($3 per ounce decrease). Production for 2004 is expected to be between 360,000 and 365,000 ounces of gold at total cash costs between $240 and $260 per ounce. The expected production increase is due to expected higher grades and increased mining productivity as a result of the stabilization plan. Total cash Our share of production for 2004 is expected to costs are expected to be similar to 2003. Both be between 395,000 and 400,000 ounces of gold the production and total cash cost estimates for at total cash costs of between $230 and $240 per Bulyanhulu for 2004 are contingent on improve- ounce. The expected production decrease is due to ments from the stabilization plan. While the imple- expected lower grades and planned maintenance mentation of this plan is underway, we anticipate on the SAG mill. The expected increase in cash that it will take until the end of 2004 to complete. costs is due to lower expected production levels and marginally higher anticipated costs in the open pit. Bulyanhulu 2003 production was 12% lower than the prior year due to higher mining dilution, which resulted in lower than planned processed ore grades. Total cash costs for 2003 were higher than the prior year due to lower production levels and lower processed ore grades, which caused a $14 per ounce increase in total cash costs. Higher costs related to maintenance and supplies also contributed to the increase in total cash costs. Compared to the orig- inal plan for 2003, production was 24% lower and total cash costs were 41% higher than plan for the same reasons as the year over year variance. Accretion and Other Reclamation / Closure Costs Accretion and other reclamation/closure costs, which includes certain reclamation costs, accretion expense and other costs and expenses, increased by $49 million over 2002 to $83 million in 2003. Following the adoption of FAS 143 in 2003, our accounting treatment for these costs changed. Previously, we accrued these costs over the life of our mines using the units of production method. Under FAS 143, we only accrue and amortize legal obligations to carry out reclamation and closure activities over the mine lives, while other reclama- tion costs are expensed as they are incurred. We are also required to discount legal reclamation obliga- Late in third quarter 2003, the mine established a tions and accrue an interest-like cost over the period stabilization plan following production difficulties to time of settlement (accretion). In addition to the in the first part of the year. During the fourth cumulative effect of the change, as compared to the quarter, the mining rate averaged 2,790 tons per prior year, this change in accounting policy resulted day – a 7% improvement over the stabilization in a $36 million increase in these costs in 2003. We plan mining rate. With the successful completion also revised our cost estimates for asset retirement of a flotation plant expansion and adjustments obligations at various closed mines, resulting in a made through the first half of the year, gold recov- $10 million charge to earnings in 2003. ery rates are now averaging 88.5%, up from 37 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Amortization Our amortization expense mainly arises on prop- effort focuses on five major areas where we possess significant infrastructure: the United States, Peru, erty, plant and equipment at our operating mines. Australia, Chile/Argentina and Tanzania. The majority of these assets are amortized on a units of production basis. As a result, amortiza- tion expense is affected by the overall quantity of gold produced and sold, changes in reserve esti- mates, and the mix of production across our mines. We produced 0.2 million fewer ounces in 2003 than in 2002, consisting of a 0.3 million ounce decline at five mines that closed on depletion of Exploration, Development and Business Development Expense For the years ended December 31 Exploration costs North America Australia/Africa South America 2003 2002 2001 $ 19 24 19 $ 13 17 8 $ 17 17 25 reserves in 2002, offset by a 0.1 million ounce Development project costs increase at our other mines. At the closed mines, most assets had been fully amortized by 2002, there- fore the decrease in production from these mines in 2003 did not lead to a significant reduction in amortization expense. Conversely, the 0.1 million ounce increase in production at other mines, com- bined with the effect of a change in production mix, led to an overall $3 million increase in our amortization expense. The overall increase in aver- age amortization per ounce from $85 per ounce to $90 per ounce reflects this changing production mix, as well as the impact of changes in reserve estimates. For details of the impact of changes in reserve estimates on amortization expense in 2003 and 2002, refer to page 47. For an explanation of how we calculate amortization per ounce, refer to page 61. For 2004, we expect amortization to be in a range of $480 million to $490 million. Our actual amortization expense in 2004 will be affected by actual gold production at each of our mines in 2004. Exploration, Development and Business Development Our exploration strategy is to maintain a geo- graphic mix of projects at different stages in the exploration process. Our early stage exploration Veladero Alto Chicama Other Other/Business Development 18 29 7 21 20 29 3 14 26 – – 18 $ 137 $ 104 $ 103 In 2003, we continued to invest in our exploration program with costs increasing from 2002 levels in all three of our regions to support the ongoing level of activities. During 2003, we incurred devel- opment expenditures at each of our development projects. Under US GAAP, development expendi- tures are not capitalized until after mineralization is classified as a proven and probable reserve in accordance with US reporting standards. Our most significant expensed development expenditures in 2003 were incurred at our Veladero and Alto Chicama projects. We expensed development costs at Veladero until October 1, 2003, when the project achieved the criteria needed to classify material as a reserve under SEC rules. For a detailed description of the nature and status of each of our develop- ment projects please refer to pages 14 to 17 of this Annual Report, which are incorporated by refer- ence in this Management’s Discussion and Analysis. In 2004, we expect our exploration, development and business development expense to be about 38 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS $110 million. We expect to capitalize all develop- interest at Cowal and Veladero compared to 2002, ment costs at Veladero in 2004. At Alto Chicama, when we capitalized $2 million at Cowal. In 2004, we will continue to expense development costs we expect to capitalize about an additional until the mineralization there qualifies as a reserve $17 million of interest to reflect a full year of under SEC rules. Our actual development expense capitalization at Veladero. We may also capitalize will be affected by the timing of when miner- further amounts of interest on other development alization at Alto Chicama qualifies as a reserve projects after they achieve SEC reserve status or under SEC rules. If we experience a delay in this receive internal approval to begin construction expected timing, this could cause an increase in activities. expensed development costs. Our exploration expense reflects our planned funding of our vari- ous exploration projects. We may spend more or less on these projects depending on the results of ongoing exploration activities, and we may also fund further exploration projects in addition to the presently planned projects for 2004. Administration Administration costs of $83 million were $19 mil- lion higher than in the prior year, mainly due to severance costs ($9 million), as well as higher legal fees, corporate insurance costs, and regulatory compliance costs. For 2004 we expect administra- tion costs to be about $80 million. Interest Expense We incurred $49 million in interest costs and financing charges in 2003, related mainly to our debentures and our Bulyanhulu project financing. We use interest rate swaps to manage the effective rates of interest we pay on our long-term debt. On $350 million of our $500 million debentures, we have converted the fixed 7.5% interest rate to a floating rate through 2007, taking advantage of low market floating interest rates. On our Bulyanhulu financing, we have taken advantage of the present low interest rates to fix the interest rate for the term of the debt at a rate of about 7%. Our over- all effective interest rate declined from 7.2% in 2002 to 5.8% in 2003, due to the decline in market interest rates. In 2003, we capitalized $5 million of For 2004, we expect to incur interest of about $49 million on our existing debt obligations. Interest expense on our existing long-term debt obligations is expected to decline to about $27 million, after capitalizing about $22 million at Cowal and Veladero. Our actual interest expense on existing debt obligations, as well as amounts of interest capitalized, will be affected by changes in market interest rates on variable rate debt obliga- tions, as well as whether other development projects meet US GAAP criteria for interest capitalization during 2004. Other Income/ Expense In 2003, we earned an effective interest rate on our cash of 3.4%, unchanged from 2002. Through interest rate swaps, we earned a fixed rate of 3.4% in 2003 on most of our cash balances, with any excess cash balances earning interest at market interest rates. In 2003, we also realized pre-tax gains of $39 million on the sale of various land positions and assets at mines that closed in previ- ous years. We may sell further assets in 2004. We also recorded losses of $12 million on various investments, arising mainly on investments held in a post-retirement benefit plan. Non-Hedge Derivative Gains Non-hedge derivative gains and losses arising on derivative instruments used in our risk man- agement strategy that do not qualify for hedge 39 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS accounting treatment are recorded in earnings. tax rate in 2002 was mainly because a significant These gains and losses do not include the unre- portion of our earnings was generated in a low alized mark-to-market loss on our fixed-price tax-rate jurisdiction. forward gold sales contracts. The gains and losses occur because of changes in commodity prices, currency exchange rates and interest rates. In 2003, we recorded an underlying income tax expense of $44 million (underlying effective tax rate of 20%), offset by a net release in deferred In 2003, non-hedge derivative gains of $17 million tax valuation allowances of $39 million, including on non-hedge currency contracts were caused pri- $15 million in Argentina, $16 million in Australia marily by the impact of a strengthening Australian and $21 million in North America. The increase in dollar. We also recorded gains of $32 million on our underlying effective tax rate is due primarily interest-rate and gold lease rate swaps in 2003. to higher spot gold prices that lead to us generat- The fair value of these swaps is affected mainly by ing larger amounts of taxable income in higher changes in either US dollar interest rates or gold rate tax jurisdictions. The release of tax valuation lease rates. A 50-basis point decline in gold lease allowances in North America reflects a corporate rates in 2003 was the main driver of these gains. reorganization that enabled us to utilize certain Based on historic sensitivities and assuming no tax assets. We released valuation allowances total- change in the size of our gold lease rate swap posi- ing $15 million in Argentina after we approved a tion, the effect of a 1% decrease in interest rates construction start up at Veladero in fourth quarter on the fair value of the swaps would be a $32 mil- 2003 and classified mineralization as a proven lion gain for a 1% change in gold lease rates and a and probable reserve under SEC rules. In other $10 million gain for a 1% change in US dollar instances, the release of valuation allowances interest rates. In 2003, we also recorded gains due reflects higher levels of taxable income due to to hedge ineffectiveness of $19 million. These gains higher market gold prices. mainly arose on currency contracts, where because of changes in the expected timing of forecasted expenditures – the contracts no longer qualify for hedge accounting treatment, with the effect that gains or losses are recorded immediately in earn- ings, rather than being matched with the origi- nally hedged items. Income Taxes In 2003, we recorded a tax expense of $5 million compared to a tax recovery of $16 million in 2002. In 2002, the tax recovery of $16 million reflected an underlying effective tax expense of $6 million (effective tax rate of 3%) offset by a credit of $22 million following the resolution of certain tax uncertainties. The relatively low effective Should gold prices remain in the $400 per ounce range, we expect our underlying effective tax rate, excluding any further release of deferred tax valuation allowances, to rise to about 30% as a larger portion of our earnings would come from tax jurisdictions with higher tax rates. Our under- lying income tax expense will also be affected by the quantity of gold production delivered under our fixed-price forward sales contracts, and the actual prices realized for any deliveries under these contracts, due to the impact of varying levels of taxation that exist between the various tax juris- dictions in which we operate. 40 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Our income tax expense is also affected by trend in gold prices may result in further releases changes in the level of valuation allowances of valuation allowances with corresponding tax recorded against deferred tax assets. Valuation credits recorded in earnings. See also pages 49 and allowances are recorded where there is substantial 50 for further information on deferred income tax uncertainty over the realization of a tax asset. valuation allowances. Among other things, a further sustained upward Statement of Comprehensive Income Comprehensive income consists of net income or In 2003, other comprehensive income mainly loss, together with certain other economic gains included gains of $349 million arising on our cash and losses that are collectively described as “other flow hedge contracts and the transfer of $110 mil- comprehensive income” and excluded from the lion of the gains on the cash flow hedges to earn- income statement. ings during the year. Cash Flow Statement Liquidity and Capital Resources Liquidity risk The objective of our liquidity management is to ensure we have the ability to generate or obtain sufficient cash or its equivalents on a timely and cost-effective basis to meet our commitments as they fall due. The management of liquidity risk is crucial to protecting our capital, maintaining mar- ket confidence and ensuring that we can expand not expected to pose a significant risk to our liquidity, because, unless we breach the covenants affecting these financial instruments, which we believe to be unlikely, the counterparties to out- standing derivative instruments cannot require settlement of the derivatives and we are not subject to any margin calls. Historic sources of liquidity In previous years, our main sources of liquidity have into profitable business opportunities. Liquidity been our cash inflow from operating activities, our risk is managed dynamically, and exposures are large cash position, and our various debt-financing regularly measured, monitored and mitigated. The facilities. Currently, our debt facilities include our primary factors that can potentially adversely publicly traded debentures, our Bulyanhulu project affect our liquidity are realized gold sales prices; financing, and our undrawn $1 billion revolving cash production costs; capital expenditure require- credit facility with a syndicate of global banks. ments at our operating mines and development projects; and scheduled repayments of long-term debt obligations. Our past and future non-cash working capital requirements have not and are not expected to materially affect our liquidity. Outstanding derivative financial instruments are In the last three years, we have generated a total operating cash inflow of $1.7 billion. We expect to continue to generate significant operating cash flow over the next few years, providing we can maintain our present production levels and also 41 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS provided that there is no material decline in the The assessment of our liquidity position reflects spot price of gold. We expect capital needs of management estimates and judgments pertaining over $2 billion during the next four years to build to our ability to generate operating cash flow, our our development projects, as well as between capital needs, our credit capacity and our assess- $100 and $200 million per year for sustaining ment of likely future debt market conditions. We capital at our existing operations. Our alternatives consider our liquidity profile to be sound as there for sourcing this capital include our $1 billion are no known trends, demands, commitments, cash position, our $1 billion credit facility, our events or uncertainties that are presently viewed as future operating cash flow, project financings and likely to result in a material adverse change in our public debt financings. We are evaluating these current liquidity position. alternatives to determine the optimal mix of capital resources for the projects. We expect that, absent a material adverse change in a combination of these sources of liquidity, our present levels of liquidity will be adequate to meet our expected capital needs. If we are unable to access project financing due to unforeseen political or other problems, we expect that we will be able to access public debt markets as an alternative source of financing. Liquidity management Our liquidity management approach is designed to ensure that reliable and cost-effective sources of cash are available to satisfy current and prospective commitments. The Corporate Treasury function has global responsibility for the implementation of liquidity management policies, strategies and plans. The Finance Committee provides oversight for liquidity management and liquidity policies and receives regular reports on our liquidity. We manage our liquidity position on a consoli- dated basis. When managing the flow of liquidity between different legal entities within our consoli- dated group, we take into account the tax and regulatory considerations associated with each jurisdiction. While such tax and regulatory consid- erations add a degree of complexity to internal fund flows, our consolidated liquidity management approach takes into account the funding demands associated with intra-group requirements. Diversification of funding sources is an important component of our overall liquidity management strategy since it expands funding flexibility, minimizes funding concentration and dependency and generally lowers financing costs. We also seek to mitigate certain risks through the use of non- recourse project financing. Credit ratings Our ability to access unsecured funding markets and our financing costs in such markets are pri- marily dependent upon maintaining an acceptable credit rating. While our estimates suggest that a minor downgrade would not materially influence our funding capacity or costs, we recognize the importance of avoiding such an event and are committed to actions that should reinforce exist- ing external assessments of our financial strength. A deterioration in our credit rating would not adversely affect our existing debt obligations or gold sales contracts. There are a number of factors that are important to our “A” credit rating, includ- ing: our market capitalization; the strength of our balance sheet, including the amount of net debt and our debt-to-equity ratio; our cash generating ability, including cash generated by operating activities and expected capital expenditure requirements; the quantity of our gold reserves; and our relatively low geo-political risk profile due to the location of our mines. 42 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Like most financial contracts, our revolving credit cost of $154 million. We may continue to execute facility and our gold sales contracts require us to this share buyback program in 2004, subject to comply with certain financial covenants. These market conditions, and provided that we can covenants include: accomplish this without significantly impacting a) Maintaining a minimum consolidated tangible our liquidity. net worth of at least $2.0 billion (our consoli- dated net worth as at December 31, 2003 was $3.5 billion); and Operating Activities Our operating cash flow is significantly affected b) Maintaining a maximum long-term debt to con- by the volume of gold sales, as well as realized solidated net worth ratio below 1.5:1 (the ratio gold prices and cash operating costs. In 2003, as at December 31, 2003 was under 0.25:1). our average realized gold sales price increased by The calculation of net worth excludes the unreal- ized mark-to-market gain or loss on our derivative instruments and gold sales contracts. In the unlikely event that we breach one of these covenants, we would be in default of our forward gold sales contracts, which could result in the counterparties requiring settlement of these con- tracts; the syndicate of banks in our credit facility could require repayment of amounts outstanding at that time. Capital structure We regularly review our capital structure with an overall goal of lowering our cost of capital, while preserving the balance sheet strength and flexibil- ity that is important due to the cyclical nature of commodity markets, and to ensure that we have access to cash for strategic purposes. Following a review of our capital structure during 2003, we concluded that a share buyback program would be consistent with these overall goals. In view of the high levels of operating cash flow we are generating at current gold prices, the high levels of liquidity that exist in the capital markets presently, and because we believe that our current share price represents an attractive buying oppor- tunity, we initiated a share buyback program. In 2003, we repurchased 8.75 million shares at a total $27 per ounce over 2002, although this was offset by a $12 per ounce increase in total cash costs. The effect of these changes, combined with a 4% decrease in ounces sold, was a $54 million increase in our operating cash flow in 2003 compared to 2002. Other year on year changes included a $45 million decrease in payments of reclamation and closure costs and a $59 million increase in cash payments for income taxes. Operating cash flow in the last two years included a payment of $86 million in 2003 for the Inmet settlement and $50 million in 2002 for merger-related costs related to the 2001 merger with Homestake. Investing Activities Our most significant ongoing investing activities are for capital expenditures at our mines. Annually, we invest in sustaining capital at our mines, including expenditures relating to underground development activities. We also incur significant capital expenditures in the development and con- struction phases of new mines, although the yearly level varies depending on the status of our devel- opment projects. In 2003, expenditures were mainly for sustaining capital and underground development at our oper- ating mines. We spent a total of $217 million on sustaining capital in 2003, an increase of $18 mil- lion over 2002. The increase in 2003 mainly relates 43 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS to investments at Plutonic to support a transition to owner operated mining from contractor mining. Financing Activities Our most significant ongoing financing activities We also spent $105 million at our development are repayments/drawdowns of debt obligations; projects in 2003, an increase of $76 million over dividend payments; proceeds from issuing capital the prior year, mainly attributable to the construc- stock on exercise of stock options; and purchases of tion start up at Veladero in 2003. For 2004, we common shares under our share buyback program. expect to spend a total of about $770 million, including $191 million for sustaining capital, which is similar to 2003, and $579 million at our development projects ($273 million at Veladero, $49 million at Cowal, $211 million at Alto Chicama, $35 million at Tulawaka, and $11 million at Pascua). We may increase capital spending for Pascua in 2004, depending on the timing of Board approval to begin construction at the project. We also realized proceeds of $48 million from var- ious asset sales in 2003, and spent $55 million on investments in other mining companies, including a $40 million investment in Highland Gold. Balance Sheet Working Capital Our working capital position (current assets less The most significant financing cash flows in 2003 were $29 million received on the exercise of employee stock options, dividend payments totaling $118 million, and $154 million spent repurchasing 8.75 million common shares under our share buy- back program. We also made scheduled payments under our long-term debt obligations totaling $23 million in 2003. For 2004, we will be required to make scheduled long-term debt repayments of $41 million. The amount of any dividends will be determined by the Board of Directors. hedge contracts that mature in 2004, which current liabilities) increased by $176 million in increased by $122 million due to the strength- 2003 as compared to 2002. This increase was ening of the Australian dollar and Canadian dollar mainly a result of an increase in other current against the US dollar. Other current liabilities assets combined with a decrease in other current decreased by $165 million mainly due to the settle- liabilities. Other current assets include the unreal- ment of the Inmet litigation and payments of ized mark-to-market gain on certain cash flow income tax installments during 2003. Canadian Supplement In note 23 to our consolidated financial statements and intangible assets recorded under Canadian we have provided a reconciliation between Canadian GAAP. These differences arise due to differences and US GAAP, including a description of the in the carrying amounts of assets and of amortiza- material differences affecting our balance sheet, tion methods under Canadian GAAP when com- income statement and statement of cash flow. The pared to US GAAP, as described in note 23 to our principal continuing reconciling differences relate to consolidated financial statements. We also expect the amortization of property, plant and equipment to see continuing differences in our accounting for 44 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS exploration and development expenditures. Some standard will, to a large extent, conform our expenditures that qualify for capitalization under accounting policy for such costs with FAS 143 Canadian GAAP are expensed under US GAAP. under US GAAP, except that the transitional rules The major expenditures in 2004 that will be under this new Canadian standard may result affected by this GAAP difference are expenditures in some continuing differences. The other GAAP on our Alto Chicama project, which will not qualify differences that affected the reconciliation of earn- for capitalization under US GAAP until mineraliza- ings under US GAAP compared with Canadian tion at the project qualifies as a reserve under SEC GAAP were primarily due to facts and circum- rules. We will be required to adopt a new account- stances related to the years presented and are not ing standard under Canadian GAAP in 2004 for necessarily indicative of continuing trends that will reclamation and closure costs. This accounting cause material GAAP differences in future years. Critical Accounting Policies and Estimates Accounting Policy Changes Effective January 1, 2003, we changed our account- Asset Retirement Obligations. These accounting changes are described in note 2 to our consolidated ing policy for the amortization of underground financial statements. development costs, and we adopted FAS 143, Critical Accounting Estimates Critical accounting estimates represent estimates Management has discussed the development and that are highly uncertain and for which changes in selection of our critical accounting estimates with those estimates could materially impact our finan- the Audit Committee of the Board of Directors, cial statements. The following accounting estimates and the Audit Committee has reviewed the dis- are critical: closure relating to such estimates in conjunction > amortization of property, plant and equipment with its review of this Management’s Discussion and capitalized mining costs; and Analysis. > impairment assessments of long-lived assets; > asset retirement obligations; > the measurement of deferred income tax assets and liabilities and assessment of the need to record valuation allowances against those assets; > the valuation of derivative instruments and measurement of gains and losses on cash flow and fair value hedges that are recorded in other comprehensive income; and > contingencies. Property, Plant and Equipment and Other Long-Lived Assets Property, plant and equipment, which totaled $3.1 billion at December 31, 2003, represents a significant portion of our assets (58%). The appli- cation of our accounting policies for these assets has a material impact on our earnings. 45 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS In particular, under our accounting policies we As at year end 2003, we estimated reserves assum- record amortization expense based on the estimated ing a $325 per ounce gold price. At December 31, useful economic lives of these assets, and we peri- 2003, we estimated that a $25 per ounce reduction odically undertake impairment assessments. The (8%) in the gold price assumption would reduce most significant estimate that affects these account- our reserves by about 4 million contained ounces ing policies is estimated quantities of proven and (5%), relating primarily to our Kalgoorlie and probable mineral reserves. The process of estimat- Goldstrike Open Pit operating mines. Conversely, ing quantities of gold reserves is complex, requiring a $25 per ounce increase in gold price would significant decisions in the evaluation of all available increase our reserves by about 3.6 million contained geological, geophysical, engineering and economic ounces (5%), relating primarily to Kalgoorlie and data. The data for a given ore body may also Goldstrike Open Pit. change substantially over time as a result of numer- ous factors, including, but not limited to, additional development activity, evolving production history Amortization Expense We amortize a large portion of our property, plant and the continual reassessment of the viability of and equipment using the units-of-production production under various economic conditions. method based on proven and probable reserves. A material revision (upward or downward) to existing reserve estimates could occur because of, among other things: revisions to geological data or assumptions; a change in the assumed gold prices as well as the results of drilling and exploration activities. Estimates of reserve quantities can also change due to changes in expected cash produc- tion costs. We calculate reported reserve estimates in accordance with rules and regulations governing these estimates. However, because of the subjective decisions we have to make, as well as variances in available data for each ore body, these estimates are generally uncertain. Changes in reserve quantities, including changes resulting from gold and silver price assumptions, would cause corresponding changes in amortization expense in periods subsequent to the revision, and could result in impairment of the carrying amount of property, plant and equipment as well as other long-lived assets such as capitalized mining costs. We estimate that a 5% decrease in reserves would increase annual amortization by about $28 million and decrease net income by about $23 million ($0.04 per share); and a 5% increase in reserves would decrease annual amortization by about $17 million and increase net income by about $14 million ($0.03 per share). This sensitivity analysis assumes that the increase or decrease will be consistent across all our mines. To the extent this increase or decrease varies across our portfo- lio of mines, the actual impact on earnings may be higher or lower than this estimate. The mines where amortization charges are most significantly affected by changes in reserve esti- mates are Pierina, Goldstrike Underground, Eskay Creek and Bulyanhulu. These mines generally have the most significant carrying amounts of property, plant and equipment subject to amortization using the units of production method and the highest per ounce amortization charges. The effect of a 10% change in reserve estimates at these mines on amortization would be as follows: 46 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Pierina Goldstrike Underground Eskay Creek Bulyanhulu 1. Based on ounces sold in 2003. Impact on amortization rates (per ounce) Impact on amortization expense1 (millions) $ 18 8 5 8 $ 13 5 3 8 Impact of Actual Changes in Reserve Estimates on Amortization For the years ended December 31 2003 2002 (in millions of dollars, except reserves which are in millions of contained ounces) Goldstrike – Underground Plutonic Goldstrike – Open Pit Eskay Creek Bulyanhulu Reserves increase (decrease) Amortization increase (decrease) Reserves increase (decrease) Amortization increase (decrease) 0.6 1.3 1.3 – – $(10) (4) (6) – – (1.7) 0.7 – (0.2) 2.2 $ 27 (4) – 6 (7) Changes in reserve estimates are calculated at the that there are material changes to proven and prob- end of the year and affect amortization expense able mineral reserves. To the extent that the aver- prospectively. The amounts presented represent age ratio of tons of waste that are required to be the effect of reserve changes at the end of 2002 removed for each ounce of gold differs materially and 2001. Capitalized Mining Costs At open-pit mines that have diverse grades and waste-to-ore ratios over the life of the mine, we defer and amortize certain costs, normally associ- ated with the removal of waste rock (capitalized mining costs). The amortization of capitalized mining costs is determined using the units of pro- duction method based on estimated recoverable ounces from proven and probable mineral reserves, and using a stripping ratio calculated as the total tons to be moved over total proven and probable reserves. Quantities of proven and probable mineral reserves are subject to material change from period to period as described above. Consequently strip- ping ratios are also subject to material change and the charge to earnings for amortization could differ materially between reporting periods to the extent from that which was estimated in the stripping ratio, the actual amortization charged to operations could differ materially between reporting periods. In 2004, we expect to reduce the stripping ratio at Goldstrike Open Pit from 112:1 to 109:1, and to increase the stripping ratio at Pierina from 48:1 to 60:1. The effect of this change in estimate for 2004 will be to reduce amortization at Goldstrike Open Pit by $0.6 million; and to increase amor- tization at Pierina by $7 million. A further change in the stripping ratio by a factor of 10:1 at Goldstrike Open Pit would change amortization recorded by $2 million; and at Pierina would change amortization recorded by $6 million. Changes in stripping ratio estimates did not have any significant effect on the comparability of amortization charges between 2003 and 2002. 47 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Impairment Assessments of Long-Lived Assets We review and evaluate our long-lived assets for impairment when events or changes in circum- stances indicate that the carrying amounts may not be recoverable. Impairment assessments, which are conducted in the manner described within note 15(c) to our consolidated financial statements, are based on estimates of future cash flows, which include, among other things, estimates of: > the quantity of gold reserves at our mines; > future gold and silver prices; and > future operating and capital costs to mine and process our reserves over extended periods of time (5 to 25 years). governing the protection of the environment. We incur expenses on an ongoing basis to discharge our obligations under these laws and regulations. Certain expenses meet the definition of an asset retirement obligation as defined in FAS 143, and we began accounting for them in accordance with the principles of FAS 143 from 2003 onwards. Other expenses that do not meet the definition of an asset retirement obligation have been expensed as incurred from 2003 onwards. Prior to 2003, we accounted for all such expenses by accruing the total estimated costs over the life of a mine using the units of production method based on proven and probable mineral reserves. On adoption of FAS 143 in 2003, we recorded Estimates of future cash flows are inherently liabilities totaling $334 million for asset retirement uncertain, and are subject to material change over obligations at fair value on our balance sheet, with time. In particular, cash flow estimates are a corresponding adjustment to the carrying amount affected by external factors such as gold and silver of the related assets that give rise to these obliga- prices and also foreign currency exchange rates. tions. Our financial statements will continue to be These cash flow estimates and external factors materially affected by our estimates of future are subject to material change and therefore it is reclamation and closure costs that are part of our reasonably likely that the results of impairment asset retirement obligations. assessments conducted from period to period could have a material impact on our consolidated financial statements. Significant judgments and estimates are made when estimating the nature and costs associated with asset retirement obligations. Cash outflows Based on a long-term gold price of $375 per ounce relating to the obligations are incurred, in some and our gold mineral reserves at December 31, 2003, cases, over periods from 2 to 25 years. When consid- we have completed a sensitivity analysis that indi- ering the effect of the extended time period over cates that a 10% decrease in net cash flows, result- which costs are expected to be incurred, combined ing from a combination of a lower spot gold price with the estimated discount factors, the fair value and an increase in operating and capital costs at of asset retirement obligations could materially each of our properties, would not result in the total change from period to period due to changes in estimated undiscounted future net cash flows at any the underlying assumptions. Also changes in of our mines or development projects being less than environmental laws and regulations could cause the carrying amount of the related long-lived assets. Asset Retirement Obligations Our mining, development and exploration activi- material changes in the expected costs and the fair value of asset retirement obligations. During 2003, we recorded various changes in estimates of asset retirement obligations at closed mines that resulted ties are subject to various laws and regulations in a $10 million pre-tax charge to earnings. 48 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Derivative Instruments All financial instruments that meet the definition of operating costs and capital expenditures at our Australian and Canadian mines. Because of the a derivative in FAS 133 are recorded on our balance large amount of unrealized gains included in other sheet at fair value, with the exception of contracts comprehensive income, hedge ineffectiveness aris- that qualify for the normal sales exemption. ing from a relatively small change in the timing or Changes in the fair value of derivatives recorded on amount of the hedged items could have a significant our balance sheet are recorded in earnings except impact on earnings. Estimates of these forecasted for the effective portion of the change in fair value transactions are developed in our annual mine of derivatives that are designated and qualify as a planning process, and updated periodically when cash flow hedge or a fair value hedge. We apply events or circumstances indicate that the timing or judgment in estimating the fair value of derivative amounts of the forecasted transactions have changed instruments, which are highly sensitive to assump- significantly. In recognition of the fact that this tions regarding gold and other commodity prices, uncertainty increases as the time to the forecasted gold lease rates, market volatilities, foreign currency transaction increases, our hedging strategy is to exchange rates and interest rates. Variations in these hedge a proportion of the forecasted expenditures factors could materially affect amounts credited or that declines in successive time intervals into the charged to earnings to reflect the changes in fair future. During 2003, following changes in the value of derivatives. The derivative instruments expected timing of forecasted Australian dollar whose past changes in fair value have most signifi- capital expenditures, we recorded gains totaling cantly impacted earnings are our gold lease rate $18 million in earnings after we concluded that swaps. Certain derivative instruments are accounted the conditions for continued use of hedge account- for as cash flow hedges. The effective portion of ing treatment for certain derivative instruments changes in fair value of these instruments is deferred was no longer appropriate. in other comprehensive income and will be recog- nized in earnings when the underlying hedged items occur and are also recorded in earnings. All deriva- tives qualifying for hedge accounting are designated Deferred Tax Assets and Liabilities and Related Valuation Allowances In measuring the amount of deferred income tax against hedged items where we believe that the fore- assets and liabilities we are periodically required casted transaction is probable of occurring. To the to develop estimates of the tax basis of assets and extent that we determine that the hedged items are liabilities. In circumstances where the applicable no longer probable of occurring within the time- tax laws and regulations are either unclear or frame designated or within a two month period subject to ongoing varying interpretations, it is thereafter, due to changes in the factors affecting reasonably possible that changes in these estimates the amounts and timing of the forecasted transac- could occur that materially affect the amounts of tions designated as the hedged items, gains and deferred income tax assets and liabilities recorded losses deferred in other comprehensive income are in our consolidated financial statements. The most reclassified to earnings immediately. The most significant hedged items that are uncer- tain and subject to possible change from period to period are forecasted local currency denominated significant such estimate affecting our consolidated financial statements is the tax basis of our Pierina mining concession, which is described in note 21(c) to our consolidated financial statements. It is 49 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS reasonably possible that we may be successful in In Chile, valuation allowances relate to tax assets appealing the revaluation of the Pierina mining in subsidiaries that do not have any present sources concession, resulting in the de-recognition of of income against which to utilize the assets. In deferred income tax liabilities totaling $141 million, the event these subsidiaries are expected to have which would be reflected as a tax credit in earn- sources of income in the future, we may be able to ings in the period such a determination is made. reduce the level of valuation allowances recorded. For every deferred tax asset, we evaluate the likeli- hood of whether some portion or all of the asset will not be realized. This evaluation is based on, In particular, we may be able to release a portion of the valuation allowances when a construction decision is made on the Pascua-Lama project. among other things, expected levels of future tax- In Canada, substantially all of the valuation able income and the pattern and timing of reversals allowances relate to capital losses that will only be of temporary timing differences that give rise to utilized if we realize any capital gains in the future. deferred tax assets and liabilities. If, based on the weight of available evidence, we determine that 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 val- uation allowance against it. As of December 31, 2003, we have recorded a valuation allowance of $394 million on a portion of our net deferred tax assets totaling $682 million. In Tanzania, after considering the fiscal regime applicable to mining companies, and the expected levels of future taxable income at the Bulyanhulu mine, we recorded a valuation allowance against a portion of the deferred tax assets. In the event that levels of future taxable income at Bulyanhulu are higher than we presently expect, which could be because of a number of factors, including a sustained upward movement in gold prices, oper- Valuation Allowance at December 31 ating improvements or the discovery of additional (millions) United States Chile/Argentina Canada Tanzania Australia Other 2003 2002 $ 142 122 72 44 8 6 $ 173 120 67 43 24 6 $ 394 $ 433 In the United States, most of the valuation allowances relate to alternative minimum tax credit carry forwards (AMT credits). These AMT credits will only be utilized if there is a significant further increase in the market price of gold above $400 per ounce or if we secure a source of addi- tional taxable income in addition to the present income generated by our operating mines. reserves, we may reduce the level of valuation allowances against these assets. During 2003, we released net valuation allowances totaling $39 million as previously described on page 39. In future years, levels of taxable income will be affected by, among other things, changes in gold prices, cash operating costs, proven and probable gold reserves, interest rates and foreign currency exchange rates. In particular, if the recent trend of higher spot gold prices continues, we may conclude that a portion of valuation allowances recorded at December 31, 2003 are no longer necessary. Significant changes in these and other factors could have a material impact on the amount of valuation allowances recorded and on income tax expense. 50 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Contingencies We regularly assess contingent liabilities, which As described in note 25 to our consolidated finan- inherently involve the exercise of significant man- cial statements, we are involved in claims and legal agement judgment and estimates of the outcome proceedings, the resolution of which could have of future events. By their nature, contingencies a material effect on our financial condition or will only be resolved when one or more future future results of operations. In assessing these events occur or fail to occur – and typically those contingencies, we evaluated the perceived merits events may occur a number of years in the future. of the legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or that we expect to seek. Off-Balance Sheet Arrangements We do not enter into off-balance sheet arrange- in addition to us. We do not have any relation- ments with special purpose entities in the normal ships with special purpose entities whose sole course of our business, nor do we have any uncon- business purpose is to enter into derivative trans- solidated affiliates. In the case of joint ventures, actions with us. our proportionate interest for consolidation pur- poses is equivalent to the economic returns to which we are entitled as a joint venture partner. Our only significant off-balance sheet arrange- ments are our forward gold sales contracts. Forward Gold Sales Contracts Prior to the adoption of a no-hedge policy in fourth quarter 2003, we historically entered into fixed- price forward sales contracts in a gold hedging program to manage our exposure to market gold prices. Following the adoption of our no-hedge policy, we will not add any new gold hedge con- tracts, and we expect to reduce our gold hedge position to zero over time. We have historically entered into forward gold sales contracts with about 19 high quality banking counterparties. The banking counterparties with whom we entered into these contracts engage in hedging transactions with numerous third parties We have used fixed-price forward gold sales con- tracts to protect our earnings and cash flow from declining gold prices. These contracts permit us to sell our gold production in the gold spot market. In a rising gold price environment, we have the ability to deliver our gold at the higher spot price, or deliver under the contract at the contract price. We expect to reduce our gold hedge position to zero over time; in 2003, we reduced our position by 2.6 million ounces to 15.5 million ounces. Through the use of these fixed-price contracts, in periods when the spot price has been stable or declining, we have been able to realize higher rev- enues than if we had sold our gold production in the spot gold market. The impact of selling our gold production under these contracts, compared to the price that would have been realized in the spot market, can be illustrated as follows: 51 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Revenues from Forward Gold Sales Contracts For the years ended December 31 Total revenues from contract sales Average contract selling price ($/oz) Average spot price ($/oz) Incremental revenues from contracts in excess of average spot gold prices 2003 2002 2001 $ 1,397 364 363 $ 1,401 352 310 $ 1,307 347 271 3 168 289 Fixed-price Forward Gold Sales Contracts (“The Gold Hedge Position”) As of December 31, 2003 Gold ounces hedged 15.5 million ounces (or slightly less than three years of expected future production) Current termination date of gold sales contracts 2013 in most cases Average estimated realizable gold sales contract price at 2013 termination date $ 400/oz1 Delivery obligations Barrick will deliver gold production from operations against gold sales contracts by the termination date (which is currently 2013 in most cases). However, Barrick may choose to settle any gold sales contract in advance of this termination date at any time, at its discretion. Historically, delivery has occurred in advance of the contractual termination date. This means Barrick can deliver gold at spot prices, or prices under the hedge contracts, until the termination date of these contracts. Average estimated minimum realizable contract gold sales price for delivery of 100% of expected future production into existing sales contracts over the next three years Unrealized mark-to-market loss at December 31, 2003 $ 309/oz1, 2, 3 $ 1,725 million4 1. Approximate estimated value based on current market US dollar interest rates and an average lease rate assumption of 1.5%. 2. Accelerating gold deliveries could potentially lead to reduced contango that would otherwise have built up over time. 3. Assumes delivery of 100% of expected future production against current gold sales contracts which would exhaust all remaining gold hedge positions. 4. At a spot gold price of $415 per ounce. 52 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Key Contract Terms and Conditions A forward gold sales contract is an agreement that Since we have the flexibility to deliver gold under our fixed-price forward gold sales contracts at any we will sell a fixed number of ounces of gold to time, primarily over the next 10 years, we can sell the contract counterparty on a delivery date in the our gold at the higher of the spot price or the future at an agreed price. We have the flexibility to contract price well into the future. In the event spot choose the delivery date at any time over a period prices consistently exceed the contract price for up to about 10 years and we have the ability to this period, we would eventually deliver gold at a choose a fixed price or a floating price. Our rights price of about $400 per ounce under our existing and obligations under these contracts are defined contracts (assuming market contango rates of by Master Trading Agreements (“MTAs”) that 2.5%) for each ounce that we did not sell at spot we have executed with our counterparties. The prices. Although we may choose to deliver our price-setting mechanism found in these MTAs gold production at higher spot prices, it remains is described in note 5 to our consolidated finan- probable that we will physically deliver gold over cial statements. The selling price under a fixed-price forward gold sales contract is based on the forward price of gold at the future delivery date, which is essen- tially 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 the term of the contract, rather than cash settling the contracts. As discussed elsewhere in this dis- cussion and analysis, we have targeted a 1.5 mil- lion ounce reduction in our gold hedge position in 2004. In order to achieve this reduction, we may deliver gold into fixed-price forward sales con- tracts at sales prices that are lower than the then prevailing spot price of gold. is often quoted as a percentage return that reflects In most cases, under the terms of our MTAs, the spread between market LIBOR interest rates the period over which we are required to deliver (i.e. US dollar interest rates) and gold lease rates. gold is extended annually by one year, or kept Generally, US dollar interest rates are higher than “evergreen”, regardless of our intended delivery the gold lease rate, which means that the future dates, unless otherwise notified by the counter- price is higher than the current price under the party. This means that, with each year that passes, contract. In general, the longer the period of time the termination date of most MTAs is extended from the start of a contract until delivery, the into the future by one year. In all of our MTAs higher the contract price will be compared to the with our 19 counterparties, the following applies: spot price at the start of the contract. The final the counterparties do not have unilateral and dis- contract selling price increases over time due to cretionary “right to break” provisions; there are the amount of the forward premium or contango no credit downgrade provisions; and we are not implicit in forward gold prices, as long as US dollar subject to any margin calls – regardless of the interest rates are higher than gold lease rates. price of gold. 53 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS We have the right to settle at any time during the life of the contracts. This flexibility is demon- strated by the terms that allow us to deliver into Significance of mark-to-market gains and losses At the end of 2003, the unrealized mark-to-market contracts at any time on two days notice, or keep (fair value) on the derivative instruments position, these contracts outstanding for as long as pri- including gold and silver forward sales contracts, as marily 10 years. This feature means that we can well as currency and interest rate hedge programs, sell our gold at the market price or the hedge was negative $1.4 billion. This mark-to-market value price at our discretion, to the termination date of represents the replacement value of these contracts our contracts (2013 in most cases). based on current market levels, and, subject to us Our trading agreements with our counterparties do provide for early close out of certain transac- tions in the event of a material negative change in our ability to produce gold for delivery under our forward gold sales contracts, or a lack of gold market, and for customary events of default such continuing to meet the significant covenants under our MTAs, does not represent an economic obliga- tion for payment by us. Our obligations under our gold sales contracts are to deliver an agreed-upon quantity of gold at an agreed price by the termina- tion date of the contracts (2013 in most cases). as covenant breaches, insolvency or bankruptcy. In accordance with hedge accounting rules, the The significant financial covenants are: we must positive mark-to-market value of $326 million maintain a minimum consolidated net worth of relating to our currency and interest rate hedge at least $2 billion – currently, it is $3.5 billion; programs is recorded as an asset on our balance and we must maintain a maximum long-term sheet. The mark-to-market value of our gold and debt to consolidated net worth ratio of 1.5:1 silver sales contracts is not recorded on the bal- – currently, it is under 0.25:1. The covenants under ance sheet as accounting rules that govern these our MTAs exclude unrealized mark-to-market contracts do not require balance sheet recognition. gains or losses on our derivative instruments and Instead, in accordance with US GAAP, the eco- forward gold sales contracts in the calculation of nomic impact of these sales contracts is reflected consolidated net worth. in the financial statements as we physically deliver gold and silver under the contracts. The terms of our forward gold sales contracts with our 19 counterparties provide flexibility and benefits that we believe are unique to us. These advantageous terms reflect, among other things, our strong credit rating and our high quality, long- life, low-cost asset base. 54 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS A short-term spike in gold lease rates would not have a material negative impact on us because we are not exposed under our fixed-price forward gold sales contracts to short-term gold lease rate variations. A prolonged rise in gold lease rates could result in lower contango (or negative con- tango i.e. “backwardation”) and therefore a smaller Change in the Fair Value of Forward Gold Sales Contracts Unrealized Gain (Loss) At December 31, 2002 Impact of change in spot price1 Contango earned in the year Impact of change in valuation inputs2 $ (639) (1,088) 138 (136) $ (1,725) forward premium (or backwardation) under the At December 31, 2003 contract. However, because of the large amount of Central Bank gold available for lending relative to demand, gold lease rates have historically tended to be low and any spikes short-lived. At December 31, 2003 Fair Value Forward gold sales contracts Forward silver sales contracts Foreign currency contracts Interest rate contracts $ (1,725) (20) 288 38 $ (1,419) 1. From $347 per ounce to $415 per ounce. 2. Other than spot metal prices (e.g. interest rates and gold lease rates). The mark-to-market value of the gold contracts is based on a spot gold price of $415 per ounce and market rates for LIBOR and gold lease rates. The mark-to-market value of the contracts would approach zero (breakeven) at a spot gold price of approximately $303 per ounce, assuming all other variables are constant. Contractual Obligations and Commitments Payments due in At December 31, 2003 2004 2005 – 2006 2007 – 2008 2009+ Total Contractual obligations Long-term debt Asset retirement obligations Capital leases Operating leases Purchase obligations Supplies inventory and consumables Power contracts Capital expenditures Other Total $ 41 41 – 4 12 19 163 10 $ 65 76 2 6 11 15 6 11 $ 569 59 3 5 – 17 – 1 $ 80 337 – 8 $ 755 513 5 23 – 2 – 4 23 53 169 26 $ 290 $ 192 $ 654 $ 431 $ 1,567 55 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Long-term debt Our debt obligations do not include any subjective Capital expenditures Purchase obligations for capital expenditures acceleration clauses or other clauses that enable include only those items where binding commit- the holder of the debt to call for early repayment, ments have been entered into. They do not include except in the event that we breach any of the terms the full amount of future expenditures relating to and conditions of the debt. We are not required to our development pipeline over the next 5 years, post any collateral under any debt obligations and because commitments have yet to be made for a the terms of the obligations would not be affected large portion of the estimated future capital costs by a deterioration in our credit rating. related to these projects. Asset retirement obligations Amounts presented in the table represent the Commitments undiscounted future estimated cost of asset retire- ment obligations that are recorded in our financial Royalties Virtually all of our royalty commitments give rise statements. The most significant contingent liability to obligations at the time we produce gold. In the relating to reclamation and closure activities which event that we do not produce gold at our mining is not recorded on our balance sheet, or presented properties, we have no payment obligation to the in the above table, relates to potential obligations royalty holders. The amounts that we expect to monitor water quality and treat ground water on to pay in the future are: 2004 – $45 million; an ongoing basis. We will record a liability for these 2005 to 2006 – $115 million; 2007 to 2008 – activities if environmental laws and regulations $107 million; and 2009 and beyond – $375 mil- require us to conduct these activities in the future. lion. These amounts are estimated based on our Power purchase agreements We enter into contracts to purchase power at each of our operating mines. The contracts provide for fixed prices, which in certain circumstances, are adjusted for inflation. Some agreements obligate us to purchase fixed quantities per hour, seven days a week, while others are based on a percent- age of actual consumption. These contracts extend through various dates in 2004 to 2007. In addition to the purchase obligations set out in the table on the previous page, we purchase about 0.9 billion kilowatt-hours annually at market rates. Under the terms of one contract, we purchase power based on actual consumption; this contract has an exit fee of $12 million should we decide to switch to an alternate power supplier. expected gold production from proven and proba- ble reserves (under Canadian reporting standards) for the periods indicated, and assuming a $350 gold price. The most significant royalty arrangements are disclosed in note 6 to our consolidated finan- cial statements. Payments to maintain land tenure and mineral property rights In the normal course of business, we are committed to making annual 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 to abandon a property or discon- tinue mining operations, the payments relating to that property can be suspended, resulting in our rights to the property lapsing. 56 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Quarterly Information (in millions, except per share data) March 31, June 30, 2003 2002 2003 2002 September 30, 2002 2003 December 31, 2002 2003 Gold sales Average spot gold price Average realized gold price Net income Net income per share1 Operating cash flow $ 459 $ 478 290 329 46 0.09 124 352 355 29 0.05 131 $ 491 $ 490 313 341 59 0.11 148 347 352 59 0.11 66 $ 549 $ 473 314 342 34 0.06 126 364 365 35 0.07 188 $ 536 $ 526 323 343 54 0.10 195 392 394 77 0.14 134 1. Basic and diluted Our financial results for the last eight quarters realized a $51 per ounce (15%) increase in the reflect the following general trends: rising spot gold price compared to the year earlier period, gold prices and prices realized from gold sales; which more than offset the lower sales volumes. declining gold production and sales volumes; and rising total cash costs. These trends are discussed elsewhere in this Management’s Discussion and Analysis, and the quarterly trends are consistent with explanations for annual trends over the last two years. Fourth Quarter Results Revenue for fourth quarter 2003 was $536 mil- lion on gold sales of 1.36 million ounces, com- pared to $526 million in revenue on gold sales of 1.54 million ounces for the year earlier period. During the quarter, spot gold prices ranged from a high of $416 to a low of $369 per ounce, averag- ing $392 per ounce. We realized an average price of $394 per ounce during the quarter, delivering 600,000 ounces against gold hedge contracts, with the remainder at spot gold prices. Due to the higher spot gold prices during the quarter, we For the quarter, we produced 1.3 million ounces at total cash costs of $1991 per ounce compared to 1.6 million ounces at total cash costs of $1741 per ounce. Both production and total cash costs for the quarter were in line with plan. Earnings for the fourth quarter 2003 were $77 mil- lion ($0.14 per share) as compared to earnings of $54 million ($0.10 per share) in the year earlier period. This increase in earnings over the year earlier period reflect a $51 per ounce higher realized gold price and a $60 million increase in non-hedge derivative gains (2003 – $46 million gain versus 2002 $14 million loss). These factors were partly offset by higher cash operating costs, provisions of $14 million for the Inmet settlement and $10 mil- lion for reclamation costs, and an $18 million lower income tax recovery. 57 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS In the quarter, we generated operating cash flow of $134 million ($220 million prior to the Inmet settlement of $86 million1) as compared to operat- ing cash flow of $195 million in the prior year period. Lower operating cash flow in the quarter primarily relates to the payment of $86 million on the Inmet settlement. Excluding the Inmet settle- ment, fourth quarter and full year cash flow from operations was slightly higher in 2003 than 2002. 1. For an explanation of our use of non-GAAP performance measures, please refer to pages 58 to 61. Non-GAAP Performance Measures We have included total cash costs per ounce data comparable basis for assessing the Company’s because we understand that certain investors use cash flow performance in 2003 compared with this information to assess our performance. The 2002. Non-GAAP measures do not have any stan- inclusion of total cash costs per ounce statistics dardized meaning prescribed by US GAAP, and enables investors to better understand year-on- therefore they may not be comparable to similar year changes in production costs, which in turn measures prescribed by other companies. The data affect our profitability and ability to generate are intended to provide additional information operating cash flow for use in investing and other and should not be considered in isolation or as a activities. We have also included a measure of substitute for measures of performance prepared operating cash flow excluding the settlement of in accordance with GAAP. The measures are not litigation. Litigation settlements are infrequent necessarily indicative of operating profit or cash in occurrence, and therefore including this non- flow from operations as determined under GAAP. GAAP measure of performance provides a more 58 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Reconciliation of Total Cash Costs per Ounce to Financial Statements For the years ended December 31 Total cash production costs per US GAAP1 Accretion expense and reclamation costs at operating mines Total cash production costs per Gold Institute Production Cost Standard Ounces sold (thousands) Total cash costs per ounce sold per US GAAP (dollars) Total cash costs per ounce sold per Gold Institute Production Cost Standard (dollars) For the years ended December 31 Total cash production costs per US GAAP1 Accretion expense and reclamation costs at operating mines Total cash production costs per Gold Institute Production Cost Standard Ounces sold (thousands) Total cash costs per ounce sold per US GAAP (dollars) Total cash costs per ounce sold per Gold Institute Production Cost Standard (dollars) Goldstrike – Open pit Goldstrike – Underground Eskay Creek Round Mountain 2003 2002 2003 2002 2003 2002 2003 2002 $ 380.6 $ 320.2 $ 152.1 $ 123.0 $ 18.6 $ 14.7 $ 67.2 $ 78.7 (2.5) (5.5) – (1.2) (0.3) (0.5) (1.6) (6.0) $ 378.1 $ 314.7 $ 152.1 $ 121.8 $ 18.3 $ 14.2 $ 65.6 $ 72.7 1,625 1,383 600 617 354 358 379 389 $ 234 $ 232 $ 253 $ 199 $ 53 $ 41 $ 177 $ 202 $ 233 $ 228 $ 253 $ 198 $ 52 $ 40 $ 173 $ 187 Hemlo Holt-McDermott Marigold Total North America 2003 2002 2003 2002 2003 2002 2003 2002 $ 60.4 $ 65.0 $ 20.9 $ 16.6 $ 8.1 $ 5.4 $ 707.9 $ 623.6 (0.2) (1.0) (0.1) (0.3) (0.1) (0.2) (4.8) (14.7) $ 60.2 $ 64.0 $ 20.8 $ 16.3 $ 8.0 $ 5.2 $ 703.1 $ 608.9 266 286 87 94 47 28 3,358 3,155 $ 227 $ 227 $ 240 $ 176 $ 172 $ 194 $ 211 $ 198 $ 226 $ 224 $ 239 $ 173 $ 171 $ 187 $ 209 $ 193 1. Represents cost of sales and other operating costs (excluding amortization). 59 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended December 31 Total cash production costs per US GAAP1 Accretion expense and reclamation costs at operating mines Total cash production costs per Gold Institute Production Cost Standard Ounces sold (thousands) Total cash costs per ounce sold per US GAAP (dollars) Total cash costs per ounce sold per Gold Institute Production Cost Standard (dollars) For the years ended December 31 Total cash production costs per US GAAP1 Accretion expense and reclamation costs at operating mines Total cash production costs per Gold Institute Production Cost Standard Ounces sold (thousands) Total cash costs per ounce sold per US GAAP (dollars) Total cash costs per ounce sold per Gold Institute Production Cost Standard (dollars) Pierina Total South America Plutonic Darlot 2003 2002 2003 2002 2003 2002 2003 2002 $ 78.9 $ 90.2 $ 78.9 $ 90.2 $ 62.6 $ 58.0 $ 25.4 $ 24.8 (3.2) (18.4) (3.2) (18.4) (0.2) (0.8) (0.1) (0.3) $ 75.7 $ 71.8 $ 75.7 $ 71.8 $ 62.4 $ 57.2 $ 25.3 $ 24.5 911 895 911 895 324 311 154 146 $ 87 $ 101 $ 87 $ 101 $ 193 $ 186 $ 165 $ 170 $ 83 $ 80 $ 83 $ 80 $ 193 $ 184 $ 164 $ 168 Lawlers Kalgoorlie Bulyanhulu Total Australia/Africa 2003 2002 2003 2002 2003 2002 2003 2002 $ 23.8 $ 21.3 $ 88.1 $ 83.6 $ 77.1 $ 78.4 $ 277.0 $ 266.1 (0.1) (0.5) (1.5) (2.0) (4.1) (0.4) (6.0) (4.0) $ 23.7 $ 20.8 $ 86.6 $ 81.6 $ 73.0 $ 78.0 $ 271.0 $ 262.1 95 116 415 367 297 395 1,285 1,335 $ 250 $ 184 $ 212 $ 228 $ 260 $ 199 $ 216 $ 199 $ 249 $ 179 $ 209 $ 222 $ 246 $ 198 $ 210 $ 196 1. Represents cost of sales and other operating costs (excluding amortization). 60 BARRICK Annual Report 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS Reconciliation of Amortization Costs per Ounce to Financial Statements For the years ended December 31 Amortization expense per consolidated financial statements Amortization expense recorded on property, 2003 $ 522 2002 $ 519 2001 $ 501 plant and equipment not at operating mine sites (25) (26) (24) Amortization expense for per ounce calculation Ounces sold (thousands) Amortization per ounce (dollars) $ 497 5,554 $ 90 Reconciliation of Operating Cash Flow Excluding the Inmet Settlement For the years ended December 31 Operating cash flow per financial statements Inmet settlement Operating cash flow excluding Inmet settlement Per share data: Operating cash flow Operating cash flow excluding Inmet settlement 2003 $ 521 86 $ 607 $ 0.97 $ 1.13 $ 493 5,805 $ 85 2002 $ 589 – $ 589 $ 1.09 $ 1.09 $ 477 6,278 $ 76 2001 $ 588 – $ 588 $ 1.09 $ 1.09 Outstanding Share Data As at March 4, 2004, 534.6 million common shares a Common Share. Generally, a holder of a BGI (“Common Shares”) and one special voting share Exchangeable Share may exercise his or her voting (“Special Voting Share”) in the capital of Barrick right by either providing voting instructions to were issued and outstanding. Computershare Trust Computershare or attending a meeting of holders of Company of Canada (“Computershare”), the holder Common Shares and voting in person. As at of the Special Voting Share, is entitled to cast the num- March 4, 2004, there were 1.5 million BGI Exchange- ber of votes equal to the number of BGI Exchangeable Shares (as defined below) outstanding (excluding able Shares outstanding that were not owned by Barrick, which would entitle the holders of the BGI those owned by Barrick and its subsidiaries), multi- Exchangeable Shares to cast 0.8 million votes at a plied by 0.53, for which it receives voting instructions meeting of holders of Common Shares. For further from holders of such BGI Exchangeable Shares. information regarding the BGI Exchangeable Shares, In connection with Barrick’s acquisition of Home- stake Mining Company effective December 14, please refer to the Company’s current Management Information Circular and Proxy Statement. 2001, Barrick Gold Inc. (formerly Homestake As at March 4, 2004, options to purchase 24 million Canada Inc.) issued securities (“BGI Exchangeable Common Shares were outstanding under Barrick’s Shares”), which, by their terms, are each exchange- option plan. In addition, as at March 4, 2004, able at any time for 0.53 of a Common Share. Each options to purchase 0.5 million Common Shares BGI Exchangeable Share entitles the holder to exercise were outstanding under certain option plans inher- the same voting rights as a holder of 0.53 of ited by Barrick in connection with prior acquisitions. 61 BARRICK Annual Report 2003 Management’s Responsibility Management’s Responsibility for Financial Statements The accompanying consolidated financial statements have been prepared by and are the responsibility of the Board of Directors and Management of the Company. The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and reflect Management’s best estimates and judgements based on currently available information. The Company has developed and maintains a system of internal accounting controls in order to ensure, on a reasonable and cost effective basis, the reliability of its financial information. The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, Chartered Accountants. Their report outlines the scope of their examination and opinion on the consolidated financial statements. Jamie C. Sokalsky Senior Vice President and Chief Financial Officer Toronto, Canada February 11, 2004 62 BARRICK Annual Report 2003 Auditors’ Report To the Shareholders of Barrick Gold Corporation We have audited the consolidated balance sheets of Barrick Gold Corporation as at December 31, 2003 and 2002 and the consolidated statements of income, cash flows, and shareholders’ equity and com- prehensive income for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in both Canada and the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examin- ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in accordance with United States generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, during 2003 the Company changed its policy on accounting for amortization of underground development costs and for asset retirement obligations, during 2002 the Company changed its policy on deferred stripping costs, and during 2001 the Company changed its policy on accounting for derivative instruments. On February 11, 2004 we reported separately to the shareholders of Barrick Gold Corporation on the consolidated financial statements for the same periods, prepared in accordance with Canadian generally accepted accounting principles. Chartered Accountants Toronto, Canada February 11, 2004 63 BARRICK Annual Report 2003 Financial Statements Consolidated Statements of Income Barrick Gold Corporation For the years ended December 31 (in millions of United States dollars, except per share data) 2003 2002 2001 Gold Sales (notes 4 and 5) $ 2,035 $ 1,967 $ 1,989 Costs and expenses Cost of sales and other operating expenses1 (note 6) Amortization (note 4) Administration Merger and related costs (notes 3 and 18) Exploration and business development Other income/expense (note 7) Litigation (note 25) Interest expense (note 19) Non-hedge derivative gains (losses) (note 11) Income before income taxes and other items Income tax (expense) recovery (note 8) Income before cumulative effect of changes in accounting principles Cumulative effect of changes in accounting principles (note 2) 1,134 522 83 – 137 1,876 52 (16) (44) 71 222 (5) 217 (17) 1,071 519 64 (2) 104 1,756 29 – (57) (6) 177 16 193 – Net income for the year $ 200 $ 193 $ 1,080 501 86 117 103 1,887 32 (59) (25) 33 83 14 97 (1) 96 Earnings per share data (note 9): Income before cumulative effect of changes in accounting principles Basic and diluted Net income Basic and diluted 1. Exclusive of amortization (note 6) $ 0.40 $ 0.36 $ 0.18 $ 0.37 $ 0.36 $ 0.18 The accompanying notes are an integral part of these consolidated financial statements. 64 BARRICK Annual Report 2003 FINANCIAL STATEMENTS Consolidated Statements of Cash Flows Barrick Gold Corporation For the years ended December 31 (in millions of United States dollars) Operating Activities Net income for the year Amortization Changes in capitalized mining costs Deferred income taxes (note 8) Inmet litigation settlement (note 25) Gains on sale of long-lived assets (note 7) Other items (note 12) Net cash provided by operating activities Investing Activities Property, plant and equipment Capital expenditures (note 4) Sales proceeds Purchase of investments (note 13) Increase in restricted cash Change in short-term cash deposits Net cash used in investing activities Financing Activities Capital stock Proceeds from shares issued on exercise of stock options Repurchased for cash (note 22b) Long-term debt Proceeds Repayments (note 19) Dividends (note 22d) 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 12) 2003 2002 2001 $ 200 522 37 (49) (86) (39) (64) 521 (322) 48 (55) – – (329) 29 (154) – (23) (118) (266) – (74) 1,044 $ 193 519 29 (75) – (8) (69) 589 (228) 11 – – 159 (58) 83 – – (25) (119) (61) – 470 574 $ 96 501 17 (50) – (9) 33 588 (474) 5 – (24) (153) (646) 7 – 55 (152) (93) (183) (1) (241) 816 Cash and equivalents at end of year (note 12) $ 970 $ 1,044 $ 574 The accompanying notes are an integral part of these consolidated financial statements. 65 BARRICK Annual Report 2003 FINANCIAL STATEMENTS Consolidated Balance Sheets Barrick Gold Corporation At December 31 (in millions of United States dollars) Assets Current assets Cash and equivalents (note 12) Accounts receivable (note 14) Inventories (note 14) Other current assets (note 14) Investments (note 13) Property, plant and equipment (note 15) Capitalized mining costs (note 16) Unrealized fair value of derivative contracts (note 11d) Other assets (note 17) 2003 2002 $ 970 69 157 169 1,365 127 3,131 235 256 248 $ 1,044 72 159 47 1,322 41 3,311 272 78 237 Total assets $ 5,362 $ 5,261 Liabilities and Shareholders’ Equity Current liabilities Accounts payable Other current liabilities (note 18) Long-term debt (note 19) Other long-term obligations (note 20) Deferred income tax liabilities (note 21) Total liabilities Shareholders’ equity Capital stock (note 22) Deficit Accumulated other comprehensive income (loss) (note 10) Total shareholders’ equity Contingencies and commitments (note 25) $ 245 105 350 719 569 230 $ 213 270 483 761 528 155 1,868 1,927 4,115 (694) 73 3,494 4,148 (689) (125) 3,334 Total liabilities and shareholders’ equity $ 5,362 $ 5,261 The accompanying notes are an integral part of these consolidated financial statements. Signed on behalf of the Board Gregory C. Wilkins Howard L. Beck Director Director 66 BARRICK Annual Report 2003 FINANCIAL STATEMENTS Consolidated Statements of Shareholders’ Equity Barrick Gold Corporation For the years ended December 31 (in millions of United States dollars) Common shares (number in millions) At January 1 Issued for cash/on exercise of stock options Repurchased for cash (note 22b) At December 31 Common shares At January 1 Issued for cash/on exercise of stock options Repurchased for cash (note 22b) At December 31 Deficit At January 1 Net income Repurchase of common shares (note 22b) Dividends (note 22d) At December 31 2003 2002 2001 542 2 (9) 535 536 6 – 542 536 – – 536 $ 4,148 34 (67) $ 4,062 86 – $ 4,051 11 – $ 4,115 $ 4,148 $ 4,062 $ (689) 200 (87) (118) $ (763) 193 – (119) $ (766) 96 – (93) $ (694) $ (689) $ (763) Accumulated other comprehensive income (loss) (note 10) $ 73 $ (125) $ (107) Total shareholders’ equity at December 31 $ 3,494 $ 3,334 $ 3,192 Consolidated Statements of Comprehensive Income Net income Foreign currency translation adjustments Transfers of realized (gains) losses on cash flow hedges $ to earnings (note 10) Hedge ineffectiveness transferred to earnings (note 10) Change in gains accumulated in OCI for cash flow hedges (note 10) Additional minimum pension liability Transfers of realized (gains) losses on available-for-sale securities to earnings Unrealized gains (losses) on available for sale securities 2003 2002 2001 200 (3) (61) (12) 230 – 12 32 $ 193 (21) (21) – 28 (2) 4 (6) $ 96 (26) 25 – – (5) (2) (4) Comprehensive income $ 398 $ 175 $ 84 The accompanying notes are an integral part of these consolidated financial statements. 67 BARRICK Annual Report 2003 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 with Canadian and US regulatory authorities. We also include consolidated financial statements prepared under Canadian GAAP (in United States dollars) in our Proxy Statement that we file with various Canadian reg- ulatory authorities. Summarized below are the account- ing policies we that have adopted under US GAAP and that we consider particularly significant. References to Barrick Gold Corporation (“Barrick” or the “Company”) the Company in these financial statements relate to engages in the production and sale of gold, including Barrick and its consolidated subsidiaries. We have related mining activities such as exploration, devel- reclassified certain prior-year amounts to conform with opment, mining and processing. Our operations are the current year presentation. mainly located in the United States, Canada, Australia, Peru, Tanzania, Chile and Argentina. They require specialized facilities and technology, and we rely on those facilities to support our production levels. The market price of gold, quantities of gold mineral reserves and future gold production levels, future cash operating costs, foreign currency exchange rates, market interest rates and the level of exploration expenditures are some of the things that could materially affect our operating cash flow and profitability. Due to the global nature of our operations we are also affected by government regu- lations, political risk and the interpretation of taxation laws and regulations. We seek to mitigate these risks, and in particular we use derivative instruments as part These consolidated financial statements include the accounts of Barrick and its subsidiaries. Intercompany transactions and balances are eliminated upon consoli- dation. We control our subsidiaries through existing majority voting interests. Our ownership interests in the Round Mountain, Hemlo and Kalgoorlie Mines are held through unincorporated joint venture agreements, under which we share joint control with our joint venture partners. Under long-standing practice for extractive industries, we include the assets, liabilities, revenues, expenses and cash flows of unincorporated joint ventures in our financial statements using the proportionate consolidation method. of a risk management program that seeks to mitigate the The preparation of financial statements under US effect of volatility in commodity prices, interest rates GAAP requires us to make estimates and assumptions and foreign currency exchange rates (refer to note 11). Many of the factors affecting these risks are beyond our control and their effects could materially impact our consolidated financial statements. that affect: > the reported amounts of assets and liabilities; > disclosures of contingent assets and liabilities; and > revenues and expenses recorded in each reporting period. 2. Significant Accounting Policies a) Basis of presentation The United States dollar is the principal currency of our The most significant estimates and assumptions that affect our financial position and results of operations are those that use estimates of proven and probable gold reserves; future estimates of costs and expenses; and/or operations. We prepare our primary consolidated finan- assumptions of future commodity prices, interest rates cial statements in United States dollars and under and foreign currency exchange rates. Such estimates and United States generally accepted accounting principles (“US GAAP”). These financial statements are filed assumptions include: > decisions as to whether exploration and mine development costs should be capitalized or expensed; 68 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS > assessments of whether property, plant and equip- ment, ore in stockpiles and capitalized mining costs may be impaired; > assessments of our ability to realize the benefits of deferred income tax assets; > the useful lives of long-lived assets and the rate at which we record amortization in earnings; > the estimated fair value of asset retirement obligations; > the timing and amounts of forecasted future expenditures that represent the hedged items underlying hedging relationships for our cash flow hedge contracts; > the estimated fair values of derivative instruments; > the value of slow-moving and obsolete inventories (which are stated at the lower of average cost and net realizable value); and > assessments of the likelihood and amounts of contingencies. Amortization of underground development costs On January 1, 2003, we changed our accounting policy for amortization of underground mine development costs to exclude estimates of future underground devel- opment costs (as described in note 15a). On adoption of this change on January 1, 2003, we decreased property, plant and equipment by $19 mil- lion, and increased deferred income tax liabilities by $2 million. We recorded in our income statement a $21 million charge for the cumulative effect of this accounting change. FAS 133, Accounting for derivative instruments We adopted FAS 133 on January 1, 2001. On adoption, we recorded the fair value of derivative instruments We regularly review the estimates and assumptions that affect our financial statements; however, what actually happens could differ from those estimates as follows: At January 1, 2001 and assumptions. Carrying amount Fair value Adjustment Asset (liability) Loss b) Accounting changes FAS 143, Accounting for asset retirement obligations On January 1, 2003, we adopted FAS 143 and changed our accounting policy for recording obligations relating to the retirement of long-lived assets (as described in note 20a). On adoption of FAS 143 in first quarter 2003, we recorded on our balance sheet an increase in property, plant and equipment by $39 million; an increase in other long-term obligations by $32 million; and an increase in deferred income tax liabilities by $3 million. We recorded in our income statement a $4 million credit for the cumulative effect of this accounting change. On the adoption of FAS 143, the total amount of recorded asset retirement obligations was $334 mil- lion, and the comparative amount would have been $353 million at December 31, 2001. Hedge derivatives Purchased gold call options Non-hedge derivatives Written gold call options and total return swaps Other derivatives $ 44 $ 5 $ (39)1 $ (42) $ (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 $2 million. The following table identifies certain changes in account- ing principles and accounting estimates that we have made in each year and the effect such changes had on earnings for that year. 69 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effect of various accounting changes on earnings For the years ended December 31 ($ millions except per share amounts) 2003 2002 2001 Pro-forma effect of changes in accounting policies (excluding related tax effects)1 Adoption of FAS 143 Earnings increase (decrease) Per share Amortization of underground development costs Earnings increase (decrease) Per share Total effect Earnings increase (decrease) Per share Changes in estimates recorded in earnings (excluding related tax effects for non-tax items) Pension costs actuarial assumptions (note 24e) Earnings (decrease) Per share Deferred tax valuation allowances and outcome of tax uncertainties (note 8)2 Earnings increase (decrease) Per share Asset retirement obligations (note 20a) Earnings (decrease) Per share Hedge ineffectiveness arising due to changes in the expected timing and amounts of forecasted transactions (note 11e) Earnings increase Per share Total effect Earnings increase (decrease) Per share Cumulative effect of changes in accounting principles (net of tax effects) Adoption of FAS 133 Per share Adoption of FAS 143 Per share Amortization of underground development costs Per share Total effect Earnings (decrease) Per share $ (36) $ (0.07) $ (4) $ (0.01) $ 4 $ 0.01 – – – – – – $ (36) $ (0.07) $ (4) $ (0.01) $ 4 $ 0.01 $ $ (2) nil $ 39 $ 0.07 $ (10) $ (0.02) $ 18 $ 0.03 $ 45 $ 0.08 – – $ 4 $ 0.01 $ (21) $ (0.04) $ (17) $ (0.03) – – – – $ (21) $ (0.04) $ (45) $ (0.09) – – – – – – – – $ (21) $ (0.04) $ (45) $ (0.09) – – – – – – – – $ $ $ $ (1) nil – – – – (1) nil 1. Represents the impact of the revised accounting policy. For 2003, earnings increased or decreased by the amount disclosed. For 2002 and 2001, because prior years were not restated, the amount disclosed is a pro forma amount only and has not been recorded in these financial statements. 2. Includes both reversals of prior year allowances and allowances recorded against current-year tax losses. 70 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS d) Other significant accounting policies Note 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 20 21 22 23 23 24 25 26 27 28 Page p. 72 p. 72 p. 74 p. 75 p. 76 p. 76 p. 77 p. 78 p. 79 p. 83 p. 84 p. 85 p. 86 p. 87 p. 88 p. 88 p. 88 p. 89 p. 90 p. 90 p. 92 p. 93 p. 94 p. 95 p. 97 p. 100 p. 101 p. 101 c) Foreign currency translation The functional currency of all our operations is the United States dollar (“the US dollar”). We re-measure balances into US dollars as follows: > non-monetary assets and liabilities using historical rates; > monetary assets and liabilities using period-end exchange rates; and > income and expenses using average exchange rates, except for expenses related to assets and liabilities re-measured at historical exchange rates. Gains and losses arising from re-measurement of foreign currency financial statements into US dollars, and from foreign currency transactions, are recorded in earnings. Business combinations Segment information Revenue recognition and sales contracts Cost of sales and other operating expenses Other income/expense Income taxes Earnings per share Comprehensive income Derivative instruments In 2003, various changes in economic facts and circum- Cash and equivalents stances led us to conclude that the functional currency Investments of our Argentinean operations was the United States Accounts receivable, inventories and dollar and not the Argentinean Peso. These changes other current assets included the completion of the Veladero mine feasibility Property, plant and equipment study, the denomination of selling prices for gold Capitalized Mining Costs production and US dollar based expenditures. Other assets After the merger with Homestake in 2001, various changes in economic facts and circumstances led us to conclude that the functional currency of certain of its Other current liabilities Long-term debt Asset retirement obligations Other post-retirement benefits operations was the United States dollar and not the Deferred income taxes local currency. These changes included the denomina- tion of selling prices for gold production, and more use Capital stock Stock options of United States dollar financing. For periods before January 1, 2002, the financial state- ments of those operations were translated as follows: assets and liabilities using period-end exchange rates; and revenues and expenses at average rates. Translation adjustments were included in OCI. Restricted stock units Pension plans Contingencies and commitments Fair value of financial instruments Joint ventures Differences from Canadian GAAP 71 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Business Combinations 4. Segment Information Homestake Mining Company On December 14, 2001, a wholly-owned subsidiary of We operate in the gold mining industry and our oper- ations are managed on a regional basis. Our three Barrick merged with Homestake Mining Company primary regions are North America, Australia/Africa, (“Homestake”). Under the terms of the merger agree- and South America, which includes Peru, Chile and ment, we issued 139.5 million Barrick common shares in Argentina. In 2003, we changed the composition of our exchange for all the outstanding common shares of reportable segments by the addition of our development Homestake, using an exchange ratio of 0.53:1. The projects. We also changed our determination of which merger was accounted for as a pooling-of-interests. The costs are charged to segments. Prior periods have been consolidated financial statements give retroactive effect restated to conform to the current presentation. Financial to the merger, with all periods presented as if Barrick information on all our individual mines and develop- and Homestake had always been combined. ment projects is reviewed regularly by our chief operating In 2001, we recorded charges for merger-related costs totaling $117 million ($107 million after tax). These costs included transaction costs of $32 million for investment banking, legal, accounting and other costs directly related to the merger. They also include integra- tion and restructuring costs of $85 million, mainly for employee termination costs. decision maker, and accordingly our definition of a business segment includes each of our operating mines and development projects. Our development projects are not presently generating revenue and therefore the measure of segment loss represents expensed explo- ration and development costs. Our “other operating mines” segment includes mainly operations which have been, or are being, closed. Income statement information For the years ended December 31 2003 2002 2001 2003 2002 2001 2003 2002 2001 Gold sales Total cash production costs1 Segment income (loss) before income taxes Operating mines: Goldstrike Pierina Bulyanhulu Kalgoorlie Eskay Creek Hemlo Plutonic Round Mountain Other operating mines Development projects: Veladero Cowal Pascua-Lama Alto Chicama $ 813 $ 678 $ 774 299 56 118 99 94 90 117 342 332 109 153 130 98 120 139 141 303 134 124 121 97 105 132 273 $ 531 $ 437 $ 467 38 35 78 16 60 48 71 207 71 78 82 16 64 57 73 150 76 73 87 18 60 62 66 78 – – – – – – – – – – – – – – – – – – – – – – – – $ 122 90 (1) 46 65 27 48 53 37 (18) – – (29) $ 94 71 16 23 57 23 37 38 87 $ 169 86 4 23 43 24 30 28 85 (20) – – (29) (26) – – – Segment total $ 2,035 $ 1,967 $ 1,989 $1,051 $ 1,028 $ 1,020 $ 440 $ 397 $ 466 1. Includes cost of sales, by-product revenues, royalty expenses and production taxes (note 6). Excludes accretion expense, other reclamation and closure costs, and amortization. 72 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asset information For the years ended December 31 2003 2002 2003 2002 2001 2003 2002 2001 Segment assets Amortization Segment capital expenditures Operating mines: Goldstrike Pierina Bulyanhulu Kalgoorlie Eskay Creek Hemlo Plutonic Round Mountain Other operating mines Development projects: Veladero Cowal Pascua-Lama Alto Chicama Segment total Cash and equivalents Other items outside operating segments $ 1,372 $ 1,496 546 661 240 258 60 59 79 234 434 670 250 215 55 84 75 113 85 49 239 9 3,650 970 742 7 25 223 5 3,893 1,044 324 $ 160 166 37 20 47 11 10 20 26 – – – – 497 – 25 $ 147 161 40 19 48 10 11 21 36 – – – – 493 – 26 $ 138 175 17 17 40 10 12 18 50 – – – – 477 – 24 $ 51 17 36 14 5 10 44 6 29 68 24 9 4 317 – 5 $ 46 5 56 14 8 6 20 8 33 – 13 11 5 225 – 3 $ 122 12 153 6 10 6 11 15 54 – – 69 – 458 – 16 Enterprise total $ 5,362 $ 5,261 $ 522 $ 519 $ 501 $ 322 $ 228 $ 474 Geographic information For the years ended December 31 2003 2002 2003 2002 2001 Assets Gold sales United States Peru Australia Canada Tanzania Chile/Argentina Other $ 1,835 757 556 480 707 309 718 $ 1,834 733 480 533 695 173 813 $ 970 332 364 260 109 – – $ 905 303 316 299 134 4 6 $ 1,041 297 288 269 56 38 – $ 5,362 $ 5,261 $ 2,035 $ 1,967 $ 1,989 73 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of segment income to enterprise net income For the years ended December 31 Segment income Accretion expense, reclamation, closure and other costs Amortization outside operating segments Exploration and business development costs, excluding development projects Merger and related costs Administration Other income/expense Interest expense Non-hedge derivative gains (losses) Income tax (expense) recovery Cumulative effect of changes in accounting principles Inmet litigation 2003 $ 440 (83) (25) (90) – (83) 52 (44) 71 (5) (17) (16) 2002 $ 397 (43) (26) (55) 2 (64) 29 (57) (6) 16 – – 2001 $ 466 (60) (24) (77) (117) (86) 32 (25) 33 14 (1) (59) Net income $ 200 $ 193 $ 96 5. Revenue Recognition and Sales Contracts We recognize revenue from the sale of gold and by- title to concentrate passes to the third-party smelters. products when the following conditions are met: The terms of the contracts result in embedded deriva- > persuasive evidence of an arrangement exists; > delivery has occurred under the terms of the arrangement; > the price is fixed or determinable; and > collectability is reasonably assured. For gold and silver bullion sold under forward sales contracts or in the spot market, we consider that deliv- ery has occurred on transfer of title to the gold or silver to counterparties. Revenue from the sale of by-products such as silver is credited against cost of sales and other operating expenses. Concentrate sales contracts Our Eskay Creek and Bulyanhulu mines produce ore and concentrate containing both gold and silver. Under the terms of our sales contracts with third-party smelters final gold and silver prices are set on a speci- fied future date after the shipment date based on spot market metal prices. We record revenues under these contracts based on the forward gold and silver prices at the time of shipment, which is when transfer of legal tives, because of the difference between the recorded one-month forward price and the final settlement price. These embedded derivatives are adjusted to fair value through revenue each period until the date of final gold and silver pricing. Forward gold sales contracts We have fixed-price forward gold sales contracts with various counterparties for 15.5 million ounces of future gold production. The terms of the contracts are gov- erned by master trading agreements that we have in place with the counterparties to the contracts. The con- tracts have final delivery dates primarily over the next 10 years, but we have the right to settle these contracts at any time over these periods. Contract prices are established at inception through to an interim date. Based on the contractual terms of the fixed-price con- tracts and current spot and forward gold market prices, the average price that would be realized if all produc- tion in the next three years was used to deliver into these contracts would be $309 per ounce. If we do not 74 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS deliver at this interim date, a new interim date is set. gold lease rate, and pay a floating gold lease rate, on a The price for the new interim date is determined in notional 3.3 million ounces of gold spread from 2004 to accordance with the master trading agreements which 2013. The swaps are associated with forward gold sales have contractually agreed price adjustment mechanisms contracts with expected delivery dates beyond 2006. based on the market gold price. The master trading These lease rate swap contracts are accounted for as agreements have both fixed and floating price mecha- non-hedge derivatives (note 11). nisms. The fixed price mechanism represents the market price at the start date (or previous interim date) of the contract plus a premium based on the difference between the forward price of gold and the current market price of gold. For the majority of fixed-price forward gold sales contracts, selling prices are fixed through 2006. If at an interim date we opt for a floating price, the floating price represents the spot market price of gold plus or minus the difference between the pre- viously fixed price and the market gold price at that interim date. In addition to the fixed-price forward gold sales contracts, we have floating-price forward gold sales contracts under which we are committed to deliver 0.5 million ounces of gold over the next 10 years at prices that will be based on the then prevailing spot price. Forward gold market prices are principally influenced by the current market price of gold, gold lease rates and US dollar interest rates. The final realized selling price under a contract will depend on the timing of the actual future delivery date, the market price of gold at the start of the contract and the actual amount of the premium of the forward price of gold over the spot price of gold for the periods that fixed selling prices are set. We use gold lease rate swap contracts to manage our gold lease rate exposure. Based on the fact that histori- cal short-term gold lease rates have been lower than longer-term gold lease rates, and because fixed price forward gold sales contracts have fixed gold lease rates, we have used these gold lease rate swap contracts to economically achieve a more optimal term structure for gold lease costs. Under these swaps we receive a fixed Major customers The largest single counterparty as of December 31, 2003 made up 12% of the ounces of outstanding for- ward gold sales contracts. Forward silver sales contracts Forward silver sales contracts have similar delivery terms and pricing mechanisms as forward gold sales contracts. At December 31, 2003, we had fixed-price commitments to deliver 22.3 million ounces of silver over periods primarily of up to 10 years at an average price of $5.24 per ounce. 6. Cost of Sales and Other Operating Expenses For the years ended December 31 Cost of sales1 By-product 2003 2002 2001 $ 1,100 $ 1,114 $ 1,088 revenues (note 5) Royalty expenses Production taxes Accretion expense (note 20) Other reclamation and (114) 50 15 17 (119) 37 5 – (112) 39 5 – closure costs 66 34 60 $ 1,134 $ 1,071 $ 1,080 1. Cost of sales includes all costs that are capitalized to inventory, except for amortization of property, plant and equipment. The amount of amortization capitalized to inventory, but excluded from cost of sales was $497 million in 2003; $493 million in 2002; and $477 million in 2001. 75 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Other Income/ Expense a) Royalty expenses Certain of our properties are subject to royalty obliga- tions based on mineral production at the properties. The most significant royalties are at the Goldstrike and Bulyanhulu mines and the Pascua-Lama and Veladero projects. The primary type of royalty obligation is a net For the years ended December 31 Interest income Gains on sale of long-lived assets1 smelter return (NSR) royalty. Under this type of royalty Foreign currency translation we pay the holder an amount calculated as the royalty gains (losses) percentage multiplied by the value of gold production at market gold prices less third-party smelting, refining and transportation costs. Most Goldstrike production is subject to an NSR or net profits interest (NPI) royalty. The highest Goldstrike royalties are a 5% NSR and a 6% NPI royalty. Bulyanhulu is subject to an NSR-type royalty of 3%. Pascua-Lama gold production from the areas located in Chile is subject to a gross proceeds sliding scale royalty, ranging from 1.5% to 10%, and a 2% NSR on copper production. For areas located in Argentina, Pascua-Lama is subject to a 3% NSR on extraction of all gold, silver, and other ores. Production at Veladero is subject to a 3.75% NSR on extraction of all gold, silver and other ores. b) Other reclamation and closure costs Various types of costs associated with the reclamation and closure of our mining properties do not meet the definition of “asset retirement obligations” as set out in FAS 143 (see note 20). We expense these costs as they are incurred. For comparative periods, the amounts represent our reclamation and closure costs expense under our accounting policy prior to the adoption of FAS 143 (see note 20). 2003 2002 2001 $ 34 $ 30 $ 36 39 2 (12) (11) 8 1 (4) (6) 9 (10) 2 (5) $ 52 $ 29 $ 32 Gains (losses) on available for sale securities (note 13) Other items 1. In 2003 we sold various assets, including: several land positions around inactive mine sites in the United States, as well as the East Malartic Mill and Bousquet mine in Canada. We may continue to sell further land positions around our inactive mine sites in the United States. These land positions have been fully amortized, and therefore any proceeds would likely generate gains on sale, before selling costs and taxes. 8. Income Taxes Income tax (expense) recovery For the years ended December 31 2003 2002 2001 Current Canada Foreign Deferred Canada Foreign $ (40) (14) $ (44) (15) $ (14) (22) $ (54) $ (59) $ (36) 32 17 $ 49 $ (5) 45 30 $ 75 $ 16 74 (24) $ 50 $ 14 76 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reconciliation to the Canadian federal statutory rate For the years ended December 31 Income tax expense based on statutory rate of 38% (Increase) decrease resulting from: Resource and depletion allowances1 Earnings in foreign jurisdictions at different tax rates1 Non-deductible expenses Release of deferred tax valuation allowances recorded in prior years2 Valuation allowances recorded against current year tax losses Outcome of income tax uncertainties3 Other items 2003 $ (84) 17 42 (11) 62 (23) – (8) 2002 $ (67) 12 67 (9) – (43) 22 34 2001 $ (32) 11 84 (56) – (45) – 52 Income tax (expense) recovery $ (5) $ 16 $ 14 1. We operate in a specialized industry and in several tax jurisdictions. Our income is subject to varying rates of taxation, and we are able to claim certain allowances and deductions unique to extractive industries that result in a lower effective tax rate. 2. In 2003, we released valuation allowances totaling $62 million, which mainly included: $21 million in North America following a corporate reorganization of certain subsidiaries that enabled us to utilize certain previously unrecognized tax assets; $16 million in Australia realized in 2003 due to an increase in taxable income from higher gold prices; and $15 million in Argentina after the approval to begin construction of our new Veladero mine and classification of mineralization as a proven and probable reserve. 3. In 2002, we recorded a credit of $22 million reflecting the net impact of tax planning completed in the period and the outcome of certain tax uncertainties. Temporary differences and their tax effects For the years ended December 31 2003 2002 2001 Amortization Reclamation costs Net operating losses Other 9. Earnings per Share For the years ended December 31 ($ millions, except shares in millions and per share amounts) Income available to common stockholders Effect of dilutive stock options Income available to common stockholders and on assumed conversions Weighted average shares outstanding – basic Effect of dilutive stock options Weighted average shares outstanding and on assumed conversions Earnings per share Basic Diluted $ 13 2 36 (2) $ 49 $ 52 (4) 22 5 $ 75 $ 21 (8) 37 – $ 50 2003 $ 200 – 2002 $ 193 – 2001 $ 96 – $ 200 $ 193 $ 96 539 – 539 541 – 541 536 2 538 $ 0.37 $ 0.37 $ 0.36 $ 0.36 $ 0.18 $ 0.18 77 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We compute basic earnings per share by dividing net (the denominator). In computing diluted earnings per income or loss (the numerator) by the weighted-average share, an adjustment is made for the dilutive effect of number of outstanding common shares for the period outstanding stock options. 10. Comprehensive Income Comprehensive income consists of net income and other on derivative instruments accounted for as cash flow gains and losses that are excluded from net income. These hedges; unrealized gains and losses on available for sale other gains and losses consist mainly of gains and losses securities; and foreign currency translation adjustments. Parts of comprehensive income (loss) For the years ended December 31 2003 2002 2001 Foreign currency translation adjustments Transfers of realized (gains) losses on cash flow hedges to earnings (note 11e) Hedge ineffectiveness transferred to earnings (note 11e) Change in gains accumulated in OCI for cash flow hedges (note 11e) FAS 133 transition adjustment (note 2) Additional minimum pension liability Transfers of (gains) losses on available for sale securities to earnings (note 7) Change in gains (losses) on available for sale securities (note 13) Pre-tax amount Post-tax amount Pre-tax amount Post-tax amount Pre-tax amount Post-tax amount $ (3) $ (3) $ (21) $ (21) $ (26) $ (26) (91) (19) 349 – – 12 32 (61) (12) 230 – – 12 32 (25) (21) – 49 – (2) 4 (6) – 28 – (2) 4 (6) 29 – – (4) (5) (2) (4) 25 – – – (5) (2) (4) $ 280 $ 198 $ (1) $ (18) $ (12) $ (12) Accumulated other comprehensive income (loss) (OCI) At December 31 Foreign currency translation adjustments Accumulated gains on cash flow hedges (note 11e) Additional minimum pension liability (note 24d) Unrealized gains (losses) on available for sale securities (note 13) 2003 Tax credit $ – Pre-tax amount $ (147) Total $ (147) 2002 Tax credit $ – Pre-tax amount $ (144) Total $ (144) 288 (99) 189 49 (17) 32 (7) 38 – – $ 172 $ (99) $ (7) 38 73 (7) (6) – – (7) (6) $ (108) $ (17) $ (125) 78 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Derivative Instruments a) Use of derivative instruments We use derivative instruments to mitigate the effects of certain risks that are inherent in our business, and also to take advantage of opportunities to secure attractive Foreign currency contracts: These instruments are used for the cash flows at our operating mines and development projects from forecasted expenditures denominated in Canadian and Australian dollars to insulate them from currency fluctuations. pricing for commodities, currencies and interest rates. Gold lease rate swap contracts: These contracts are The inherent risks that we most often attempt to miti- used to manage the fixed gold lease rate element of gate by the use of derivative instruments occur from fixed-price forward gold sales contracts and to take changes in commodity prices (gold and silver), interest advantage of lower short-term gold lease rates (refer rates and foreign currency exchange rates. Because we to note 5). produce gold and silver, incur costs in foreign cur- rencies, and invest and borrow in US dollars and are therefore subject to US interest rates, our derivative instruments cover natural underlying asset or liability positions. The purpose of the hedging elements of our derivative program is so that changes in the values of cash flows from hedged items are offset by equivalent changes in the values of derivative instruments. We do not hold derivatives for the purpose of specula- tion; our risk management programs are designed to enable us to plan our business effectively and, where possible, mitigate adverse effects of future movements in gold and silver prices, interest rates and foreign currency exchange rates. The main types of derivatives we use are: We mainly use over-the-counter (“OTC”) derivative contracts. Using privately negotiated master trading agreements with our counterparties, we are, in many cases, able to secure more favorable terms than if we used exchange-traded derivative instruments. We have been able to negotiate these master trading agreements due to our credit standing and the quality and long-life nature of our mines and gold mineral reserves. We value derivative instruments using pricing inputs that are readily available from independent sources. The fair value of the contracts is mainly affected by, among other things, changes in commodity prices, interest rates, gold lease rates and foreign currency exchange rates. Our use of these contracts is based on established prac- Forward gold and silver sales contracts: These contracts tices and parameters, which are subject to the oversight provide for the sale of future gold production in fixed of the Finance Committee of the Board of Directors. quantities with delivery dates at our discretion over a We also maintain a separate compliance function to period of up to 15 years (refer to note 5 for more infor- independently monitor our hedging and financial risk mation relating to our sales contracts). management activities and segregate the duties of per- sonnel responsible for entering into transactions from those responsible for recording transactions. Interest rate swaps: These instruments are used to coun- teract the volatility of variable short-term interest rates by substituting fixed interest rates over longer terms on cash and short-term investments. We also use interest rate swaps to swap our interest due on long-term debt obligations from fixed to floating, to take advantage of the present low interest-rate environment. 79 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS b) Accounting for derivative instruments and hedging activities Under US GAAP, companies are required to include on their balance sheet the fair value of derivative instru- ments, which are defined under FAS 133. This accounting Non-hedge derivatives: Changes in the fair value are recorded in earnings as they occur. All cash flows relating to derivative instruments are included under operating cash flows. standard excludes certain derivative instruments from We formally document all relationships between hedge its scope, including instruments that meet the definition derivative instruments and the items they are hedging, of “normal sales contracts”. Such contracts include those as well as the risk-management goals and strategy for whose obligations will be met by physical delivery of a entering into hedge transactions. This documentation company’s production and that meet other requirements includes linking all derivatives designated as fair value, set out in paragraph 10(b) of FAS 133. Our forward gold cash flow, or foreign currency hedges to either specific and silver sales contracts have contractual terms that are assets and liabilities in the balance sheet, specific firm consistent with the FAS 133 definition of a normal sales commitments or specific forecasted transactions. contract. In addition, our past sales practices, produc- tive capacity and delivery intentions are also consistent with that definition. Accordingly, we have elected to designate these instruments as normal sales contracts with the result that the fair value recognition provisions of FAS 133 are not applied to them. Instead we apply our normal revenue recognition principles to our nor- mal sales contracts as described in note 5, which results in recognition of proceeds from the contracts as revenue at the date of physical delivery. All other derivatives are recognized on our balance sheet at their fair value as either an asset or a liability. On the date we enter into a derivative contract, we designate the derivative as either: > a fair value hedge of a recognized asset or liability; > a cash flow hedge of either a forecasted transaction or the variability of cash flows associated with a recognized asset or liability; For these documented relationships, we formally assess (both at the start of the hedge and on an ongoing basis) whether the derivatives used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of hedged items, and whether those derivatives are expected to remain highly effective in the future. If it is clear that a derivative is not highly effective as a hedge, we stop hedge accounting prospectively. Other circumstances under which we stop hedge accounting prospectively include: > a derivative expires or is sold, terminated, or exercised; > it is no longer probable that the forecasted transaction will occur; or > if we decide to remove the designation as a hedge from a derivative. > a foreign currency cash flow hedge of forecasted If it is clear that a forecasted transaction will not occur transactions; or > an instrument that does not qualify for hedge accounting treatment (“non-hedge derivatives”). Fair value hedges: We record in earnings any changes in the fair value of the derivatives as they occur, along with changes in the fair value of the hedged asset or liability. Cash flow hedges: We record changes in the fair value of the derivatives in Other Comprehensive Income (OCI) until earnings are affected by the forecasted transaction or variability in future cash flows. in the originally specified time frame, or within a further two-month period, gains and losses accumulated in OCI are recognized at once in earnings as “hedge ineffective- ness”. In all situations in which hedge accounting stops and a derivative remains outstanding, future changes in its fair value are recognized in earnings as they occur. 80 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS c) Derivative instruments outstanding as at December 31, 2003 Maturity 2004 2005 2006 2007 2008+ Total 5,000 $ 6.04 2,000 $ 5.00 – – – – – – 7,000 $ 5.74 – – – – – $ 100 3.0% $ 575 3.5% – – – – $ 275 4.0% $ 324 5.7% $ 1,000 3.6% $ 324 5.7% $ 100 $ 575 $ (49) $ 676 Written silver call options Ounces (thousands) Average exercise price per ounce Interest rate contracts Receive-fixed swaps Notional amount (millions) Fixed rate (%) Pay-fixed swaps Notional amount (millions) Fixed rate (%) Net notional position Foreign currency contracts Canadian dollar forwards C$ (millions) Average 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 $ 50 3.6% – – $ 50 $ 442 0.68 $ 591 0.57 $ 20 0.53 0.52 360 $ 30 $ 23 $ 329 0.67 $ 440 0.58 $ 10 0.52 0.51 180 $ 30 $ 22 $ 145 0.72 $ 193 0.55 $ 10 0.52 0.51 – – – Classification of interest rate and foreign currency contracts At December 31, 2003 Interest rate contracts Receive-fixed swaps on cash balances Receive-fixed swaps on debentures Pay-fixed swaps on Bulyanhulu project financing Pay-fixed swaps on lease rate swaps Foreign currency contracts Canadian dollar contracts Australian dollar contracts Cash flow hedge Fair value hedge $ 650 – $ 174 – $ 1,012 $ 1,279 – $ 350 – – – – We also held gold lease rate swaps at December 31, ounces of gold spread from 2004 to 2013 (see note 5). 2003 that are based on a notional amount of 3.3 million These contracts are classified as non-hedge derivatives. 81 BARRICK Annual Report 2003 $ 96 0.67 $ 139 0.58 $ 22 0.68 $ 19 0.53 – – – – – – – – – – – – Non- hedge – – – $ 150 $ 22 $ 143 $ 1,034 0.68 $ 1,382 0.57 $ $ $ 40 0.53 0.52 540 30 23 Total $ 650 $ 350 $ 174 $ 150 $ 1,034 $ 1,422 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS d) Unrealized fair value of derivative instruments (excluding normal sales contracts) The fair values of recorded derivative assets and liabili- ties reflect the netting of the fair values of individual derivative instruments, and amounts due to/from counter- At January 1 Derivative instruments settled Change in fair value of derivative instruments: Non-hedge derivatives Cash flow hedges Fair value hedges At December 31 2003 2002 parties that arise from derivative instruments, when the $ 29 (91) $ (16) (2) 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, 2003. 52 349 (2) (6) 49 4 $ 3371 $ 29 1. Included on the balance sheet as follows: $154 million in other current assets; $256 million in non-current assets as unrealized fair value of derivative contracts; $3 million in other current liabilities; and $70 million in other long- term obligations. e) Change in gains (losses) accumulated in OCI for cash flow hedge contracts At January 1, 2001 Hedge losses transferred to earnings At December 31, 2001 Change in fair value Hedge gains transferred to earnings At December 31, 2002 Change in fair value Hedge gains transferred to earnings Hedge ineffectiveness transferred to earnings Commodity contracts Foreign currency contracts Interest rate contracts $ (4) 291 25 (4) (12)1 9 3 (13)1 – $ – – – 33 (7)2 26 337 (65)2 (18)4 $ – – – 20 (6)3 14 9 (13)3 (1)4 Total $ (4) 29 25 49 (25) 49 349 (91) (19) At December 31, 2003 $ (1) $ 280 $ 9 $ 288 1. Included under revenues and by-product credits 2. Included under operating expenses 3. Included under interest income 4. During 2003, we determined that certain Australian dollar hedge contracts designated as hedges of forecasted capital expenditures no longer met the FAS 133 qualifying hedge criteria due to changes in the expected timing of the forecasted expenditures. On determining that these hedges were no longer effective for accounting purposes, gains totaling $18 million on these contracts were transferred out of OCI to earnings in 2003. For 2003 the total amount of hedge ineffectiveness, including the gains on ineffective capital expenditure hedges, recorded and recognized in non-hedge derivative gains was $19 million (2002 – $nil; 2001 – $nil). Based on the fair value of cash flow hedge contracts at matched with the related hedged items. These gains will December 31, 2003, in fiscal 2004 we expect to transfer be reflected as a reduction in cash operating costs, and hedge gains of $134 million from OCI to earnings, to be as a component of interest income. 82 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS f) Non-hedge derivative gains (losses) For the years ended December 31 2003 2002 Commodity contracts Currency contracts Interest and lease rate contracts Hedge ineffectiveness recorded in earnings $ 3 17 32 19 $ (2) 8 (12) – 2001 $ 57 (15) (9) – $ 71 $ (6) $ 33 g) Derivative instrument risks By using derivative instruments, we expose ourselves to various financial risks. Market risk is the risk that the fair value of a derivative instrument might be adversely affected by a change in commodity prices, interest rates, gold lease rates, or currency exchange rates, and that this in turn affects our financial condition. We manage market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We mitigate this risk by establishing trading agreements with counterparties under which we are not required to post any collateral or make any margin calls on our derivative instruments. Our coun- terparties cannot require settlement solely because of an adverse change in the fair value of a derivative. Credit risk is the risk that a counterparty might fail to fulfill its performance obligations under the terms of a derivative contract. When the fair value of a derivative contract is positive, this indicates that the counterparty owes us, thus creating a repayment risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we assume no repay- ment risk. We minimize our credit (or repayment) risk in derivative instruments by: > entering into transactions with high-quality counterparties whose credit ratings are generally “AA” or higher; > limiting the amount of exposure to each counterparty; and have a legally enforceable master netting agreement with that counterparty, the net credit exposure repre- sents the net of the positive and negative exposures between the applicable Barrick entity and that counter- party for similar types of derivative instruments. When there is a net negative exposure, we regard the credit exposure of a Barrick entity to the counterparty as being zero. The net mark-to-market position with a par- ticular 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 receiv- able and payable derivative contracts) between ourselves and that counterparty. Our policy is to use master net- ting agreements with all counterparties. Market liquidity risk is the risk that a derivative posi- tion cannot be eliminated quickly, by either liquidating derivative instruments or by establishing an offsetting position. Under the terms of our trading agreements with counterparties, the counterparties cannot require us to immediately settle outstanding contracts, except upon the occurrence of customary events of defaults such as covenant breaches, including financial covenants, insolvency or bankruptcy. We mitigate market liquidity risk by spreading out the maturity of our derivative instruments over time. This ensures that the size of posi- tions maturing is such that for commodity contracts we are able to physically deliver gold and silver against the contracts, and for other contracts the relevant markets for currencies and interest rates will be able to absorb the contracts. 12. 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 > monitoring the financial condition of counterparties. of $650 million that have been designated, and are When we have more than one outstanding derivative transaction with the same counterparty, and we also 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 11c). 83 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplemental cash flow information For the years ended December 31 Components of other net operating activities Add (deduct): Merger and related costs Reclamation cost accruals Foreign currency translation gains (losses) (note 7) (Gains) losses on available for sale securities (note 7) Amortization of deferred stock-based compensation (note 23b) Cumulative effect of changes in accounting policies (note 2) Accretion expense (note 6) Non-hedge derivative (gains) losses (note 11) Inmet litigation expense (note 25) Changes in operating assets and liabilities: Accounts receivable Inventories Accounts payable and accrued liabilities Current income taxes accrued Other assets and liabilities Cash payments: Merger and related costs Reclamation and closure costs Income taxes Other net operating activities Cash payments included in operating activities: Interest, net of amounts capitalized 2003 2002 2001 $ – – (2) 12 4 17 17 (71) 16 3 2 13 54 7 – (25) (111) $ (2) 34 (1) 4 3 – – 6 – (12) 32 (9) 59 (11) (50) (70) (52) $ (64) $ (69) $ 44 $ 57 $ 117 54 10 (2) – 1 – (33) 59 (2) 67 (135) 36 (44) (13) (35) (47) 33 24 $ $ 13. Investments Available for sale securities At December 31 Pension and other defined plans:1 Fixed-income debt securities Equity securities Other investments: Equity securities2 Total 2003 2002 Unrealized Gains (losses) in OCI Unrealized Gains (losses) in OCI Fair value Fair value $ 6 26 95 $ 127 $ – 8 30 $ 38 $ 7 23 11 $ 41 $ – (6) – $ (6) 1. Under various benefit plans for certain former Homestake executives, a portfolio of marketable fixed-income and equity securities are held in a rabbi trust that is used to fund obligations under the plans. 2. Other investments mainly include an investment in Highland Gold that had a fair value of $57 million at December 31, 2003. 84 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Investments, which are all classified as available for sale, are recorded at fair value, with unrealized gains and Inventories We record gold in process, ore in stockpiles and mine losses recorded in OCI. The fair value of investments is operating supplies at average cost, less provisions required determined by quoted market prices. We record realized to reduce any obsolete or slow-moving inventory to its gains and losses in earnings as investments mature or net realizable value. For gold in process and ore in on sale. For purposes of calculating realized gains and stockpiles costs capitalized to inventory include: direct losses, we use the average cost of securities sold. We and indirect materials and consumables; direct labor; recognize in earnings all unrealized declines in fair value repairs and maintenance; utilities; amortization of capi- judged to be other than temporary which included talized mining costs; and local mine administrative losses of $11 million in 2003 (2002 – $nil; 2001 expenses. By-product revenues, royalty expenses and – $nil). During the three years ended December 31, total production taxes are included in cost of sales and other proceeds from the sale of investments were: 2003 – operating expenses, but we do not capitalize these items $7 million; 2002 – $64 million; and 2001 – $24 million. into inventory. We capitalize amortization of mine prop- Gains and losses on investments recorded in earnings For the years ended December 31 2003 2002 2001 Realized Gains Losses Unrealized Other than temporary losses $ – $ (1) $ – $ (4) $ (11) $ (12) $ – $ (4) $ 2 $ – $ – $ 2 14. Accounts Receivable, Inventories and Other Current Assets erty, plant and equipment into inventory, but we present this expense separately on the face of our income state- ment outside of cost of sales. The amount of mine amortization that is capitalized to inventory, but excluded from cost of sales, was $497 million in 2003; $493 million in 2002; and $477 million in 2001. We classify material as ore in stockpiles when its grade exceeds the cut-off grade used in the determination of quantities of proven and probable reserves. We process ore in stockpiles under a life of mine plan that is intended to optimize use of our known mineral reserves, present plant capacity and pit design. Gold in process and ore in stockpiles excludes $64 million (2002 – $61 million) of stockpiled ore that we do not expect to At December 31 Accounts receivable Amounts due from customers Taxes recoverable Other Inventories Gold in process and ore in stockpiles Mine operating supplies Other current assets Derivative assets (note 11d) Prepaid expenses 2003 2002 process in the next 12 months. This amount is included in other assets. The market price of gold can affect the $ 26 10 33 $ 69 $ 99 58 $ 157 $ 154 15 $ 169 $ 30 12 30 $ 72 $ 100 59 $ 159 $ 37 10 $ 47 timing of processing of ore in stockpiles. Our Goldstrike property is the only one that has signifi- cant stockpiled ore. The stockpiles consist of two ore types: ore that will require autoclaving, and ore that will require roasting. Stockpiled ore is exposed to the ele- ments, but we do not expect its condition to deteriorate significantly. Processing of roaster ore commenced on start up of the roaster facility in 2000. We are now processing ore from both the autoclave and roaster stockpiles. We expect to fully process the autoclave stockpile by 2009 and the roaster stockpile by 2016. 85 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Property, Plant and Equipment At December 31 2003 2002 Property acquisition and mine development costs Buildings, plant and equipment Accumulated amortization $ 4,245 $ 4,222 2,812 2,831 7,076 (3,945) 7,034 (3,723) $ 3,131 $ 3,311 a) Property acquisition and mine development costs We capitalize payments for the acquisition of land and mineral rights. After acquisition, a number of factors affect the recoverability of the cost of land and mineral rights, particularly the results of exploration drilling. The length of time between the acquisition of land and mineral rights and when we undertake exploration work varies based on the prioritization of our explo- ration projects and the size of our exploration budget. When we establish the existence of proven and probable reserves, we allocate a portion of property acquisition costs to those reserves. We capitalize mine development costs on our properties after proven and probable reserves have been found. Before finding proven and probable reserves, develop- ment costs are considered exploration costs, which are expensed as incurred. For the year ended December 31, 2003, we expensed development costs totaling $18 mil- lion at our Veladero Project in Argentina because in accordance with our accounting policy for these costs, we do not capitalize costs incurred until after proven and probable reserves, as defined by United States reporting standards, have been found. Effective October 1, 2003, we determined that the project’s mineral reserves met the definition of proven and probable reserves for United States reporting purposes. Following this deter- mination we began capitalizing mine development costs being amortized. Details of the carrying amounts for major properties and the years when we expect to put these properties into production and begin amor- tization are: Property Carrying amount at December 31 2003 Expected timing of production start up Veladero Cowal Alto Chicama Pascua-Lama Exploration properties Total $ 68 49 9 200 213 $ 539 2005 2006 2005 2008 – We capitalize financing costs, including interest, relating to mine development costs while development or construction activities at the properties are in progress. Capitalization occurs without restriction to specific borrowings. We stop capitalizing financing costs when the asset or mine is substantially complete and ready for its intended use. We start amortizing capitalized acquisition and mine development 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. Future underground development costs, which are sig- nificant, are necessary to enable us to physically gain access to our underground ore bodies, expected to be mined in some cases over the next 25 years. In years prior to 2003 we amortized the aggregate total of historical capitalized costs and estimated future costs using the units of production method over total proven and prob- able gold mineral reserves. In 2003, we changed our accounting for these costs. This change was made to better match amortization with ounces of gold sold and to remove the inherent uncertainty in estimating future development costs from amortization calculations. at the Veladero project prospectively for future periods. Under our revised accounting policy, costs incurred to At December 31, 2003, property acquisition and mine development costs included various properties in the exploration or development stage that are not presently access specific ore blocks or areas, and that only pro- vide benefit over the life of that area, are amortized over the gold mineral proven and probable reserves within the specific ore block or area. Infrastructure and other 86 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS common costs which have a useful life over the entire > estimated future commodity prices (considering mine life continue to be amortized over total accessible proven and probable gold mineral reserves of the mine. b) Buildings, plant and equipment We record buildings, plant and equipment at purchase or historical and current prices, price trends and related factors); and > expected future operating costs, capital expenditures and unrecorded reclamation and closure expenditures. Our estimates of production levels and operating costs construction cost, including any capitalized financing are based on life of mine plans that are developed to costs. We amortize them, net of their residual value, using model the expected cash flows from processing our the straight-line method over their estimated useful lives. known gold reserves, assuming current plant capacity The longest estimated useful life for buildings and mill and current operating costs, but excluding the impact equipment is 25 years and for mine equipment is 15 years. of inflation. We expense repairs and maintenance expenditures as In our most recent impairment assessments we used a incurred. We capitalize major improvements and future average gold price assumption of $375 per ounce. replacements that increase productive capacity or We also assumed a US dollar foreign exchange rate of extend the useful life of an asset, and amortize them over $0.67 against the Australian dollar, based on recent the remaining estimated useful life of the related asset. market forward currency exchange rates over the peri- c) Impairment evaluations We review and test the carrying amounts of our mineral ods for which we are estimating future cash flows. We record a reduction of the assets or group of assets to properties and related buildings, plant and equipment their estimated fair value as a charge to earnings, if the when events or changes in circumstances suggest that estimated future net cash flows are less than the carry- the carrying amount may not be recoverable. If we have ing amount. We calculate fair value by discounting the reason to suspect an impairment may exist, we prepare estimated future net cash flows using a discount factor. estimates of future net cash flows that we expect to The discount factor is our estimate of the risk-adjusted generate for the related asset or group of assets. Where rate used to determine the fair value of our mining there is a range of potential outcomes, we use a proba- properties in a transaction between willing buyers bility-weighted approach in the estimation of future net and sellers. cash flows. We group assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For our operating mines, we include all mine property, plant and equipment in one group at each mine for impair- ment testing purposes. For our development projects and exploration properties, we assess the carrying amount of each property separately on a property-by- property basis. For our operating mines and development projects, the cash flow estimates are based on: > estimated recoverable ounces of gold mainly repre- senting proven and probable mineral reserves. We consider possible reserves where all economic and geo-technical studies are complete and support eco- nomic recovery of gold, but where we are awaiting government approvals to allow mining of the material; 16. Capitalized Mining Costs We charge most mine operating costs to inventory as incurred. However, we capitalize 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 charge to inventory amortization of amounts capitalized 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 a mine. Instead of capitalizing these costs, some mining companies expense them as incurred, which may result in the reporting of greater 87 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS volatility in period-to-period results of operations. If we followed a policy of expensing these costs as incurred, then using this alternative policy, our reported cost of sales would have been $37 million lower in 2003 (2002 – $29 million lower, 2001 – $17 million lower). Capitalized mining costs represent the excess of costs capitalized over amortization recorded, although it is possible that a liability could arise if cumulative amorti- zation exceeds costs capitalized. The carrying amount of capitalized mining costs is grouped with related mining property, plant and equipment for impairment testing purposes. Average stripping ratios1 For the years ended December 31 2003 2002 2001 Betze-Post (Goldstrike) Pierina 112:1 48:1 112:1 48:1 98:1 21:1 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. The average remaining life of open-pit mine operations where we capitalize these types of mining costs is 8 years. The full amount of costs incurred will be expensed by the end of the mine lives. 17. Other Assets At December 31 Ore in stockpiles (note 14) Taxes recoverable Deferred income tax assets (note 21) Debt issue costs Deferred stock-based compensation (note 23b) Prepaid pension asset (note 24d) Other 2003 2002 $ 64 52 59 11 $ 61 35 45 11 6 – 56 5 7 73 $ 248 $ 237 18. Other Current Liabilities At December 31 2003 2002 Asset retirement obligations (note 20a) $ 36 Merger and related costs1 1 – Inmet litigation (note 25) 3 Derivative liabilities (note 11d) – Income taxes payable Pension and other post-retirement benefits (notes 20 and 24) Current part of long-term debt (note 19) Deferred revenue Other 5 41 17 2 $ 53 3 58 28 52 9 20 35 12 $ 105 $ 270 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 were recorded in 2002 earnings. 19. Long-Term Debt At December 31 Debentures Project financing – Bulyanhulu Variable rate bonds Capital leases Current part 2003 2002 $ 501 174 80 5 $ 504 194 80 3 760 (41) 781 (20) $ 719 $ 761 Interest expense For the years ended December 31 Interest incurred Less: capitalized Interest expense 2003 2002 2001 $ 49 (5) $ 44 $ 59 (2) $ 57 $ 67 (42) $ 25 a) Debentures On April 22, 1997, we issued $500 million of redeem- able, non-convertible debentures. The debentures bear interest at 7.5% per annum, payable semi-annually, and mature on May 1, 2007. We entered into interest-rate swap contracts as a fair value hedge of our interest rate risk exposure on $350 million of the debentures, 88 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS effectively converting them to floating-rate debt instru- one year from April 2007 to April 2008. The Credit ments (note 11). Under the swaps, we receive fixed-rate Agreement, which is unsecured, matures in April 2008 interest receipts at 7.5% in exchange for floating-rate and has an interest rate of LIBOR plus 0.27% to 0.35% interest payments of LIBOR plus a credit spread of 4.0%, when used, and an annual fee of 0.08%. We have not which, in 2003, resulted in an effective rate of 6.1%. drawn any amounts under the Credit Agreement. b) Project financing – Bulyanhulu One of our wholly-owned subsidiaries, Kahama Mining Corporation Ltd. in Tanzania, has a limited-recourse amortizing loan for $174 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 premi- ums, is LIBOR plus 2.6% before completion, and increased after completion to about LIBOR plus 3.6%. The effective interest rate for 2003, including amortiza- tion of debt-issue costs and political risk insurance, was 7.7% (2002 – 7.2%, 2001 – 7.3%). 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. Scheduled repayments for each of the next five years are: 2004 – $24 million, 2005 – $31 million, 2006 – $34 million, 2007 – $34 million, 2008 – $34 million, and 2009 – $17 million. c) Variable rate bonds Certain of our wholly-owned subsidiaries have issued 20. Other Long-Term Obligations At December 31 2003 2002 Asset retirement obligations Pension benefits1 (note 24d) Other post-retirement benefits Derivative liabilities (note 11d) Restricted stock units (note 23b) Other $ 282 48 26 70 10 133 $ 569 $ 249 55 28 58 7 131 $ 528 1. Includes additional minimum liability of $7 million (see note 24d) a) Asset retirement obligations At January 1 Changes in cash flow estimates (note 2b) Settlements Accretion expense At December 31 Current part 2003 $ 334 10 (43) 17 318 (36) $ 282 Our mining, processing, exploration and development variable-rate, tax-exempt bonds of $17 million (due activities are subject to various government controls and 2004), $25 million (due 2029) and $38 million (due regulations relating to protection of the environment, 2032) for a total of $80 million. We pay interest including requirements for the closure and reclamation monthly on the bonds based on variable short-term, of mining properties. tax-exempt obligation rates. The average interest rate for 2003 was 1.1% (2002 – 1.4%). No principal repay- ments are due until cancellation, redemption or maturity. Effective January 1, 2003, we adopted FAS 143 and changed our accounting policy for reclamation and closure costs. Prior to the adoption of FAS 143, we d) Credit facilities We have a credit and guarantee agreement with a group accrued estimated reclamation and closure costs over the life of our mines using the units of production of banks (the “Lenders”), which requires the Lenders to method based on recoverable ounces of gold contained make available to us a credit facility of up to $1 billion in proven and probable reserves. Under FAS 143, if a or the equivalent amount in Canadian currency. We liability meets the definition of an asset retirement extended the Credit Agreement on March 28, 2003 for obligation, then it is accounted for in accordance with 89 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the principles of FAS 143. Other reclamation and cost trend had a minimal effect on the amounts reported. closure costs that are not asset retirement obligations A one percentage point change in the assumed health are expensed as incurred (see note 6). care cost trend rate at December 31, 2003 would have Through the construction and normal operation of our mining property, plant and equipment, asset retirement obligations are incurred. We record the fair value of a liability for an asset retirement obligation when it is incurred. When the liability is initially recorded, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is increased to reflect an interest element (accretion expense) considered in the initial measurement at fair value. The capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, we record a gain or loss if the actual cost incurred is different than the liability recorded. We estimate that the present value of asset retirement obligations under present environmental regulations was $318 million at December 31, 2003. The major parts of this $318 million estimate are for: tailing and heap leach pad closure/ rehabilitation – $105 million; demolition of buildings/mine facilities – $30 million; ongoing water treatment – $76 million; ongoing moni- toring and care and maintenance – $28 million; and other costs – $79 million. b) Other post-retirement benefits We provide post-retirement medical, dental, and life insurance benefits to certain employees. We use the corridor approach in the accounting for post-retire- ment benefits, under which all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions are deferred. We amortize the deferred amounts when the net gains or losses exceed 10% of the accumulated post-retirement benefit obligation at the beginning of the year. The amortization period is the average remaining life expectancy of participants. For 2003, we recorded a benefit expense of $nil (2002 – $nil, 2001 – $2 million credit). We have assumed a health care cost trend of 6.5% in 2003, 7% in 2002 and 7.5% in 2001, decreasing ratability to 5% in 2006 and thereafter. The assumed health care increased the post-retirement obligation by $3 million or decreased the post-retirement benefit obligation by $2 million and would have had no significant effect on the benefit expense for 2003. Expected future benefit payments For the year ending December 31 2004 2005 2006 2007 2008 2009 – 2013 $2 2 2 2 2 8 21. Deferred Income Taxes Net deferred income tax liabilities At December 31 Assets Operating loss carry forwards Reclamation and closure costs Property, plant and equipment Post-retirement benefit plan obligations Alternative minimum tax credit carry forwards Other Gross deferred tax assets Valuation allowances Net deferred tax assets Liabilities Property, plant and equipment Other Net deferred income tax liabilities consist of: Non-current assets (note 17) Non-current liabilities 2003 20021 $ 398 82 3 $ 389 82 50 21 46 120 58 682 (394) 288 (361) (98) 110 43 720 (433) 287 (381) (16) $ (171) $ (110) 59 (230) 45 (155) $ (171) $ (110) 1. Reclassified to conform with current presentation. 90 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS a) Recognition and measurement We recognize deferred income tax assets and liabilities for b) Valuation allowances Because we operate in multiple tax jurisdictions, we the future tax consequences of temporary differences consider the need for a valuation allowance on a country- between the carrying amounts of assets and liabilities in by-country basis, taking into account the effects of local our balance sheet and their tax bases. We measure tax law. When a valuation allowance is not recorded, we deferred income tax assets and liabilities using enacted believe that there is sufficient positive evidence to support rates that apply to the years when we expect to recover a conclusion that it is more likely than not that the asset or settle the temporary differences. Our income tax will be realized. When facts or circumstances change, expense or recovery includes the effects of changes in we record an adjustment to a valuation allowance to our deferred income tax assets and liabilities. We reduce reflect the effects of the change. The main factors that deferred income tax assets by a valuation allowance if we decide it is more likely than not that some or all of the assets will not be realized. affect the amount of a valuation allowance are: > expected levels of future taxable income; > opportunities to implement tax plans that affect whether tax assets can be realized; and We measure and recognize deferred income tax assets > the nature and amount of taxable temporary and liabilities based on: our interpretation of relevant differences. tax legislation; our tax planning strategies; estimates of the tax bases of individual assets and liabilities; and the deductibility of expenditures for income tax purposes. We will recognize the effects of changes in our assess- ment of these estimates and factors when they occur. Levels of future taxable income are affected by, among other things, prevailing gold prices; cash operating costs; changes in proven and probable gold reserves; and changes in interest rates and foreign currency exchange rates. It is reasonably possible that circum- Deferred income taxes have not been provided on the stances could occur resulting in a material change in the undistributed earnings of foreign subsidiaries, which are valuation allowances. considered to be reinvested indefinitely outside Canada. The determination of the unrecorded deferred income tax liability is not considered practicable. c) Peruvian tax assessment One of our Peruvian subsidiaries received a revised income tax assessment of $32 million, excluding interest Operating loss carry forwards amount to $1,535 mil- and penalties, from the Peruvian tax authority, SUNAT. lion, of which $973 million do not expire and $562 mil- The tax assessment related to a tax audit of our Pierina lion expire at various times over the next 20 years. Mine for the 1999 and 2000 fiscal years. The assessment Alternative minimum tax credit carry forwards amount mainly relates to the revaluation of the Pierina mining to $120 million and do not expire. Our income tax returns for the major jurisdictions where we operate have been fully examined through the following years: Canada – 1999, United States – 2001 and Peru – 2000. Other than the matter of interest and penalties associated with the Peruvian tax assessment, we are not aware of any tax matters outstanding in any country in which we operate that could potentially have a material adverse effect on our financial position or results of operations. concession for the purpose of determining its tax basis. Under the valuation proposed by SUNAT, the tax basis of the Pierina assets would change from what we previ- ously assumed with a resulting increase in current and deferred income taxes. We believe that the tax assess- ment is incorrect and we are appealing the decision. The full life of mine effect on our current and deferred income tax liabilities was fully recorded at December 31, 2002, as well as other payments of about $21 million due for periods through 2003. The case is pending before Peru’s Tax Court. If the case is not resolved in our favor, we intend to pursue all available remedies, includ- ing judicial appeals. If we are successful and our original 91 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS valuation is confirmed as the appropriate tax basis of reduction of common share capital by $67 million, and the Pierina assets, we would benefit from a $141 million an $87 million charge (being the difference between the reduction in current and deferred tax liabilities. The repurchase cost and the average historic book value of effect of this contingent gain, if any, will be recorded in shares repurchased) to retained earnings. the period the contingency is resolved. In the event of an unfavorable Tax Court ruling, Peruvian law is unclear with respect to whether it is nec- essary to make payment of the disputed current taxes for the years covered by the tax assessment, pending the outcome of an appeal process, a process which can take several years. The amount of current income taxes that is potentially payable is $80 million. In the event of an unfavorable Tax Court ruling, we will consider taking all available action to prevent payment of the amount in dispute until the appeal process is complete. We have not provided for $57 million of potential inter- est and penalties on the income tax assessed in the audit. Even if the tax assessment is upheld, we believe that we will prevail on the interest and penalties part, because the assessment runs counter to applicable law and previous Peruvian tax audits. The potential amount of interest and penalties will continue to increase over time while we contest the tax assessment. A liability for interest and penalties will only be recorded should it become probable that SUNAT’s position on interest and penalties will be upheld, or if we exhaust our available remedies. 22. Capital Stock a) Authorized capital Our authorized capital stock includes an unlimited number of common shares (issued 535,250,227 shares), 9,764,929 First preferred shares, Series A (issued nil); 9,047,619 Series B (issued nil); 1 Series C special voting c) Barrick Gold Inc. (“BGI”) Exchangeable Shares In connection with a 1998 acquisition, BGI, formerly Homestake Canada Inc., issued 11.1 million BGI exchangeable shares. Each BGI exchangeable share is exchangeable for 0.53 of a Barrick common share at any time at the option of the holder and has essentially the same voting, dividend (payable in Canadian dollars), and other rights as 0.53 of a Barrick common share. BGI is a subsidiary that holds our interest in the Hemlo and Eskay Creek Mines. At December 31, 2003, 1.5 million (2002 – 1.6 million) BGI exchangeable shares were outstanding, which are equivalent to 0.8 million Barrick common shares (2002 – 0.8 million common shares). The equivalent common share amounts are reflected in the number of common shares outstanding. At any time on or after December 31, 2008, or when fewer than 1.4 million BGI exchangeable shares are out- standing, we have the right to require the exchange of each outstanding BGI exchangeable share for 0.53 of a Barrick common share. While there are exchangeable shares outstanding, we are required to present summary consolidated financial information relating to BGI for holders of exchangeable shares. Summarized financial information for BGI For the years ended December 31 Total revenues and other income 2003 2002 2001 $ 226 245 $ 203 191 $ 175 281 share (issued 1); and 14,726,854 Second preferred shares Less: costs and expenses Series A (issued nil). b) Share repurchase program During the year ended December 31, 2003, we repur- chased 8.75 million common shares for $154 million, at an average cost of $17.56 per share. This resulted in a Income (loss) before taxes $ (19) $ 12 $ (106) Net loss $ (38) $ (1) $ (84) 92 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2003 2002 23. Employee Stock-Based Compensation At December 31 Assets Current assets Non-current assets Liabilities and shareholders’ equity Other current liabilities Intercompany notes payable Other long-term liabilities Deferred income taxes Shareholders’ equity $ 72 233 $ 305 $ 91 236 $ 327 20 546 11 67 (339) 75 407 18 122 (295) $ 305 $ 327 d) Dividends In 2003, we declared and paid dividends in US dollars totaling $0.22 per share (2002 – $0.22 per share, 2001 – $0.22 per share). a) Common stock options We have a stock option plan for selected employees. At December 31, 2003, 24 million common stock options were outstanding, expiring at various dates to December 7, 2013. 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, 2003, 1 mil- lion (2002 – 5 million, 2001 – 9 million) common shares, in addition to those currently outstanding, were available for granting options. Besides the common stock options in the table below, we are obliged to issue about 0.5 million common shares (2002 – 0.5 million common shares) in connec- tion with outstanding stock options assumed as part of a business combination in 1999. These options have an average exercise price of C$19.70 (2002 – C$19.68) and an average remaining term of two years. Stock option activity (shares in millions) 2003 2002 2001 Shares (number) Average price Shares (number) Average price Shares (number) Average price C$ 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 $ 28.61 $ 23.99 $ 27.95 $ 13.07 19 5 (1) (1) 22 3 – (1) – 2 19 6 (4) (2) 19 6 – (2) (1) 3 $ 24.71 $ 24.79 $ 33.99 $ 11.99 $ 25.10 $ 24.32 $ 29.66 $ 9.03 22 1 – (4) 19 4 2 – – 6 93 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock options outstanding (shares in millions) Range of exercise prices C$ options $ 22.08 – $ 31.05 $ 32.32 – $ 43.20 US$ options $ 8.96 – $ 17.68 $ 17.75 – $ 40.66 Outstanding Shares (number) Average price Average life (years) Exercisable Shares (number) Average price $ 26.29 $ 39.26 $ 12.40 $ 26.30 20 2 22 1 1 2 8 3 7 6 3 5 $ 26.11 $ 39.55 $ 13.57 $ 26.30 9 2 11 1 1 2 Under APB 25, we recognize compensation cost for Option value information stock options in earnings based on the excess, if any, of the quoted market price of the stock at the grant date of the 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 require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted. We have elected to con- For the years ended December 31 (per share and option amounts in dollars) 2003 2002 2001 Fair value per option Valuation assumptions: Expected option term (years) Expected volatility Expected dividend yield Risk-free interest rate Pro forma effects Net income, as reported Stock-option expense $ 8.50 $ 6.40 $ 5.10 6 10 6 40% 30% 40% 1.0% 1.4% 1.4% 4.5% 5.0% 5.5% $ 200 (24) $ 193 (21) $ 96 (31) tinue to account for stock-based compensation using Pro forma net income $ 176 $ 172 $ 65 the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (Accounting for Stock Issued to Employees) (APB 25) and its related interpre- tations, and to provide disclosures of the pro forma effects of adoption had we recorded compensation expense under the fair value method. Net income per share: As reported1 Pro forma1 1. Basic and diluted. $ 0.37 $ 0.33 $ 0.36 $ 0.32 $ 0.18 $ 0.12 b) Restricted stock units In 2001, we put in place a restricted stock unit incentive plan (RSU Plan) for selected employees. Under the RSU Plan, a participant is granted a number of RSUs, where each unit has a value equal to one Barrick common share at the time of grant. Each RSU, which vests and will be paid out on the third anniversary of the date of 94 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS grant, has a value equivalent to the market price of a amounts necessary on an actuarial basis to provide Barrick common share. RSUs are recorded at their fair enough assets to meet the benefits payable to plan mem- value on the grant date, with a corresponding amount bers under the Employee Retirement Income Security recorded as deferred compensation that is amortized on Act of 1974. Independent trustees administer assets of a straight-line basis over the vesting period. Changes in the plans, which are invested mainly in fixed-income the fair market value of the units during the vesting securities and equity securities. period are recorded, with a corresponding adjustment to the carrying amount of deferred compensation. Compensation expense for the year ended December 31, 2003 was $4 million (2002 – $3 million). At December 31, 2003, the weighted average remaining contractual life was 1.6 years, and the fair value of outstanding RSUs was $10 million (included in other long-term obligations). RSU activity RSUs (in thousands) Fair value per unit (in dollars) Balance at December 31, 2000 Granted Balance at December 31, 2001 Cancelled Dividends Balance at December 31, 2002 Cancelled Granted Dividends Balance at December 31, 2003 – 515 515 (30) 4 489 (171) 130 4 452 $ – 15.49 $ 15.95 19.74 17.45 $ 15.41 16.62 21.92 19.82 $ 22.71 24. Pension Plans a) Defined contribution pension plans Certain employees take part in defined contribution employee benefit plans. We also have a retirement plan for certain officers of the Company, under which we con- tribute 15% of the officer’s annual salary and bonus. Our share of contributions to these plans, which is expensed in the year it is earned by the employee, was $15 million in 2003, $12 million in 2002 and $12 million in 2001. b) Defined benefit pension plans We have various qualified defined benefit pension plans that cover certain of our United States employees and provide benefits based on employees’ years of service. Our policy for these plans is to fund, at a minimum, the As well as the qualified plans, we have nonqualified defined benefit pension plans covering certain employ- ees and a director of the Company. An irrevocable trust (“rabbi trust”) was set up to fund these plans. The fair value of assets held in this trust, which mainly includes investments, was $32 million (2002 – $31 million), are recorded in our consolidated balance sheet and accounted for under our accounting policies for such assets. 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. Pension expense For the years ended December 31 Expected return on plan assets Service cost for benefits earned Interest cost on benefit obligation Prior service cost Actuarial gains Special termination charges1 Effect of curtailments/ settlements 2003 2002 2001 $ (11) $ (17) $ (21) – 14 – – – 1 4 $ 3 16 – (1) – 1 2 $ 4 16 1 (2) 39 (4) $ 33 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. 95 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS c) Pension plan asset information Fair value of plan assets For the years ended December 31 Balance at January 1 Actual return on plan assets Company contributions Benefits paid Balance at December 31 Funded status1 Unrecognized net actuarial losses 2003 2002 $ 170 19 8 (31) $ 235 (2) 7 (70) 166 170 $ (55) 11 $ (57) 9 Net benefit liability recognized $ (44) $ (48) securities. Investment risk is measured and monitored on an ongoing basis through annual liability measure- ments, periodic asset/liability studies, and quarterly investment portfolio reviews. Assumed rate of return on plan assets We employ a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed income investments are pre- served congruent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before As of December 31 2003 2002 long-term capital market assumptions are determined. Composition of plan assets: Equity securities Debt securities $ 66 100 $ 166 $ 41 129 $ 170 1. Represents the fair value of plan assets less projected benefit obligations. Plan assets exclude investments held in a rabbi trust that are recorded separately on our balance sheet under Investments (fair value $32 million at December 31, 2003). In the year ending December 31, 2004 we expect to make further contributions totaling about $3 million to our defined benefit pension plans to address the funding status of the plans. Investment strategy We employ a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term return of plan assets. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Our overall expected long-term rate of return on assets is the actuarial assumption rate of 7%. Risk is diversified through a blend of equity and fixed income invest- ments. Furthermore, equity investments are diversified across geography and market capitalization in US large cap stocks, US small cap stocks, and international d) Benefit obligations Projected benefit obligation (PBO) For the years ended December 31 Balance at January 1 Service cost for benefits earned Interest cost on benefit obligation Actuarial (gains) losses Benefits paid 2003 2002 $ 227 – 14 11 (31) $ 279 3 16 (1) (70) Balance at December 31 $ 221 $ 227 For the year ended December 31, 2003 we used a mea- surement date of December 31, 2003 to calculate the accumulated benefit obligations. Expected future benefit payments For the year ending December 31 2004 2005 2006 2007 2008 2009 – 2013 $ 15 16 16 18 18 $ 94 96 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pension plans where accumulated benefit obligation (ABO) exceeds the fair value of plan assets At December 31 Projected benefit obligation ABO Fair value of plan assets 2003 2002 $ 221 $ 217 $ 166 $ 193 $ 193 $ 132 Total recorded benefit asset (liability) At December 31 Prepaid pension asset Accrued benefit plan liability Current Non-current Net benefit plan liability Additional minimum liability – non-current (note 10) 2003 2002 $ – $ 7 (3) (41) (7) (48) $ (44) $ (48) (7) (7) $ (51) $ (55) e) Actuarial assumptions For the years ended December 31 2003 2002 2001 Sensitivity analysis1 Effect on ABO Effect on earnings Discount rate For benefit obligations For net pension cost Expected return on plan assets Compensation increases 1. Effect of a one-percent decrease 6.25% 6.50% 7.00% 5.00% 6.50% 6.75% 8.50% 5.00% 6.75% 7.25% 8.50% 5.00% $ 23 N/A N/A N/A N/A $ – $ 2 N/A In 2003, we reduced the assumed rate of return on pen- experience and considering the mix of plan assets and sion plan assets from 8.5% to 7% to reflect our revised our investment strategy. expectations for long-term returns based on recent 25. Contingencies and Commitments a) Contingencies, litigation and claims Certain conditions may exist as of the date the financial If the assessment of a contingency suggests that it is probable that a material loss has been incurred and the statements are issued, which may result in a loss to the amount of the liability can be estimated, then the esti- Company but which will only be resolved when one or mated liability is accrued in the financial statements. If more future events occur or fail to occur. Management the assessment suggests that a potentially material loss and, where appropriate, legal counsel, assess such con- contingency is not probable but is reasonably possible, tingent liabilities, which inherently involves an exercise or is probable but cannot be estimated, then the nature of judgment. In assessing loss contingencies related to legal proceed- ings that are pending against us or unasserted claims that may result in such proceedings, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or of the contingent loss, together with an estimate of the range of possible loss, if determinable, are disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case we disclose the nature of the guarantee. expected to be sought. 97 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Inmet litigation In October 1997, Barrick Gold Inc. (“BGI”), a wholly- On July 13, 1999, the Court dismissed the claims against us and several other defendants on the grounds that owned subsidiary of Barrick, entered into an agreement the plaintiffs had failed to state a claim under United with Inmet Mining Corporation (“Inmet”) to purchase States securities laws. On August 19, 1999, the plaintiffs the Troilus mine in Quebec for $110 million plus working filed an amended complaint restating their claims capital. In December 1997, BGI terminated the agreement against us and certain other defendants and on June 14, after deciding that, on the basis of due diligence studies, 2000 filed a further amended complaint, the Fourth conditions to closing the arrangement would not be Amended Complaint. satisfied. In February 1998, Inmet filed suit against BGI in the British Columbia (“B.C.”) Supreme Court disput- ing the termination of the agreement and alleging that BGI had breached the agreement. In January 2002, the Court released its decision in the matter and found in favor of Inmet. The Court awarded Inmet equitable damages of C$88.2 (US$59) million, which was recorded as an expense in 2001. The Court did not award Inmet pre-judgment interest. Inmet made a request to the Court to re-open the trial to make submissions on its claim for pre-judgment interest, which was denied in May 2002. In February 2002, BGI filed a Notice of Appeal with the B.C. Court of Appeal, and Inmet filed On March 31, 2001, the Court granted in part and denied in part our Motion to Dismiss the Fourth Amended Complaint. As a result, we remain a defen- dant in the case. We believe that the remaining claims against us are without merit. We filed our formal answer to the Fourth Amended Complaint on April 27, 2001 denying all relevant allegations of the plaintiffs against us. Discovery in the case has been stayed by the Court pending the Court’s decision on whether or not to certify the case as a class action. The amount of potential loss, if any, which we may incur arising out of the plaintiffs’ claims is not presently determinable. a Cross-Appeal of the decision regarding pre-judgment On March 31, 2003, the Court denied all of the interest. In November 2003, the B.C. Court of Appeal Plaintiffs’ motions to certify the case as a class action. dismissed the appeal made by BGI, and also awarded Plaintiffs have not filed an interlocutory appeal of Inmet pre-judgment interest. In November 2003, BGI the Court’s decision denying class certification to the paid Inmet C$111 million (US$86 million), in full Fifth Circuit Court of Appeals. On June 2, 2003, settlement of the lawsuit. The settlement resulted in a the Plaintiffs submitted a proposed Trial and Case further expense of US$14 million in fourth quarter 2003, Management Plan, suggesting that the Plan would cure combined with post-judgment interest of $2 million in the defects in the Plaintiffs’ motions to certify the class. the first nine months of 2003. Bre-X Minerals On April 30, 1998, we were added as a defendant in a class action lawsuit initiated against Bre-X Minerals Ltd., certain of its directors and officers or former direc- tors and officers and others in the United States District Court for the Eastern District of Texas, Texarkana Division. The class action alleges, among other things, that statements made by us in connection with our 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 investigation undertaken by us in late 1996. The Court has taken no action with respect to the pro- posed Trial and Case Management Plan. The Plaintiffs’ case against the Defendants may now proceed in due course, but not on behalf of a class of Plaintiffs but only with respect to the specific claims of the Plaintiffs named in the lawsuit. Having failed to certify the case as a class action, we believe that the likelihood of any of the named Defendants succeeding against Barrick with respect to their claims for securities fraud is remote. 98 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Blanchard complaint On January 7, 2003, we were served with a Complaint by other parties on behalf of the same proposed class of Barrick shareholders. In September the cases were consol- for Injunctive Relief by Blanchard and Company, Inc. idated into a single action in the Southern District of New (“Blanchard”), and Herbert Davies (“Davies”). The York. The plaintiffs filed a Consolidated and/or Amended complaint, which is pending in the US District Court Complaint on November 5, 2003. On January 14, 2004 for the Eastern District of Louisiana, also names Barrick filed a motion to dismiss the Wagner complaint. J.P. Morgan Chase & Company (“J.P. Morgan”) as a We intend to defend the action vigorously. defendant, along with an unspecified number of addi- tional defendants to be named later. The complaint, which has been amended several times, alleges that we and bullion banks with which we entered into spot deferred contracts have manipulated the price of gold, in violation of US antitrust laws and the Louisiana Unfair Trade Practices and Consumer Protection Law. Blanchard alleges that it has been injured as a seller of gold due to reduced interest in gold as an investment. Davies, a customer of Blanchard, alleges injury due to the reduced value of his gold investments. The com- plaint seeks damages and an injunction terminating certain of our trading agreements with J.P. Morgan and other bullion banks. In September 2003 the Court issued an Order granting in part and denying in part Barrick’s motions to dismiss this action. Discovery has commenced in the case and a trial date has been tenta- tively set for February 2005. We intend to defend the action vigorously. Wagner complaint On June 12, 2003, a complaint was filed against Barrick and several of its current or former officers in the US District Court for the Southern District of New York. The complaint is on behalf of Barrick shareholders who purchased Barrick shares between February 14, 2002 and September 26, 2002. It alleges that Barrick and the individual defendants violated US securities laws by making false and misleading statements concern- ing Barrick’s projected operating results and earnings in 2002. The complaint seeks an unspecified amount of damages. Several other complaints, making the same basic allegations against the same defendants, were filed Other From time to time, we are involved in various claims, legal proceedings and complaints arising in the ordinary course of business. We are also subject to reassessment for income and mining taxes for certain years. We do not believe that adverse decisions in any pending or threatened proceedings related to any potential tax assessments or other matters, or any amount which we may be required to pay by reason thereof, will have a material adverse effect on our financial condition or future results of operations. b) Commitments Our mining and exploration activities are subject to var- ious federal, provincial and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. We conduct our operations so as to protect public health and the environment, and we believe that our operations are materially in compliance with all applicable laws and regulations. We have made, and expect to make in the future, expenditures to meet such laws and regulations. We have entered into various commitments in the ordi- nary course of business, including commitments to perform assessment work and other obligations necessary to maintain or protect our interests in mining proper- ties, financing and other obligations to joint ventures and partners under venture and partnership agreements, and commitments under federal and state/provincial environmental, health and safety permits. 99 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 26. Fair Value of Financial Instruments Fair value is defined as the value at which positions could be closed out or sold in a transaction with a willing and knowledgeable counterparty over a period of time con- sistent with our risk management or investment strategy. > recorded at cost (less other-than-temporary impairments) with changes in fair value not recorded in the financial statements but disclosed in the notes thereto; or > recorded at the lower of cost or market. The accounting for an asset or liability may differ based on the type of instrument and/or its use in a risk manage- ment or investing strategy. The measurement approaches used in financial statements include the following: > recorded at fair value on the balance sheet with changes in fair value recorded each period in earnings; > recorded at fair value on the balance sheet with changes in fair value recorded each period in a separate component of shareholders’ equity and as part of other comprehensive income; Fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on internally developed models that primarily use market-based or independent information as inputs. These methods may produce a fair value cal- culation that may not be indicative of net realizable value or reflective of future fair values. Fair value information At December 31 Financial assets Cash and equivalents1 Accounts receivable1 Available for sale securities2 Derivative assets3 Financial liabilities Accounts payable1 Long-term debt4 Derivative liabilities3 2003 2002 Carrying amount Estimated fair value Carrying amount Estimated fair value $ 970 69 127 410 $ 1,576 $ 245 760 73 $ 1,078 $ 970 69 127 410 $ 1,576 $ 245 841 73 $ 1,159 $ 1,044 72 41 115 $ 1,272 $ 213 781 86 $ 1,080 $ 1,044 72 41 115 $ 1,272 $ 213 858 86 $ 1,157 1. Fair values of cash and equivalents, 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. 100 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 27. 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 For the years ended December 31 Revenues Costs and expenses Net income Operating activities1 Investing activities1 Financing activities1 2003 2002 2001 $ 775 638 $ 137 $ 127 $ (60) – $ $ 650 582 $ 68 $ 175 $ (54) – $ $ 578 522 $ 56 $ 163 $ (78) – $ 1. Net cash inflow (outflow) Balance sheet information At December 31 Assets Inventories Property, plant and equipment Other assets Liabilities Current liabilities Long-term obligations 2003 2002 $ 99 543 64 $ 706 $ 77 104 $ 181 $ 46 553 79 $ 678 $ 116 67 $ 183 28. Differences from Canadian Generally Accepted Accounting Principles a) Business combinations The acquisitions of Sutton Resources (“Sutton”) and Homestake Mining Company (“Homestake”), which were accounted for using the pooling-of-interests method under US GAAP, were accounted for as a pur- chase under Canadian GAAP. Under US GAAP, the assets, liabilities and shareholders’ equity of Sutton and Homestake were combined with the Company’s own recorded amounts. Comparative figures were restated for all periods presented prior to the acquisitions to include the combined statements of income and balance sheets of the merged entities adjusted to conform to our US GAAP accounting policies. Under Canadian GAAP, rules which existed at the time of the Sutton and Homestake acquisitions prior to the effective date of CICA 1581 Business Combinations, allowed for two possible accounting methods, the purchase method or the pooling-of-interests method. The selection of the method of accounting used for business combinations under the previous rules depended upon whether or not one of the combining companies could be identified as an acquirer. In situations where voting shares were issued or exchanged to effect the combination, factors relating to control over the resultant combined company were considered. Under those previous rules, due to the fact that the Barrick shareholders (as a group) held more than 50% of the voting shares of the combined company after the acquisitions of Sutton and Homestake, Barrick was identified as the acquirer, thereby requiring the purchase method to be used under Canadian GAAP. The application of the purchase method under Canadian GAAP required that identifiable assets and liabilities of the acquired entity be recorded at fair values at the date of acquisition, with any excess purchase price allocated to goodwill. This resulted in certain assets and liabilities being recorded at different carrying amounts under These consolidated financial statements have been pre- Canadian GAAP compared with US GAAP. These differ- pared in accordance with US GAAP. A reconciliation ences arise because the fair values at the date of acquisi- of our income statement and balance sheet between tion differed from historic cost, which is the basis of US GAAP and Canadian GAAP is presented below accounting under the pooling-of-interests method under together with a description of the significant measure- US GAAP. The assets and liabilities most significantly ment differences affecting these financial statements. affected are: property, plant and equipment, intangible assets, inventories, goodwill and obligations recorded for reclamation and closure costs. 101 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS b) Exploration and development expenditures For Canadian GAAP purposes we capitalize mine the entire mine are amortized over total accessible proven and probable reserves of the mine. These differ- development costs on our properties after proven and ent methods result in a different rate of amortization for probable reserves have been found. We also capitalize Canadian GAAP. In addition, where differences exist in costs on properties where we have found non-reserve the carrying amounts of property, plant and equipment material that does not meet all the criteria required for between US GAAP and Canadian GAAP, due to the classification as proven or probable reserves. Manage- historic effects of the application of GAAP to these ment’s determination as to whether the existence of non- items (for example, arising from differences in business reserve material should result in the capitalization of costs combinations accounting, capitalization of exploration or the material should be included in the amortization expenditures, and accounting for asset retirement obli- and recoverability calculations is based on various gations), this also results in a difference in the amount factors, including, but not limited to: the existence and of amortization expense. nature of known mineralization; the location of the property (for example, whether the presence of existing mines and ore bodies in the immediate vicinity increases the likelihood of development of a mine on the property); the existence of proven and probable reserves on the property; whether the ore body is an extension of an existing producing ore body on an adjacent property; the results of recent drilling on the property; and the existence of a feasibility study or other analysis to demonstrate that the ore is commercially recoverable. Under US GAAP, exploration and development expendi- tures incurred on properties where mineralization has not been classified as a proven and probable reserve under SEC rules are expensed as incurred. Accordingly, certain expenditures are capitalized for Canadian GAAP purposes but expensed under US GAAP. c) Amortization of property, plant and equipment Under Canadian GAAP, amortization of property, plant and equipment using the units-of-production method is calculated using historical capitalized costs plus future underground mine development costs for a whole mine and proven and probable mineral reserves and non- d) Amortization of intangible assets In our Canadian GAAP financial statements we have certain intangible assets that arose from the application of purchase accounting. These assets are not present in our US GAAP financial statements. Under Canadian GAAP, we amortize the carrying amounts of mining rights for proven and probable reserves as gold is produced using the units of production method based on the estimated recoverable ounces in proven and probable reserves. Amortization of the carrying amounts of mining rights for mineralized material commences when the mineralized material is converted into proven and probable reserves. Intangible assets recorded under Canadian GAAP are tested for impairment using the same method that is applied to property, plant and equipment under Canadian GAAP. e) Goodwill Under Canadian GAAP, on the acquisition of Homestake, goodwill was identified and was allocated to reporting units by preparing estimates of the fair value of each reporting unit and comparing this amount to the fair value of assets and liabilities (including intangibles) in reserve material for the whole mine (when sufficient the reporting unit. objective evidence exists to support a conclusion that it is probable the non-reserve material will be produced). For US GAAP purposes, amortization is calculated using historical capitalized costs incurred to access spe- cific ore blocks or areas and only proven and probable reserves within the specific block or area; infrastructure and other common costs which have a useful life over We test goodwill for impairment annually in the fourth quarter of our fiscal year. This impairment assessment involves estimating the fair value of each reporting unit that includes goodwill. We compare this fair value to the total carrying amount of the reporting unit (including goodwill). If the fair value exceeds this carrying amount, we consider that goodwill is not impaired. If the fair 102 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS value is less than this carrying amount, then we estimate costs are included, but where an asset is impaired, the the fair values of all identifiable assets and liabilities asset is reduced to its net recoverable amount, calcu- in the reporting unit, and compare this net fair value of lated as the future estimated undiscounted net cash flow assets less liabilities to the estimated fair value of the expected to be generated by the asset. Under US GAAP, entire reporting unit. The difference represents the fair if assets are impaired, a reduction in the carrying value of goodwill, and if necessary, we reduce the carry- amount to estimated fair value is required. Fair value is ing amount of goodwill to this fair value. f) Future income taxes In accordance with Canadian GAAP, we implemented CICA Handbook Section 3465, (Future income taxes) in 2000. Prior to the adoption of this standard, Canadian GAAP did not require recognition of the tax effects of temporary timing differences arising from acquisi- tions. Under US GAAP, acquisitions occurring prior to January 1, 2000 have been accounted for by grossing up assets and deferred tax liabilities for the underlying tax effect of treating the purchase consideration allocated to assets acquired that is not tax deductible as a temporary taxable timing difference. Under the transition provisions of CICA 3465, the recorded amounts of assets acquired were not restated to reflect differences in their carrying amounts at acqui- sition for tax and accounting purposes. Consequently, under Canadian GAAP, property, plant and equipment was $190 million lower and future income tax liabilities were $94 million higher than the amounts recorded under US GAAP. calculated 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 buyers and sellers. h) Investments Under US GAAP, investments which are considered to be “available for sale” securities are recorded at fair value, with unrealized gains or losses included in Comprehensive Income. Under Canadian GAAP, the concept of Comprehensive Income does not exist and these investments are recorded at cost. i) Derivative financial instruments Under Canadian GAAP, derivative financial instruments that qualify for hedge accounting treatment are recog- nized on the balance sheet only to the extent that cash has been paid or received together with adjustments necessary to offset recognized gains or losses arising on the hedged items. Under US GAAP, such derivative financial instruments are recognized on the balance sheet at fair value with a corresponding charge or credit Where assets and liabilities are recorded at different recorded in Other Comprehensive Income. carrying amounts for US GAAP and Canadian GAAP, due to differences in the accounting policies that affect these assets and liabilities, a difference also arises in the amount of temporary timing differences that give rise to deferred tax assets and liabilities. Consequently, the amounts of deferred tax assets and liabilities recorded under US GAAP differ from the amounts of future income taxes recorded under Canadian GAAP. g) Impairment evaluations for long-lived assets In accordance with US GAAP, financing costs are j) Minimum pension liability Under US GAAP, if the accumulated pension plan benefit obligation exceeds the market value of plan assets, a minimum pension liability for the excess is recognized to the extent that the liability recorded in the balance sheet is less than the minimum liability. Any portion of this additional liability that relates to unrecognized prior service cost is recognized as an intangible asset while the remainder is charged to Comprehensive Income. Canadian GAAP does not require us to record a minimum liability and does not have the concept of excluded from the evaluation of long-lived assets for Comprehensive Income. impairment purposes. Under Canadian GAAP, financing 103 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS k) Asset retirement obligations Under US GAAP, new policies were adopted effective l) Foreign currency Under US GAAP, translation adjustments that arise on January 1, 2003 based on new standards published by the the translation of financial statements of entities whose FASB. These standards are established for the recogni- functional currency is not the US dollar are reported as tion and measurement of liabilities for legal obligations a component of Comprehensive Income. Under Canadian associated with the retirement of a long-lived asset that GAAP, the concept of Comprehensive Income does not result from its acquisition, construction, development or exist and these translation adjustments are reported as normal operation. A liability is recorded for such an a separate component of shareholders’ equity, called obligation at its fair value when incurred and a corre- “cumulative translation adjustments”. sponding asset retirement cost is added to the carrying amount of the related asset. In subsequent periods, the carrying amount of the liability is adjusted to reflect the passage of time and any changes in the timing or amount of the underlying future cash flows. The asset retire- ment cost is amortized to expense over the asset’s useful life. Under Canadian GAAP, a similar standard will be effective for the Company’s fiscal year beginning on January 1, 2004. Under current Canadian standards, and US standards prior to 2003, total expected reclamation and closure costs (including legal and non-legal obliga- tions) are recorded and charged to earnings over the life of a mine using the units of production method based on m) Revenue Under Canadian GAAP purchase accounting rules, Homestake sales contracts existing at the date of acqui- sition were recorded at fair value and any previous deferred revenue balances eliminated. As these contracts are delivered into, the revenue recorded under Canadian GAAP is reduced to the extent of the original fair value adjustment. Under US GAAP pooling rules, existing Homestake deferred revenue balances were carried forward and recorded in the period of delivery. Differences between Canadian and US GAAP revenue arise from these different business combination account- proven and probable reserves, and, for Canadian GAAP, ing practices. non-reserve material expected to be converted into reserves. As a result of these different policies, our 2003 US GAAP income statement includes charges for the cumulative effect of the adoption of the new policy, amortization of the asset, accretion of the liability, and non-legal reclamation costs whereas our Canadian GAAP income statement includes a single charge for reclamation expense. n) Other Comprehensive Income Under US GAAP, certain assets and liabilities are remea- sured at fair value, with changes in fair value recorded in Other Comprehensive Income. Under Canadian GAAP, these assets and liabilities are recorded at cost and they are not remeasured to fair value prior to the date they are realized or settled. The assets and liabili- ties affected are: investments, and derivative assets and liabilities that qualify for hedge accounting treatment. 104 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS o) Consolidated Balance Sheets At December 31 2003 2002 Notes US GAAP Adjustments Canadian GAAP US GAAP Adjustments Canadian GAAP Assets Current assets Cash and equivalents Accounts receivable Inventories Other current assets Investments Property, plant and equipment Capitalized mining costs, net Intangible assets Goodwill Unrealized fair value of derivative contracts Other assets Total assets $ 970 69 157 169 1,365 127 3,131 235 – – 256 248 a i, m h a, b, c, f, k a, d a, e i a, i, m $ – $ 970 – 69 160 3 57 (112) (109) (38) 1,256 89 612 – 683 1,081 3,743 235 683 1,081 (256) 31 – 279 $ 1,044 72 159 47 1,322 41 3,311 272 – – 78 237 $ – – 5 (35) (30) 6 559 – 724 1,247 $ 1,044 72 164 12 1,292 47 3,870 272 724 1,247 (78) 7 – 244 $ 5,362 $ 2,004 $ 7,366 $ 5,261 $ 2,435 $ 7,696 Liabilities and Shareholders’ Equity Accounts payable Other current liabilities i, k Long-term debt Other long-term obligations Deferred income tax liabilities i i, j, k f Total liabilities Capital stock Retained earnings (deficit) Accumulated other comprehensive income (loss) Cumulative translation adjustments a, p a, p n, p l, p $ 245 105 $ – $ 245 119 14 $ 213 270 $ 350 719 569 230 1,868 4,115 (694) 73 – 14 (1) (147) 136 2 873 1,226 364 718 422 366 1,870 4,988 532 (73) (24) – (24) 483 761 528 155 1,927 4,148 (689) (125) – – (45) (45) (4) (69) 291 173 892 1,266 $ 213 225 438 757 459 446 2,100 5,040 577 125 (21) – (21) Total shareholders’ equity 3,494 2,002 5,496 3,334 2,262 5,596 Total liabilities and shareholders’ equity $ 5,362 $ 2,004 $ 7,366 $ 5,261 $ 2,435 $ 7,696 105 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS p) Reconciliation of shareholders’ equity At December 31, 2003 Capital stock Retained Other earnings Comprehensive Income (deficit) Cumulative translation adjustments Notes Balance per US GAAP Adjustments (net of tax effects): Valuation of equity issued in business combinations1 Cumulative effect of difference in accounting policies Accounting changes in 2003 Amortization of property, plant and equipment Exploration and development costs Provisions for mining assets in 2000 and 19972 Investments Derivatives accounted for as cash flow hedges Non-hedge derivative adjustments Minimum pension liability Asset retirement obligations Interest capitalization Merger related costs Other Cumulative effect of differences in accounting for business combinations under the pooling-of- interests versus the purchase method Excess of fair value of shareholders’ equity over historic book value Deficit of Sutton and Homestake at acquisition Amortization of intangible assets Deferred revenue Gains on asset sales Homestake inventory Effect of different book values of capital stock on common share repurchases Deferred income taxes Effect of historic differences in accounting policies under CICA 3465 versus FAS 109 Effect on deferred tax assets and liabilities of timing differences for US GAAP and Canadian GAAP purposes Tax valuation allowances Impairment charge on goodwill Reclassification of translation adjustments c, k c b h i j k q2 q7 a a d m a a f f q3 e l $ 4,115 $ (694) $ 73 $ (293) – – – – – – – – – – – – (5) 1,185 – – – – – 17 134 137 683 – – (25) – 51 4 19 (5) – 749 (74) (23) (11) (22) (14) 14 – – – – – (284) 16 (106) (48) – – – – – – (38) (189) – 7 – – – – 123 – – – – – – – – – – 24 – – – – – – – – – – – – – – – – – – – – – – – – – (24) Balance per Canadian GAAP $ 4,988 $ 532 $ – $ (24) 1. In determining the value of the shares exchanged in acquisitions, for accounting purposes under US GAAP we used the unadjusted quoted market prices of our shares. For Canadian GAAP purposes, the value was adjusted by a 5% to 20% discount reflecting the fact that the market value for a large block of common shares is less than our quoted share price. The recognition of this discount to the value of common shares issued for Canadian GAAP purposes resulted in a reduction in the value of the shares for accounting purposes and cost of acquisitions by $293 million. 2. The impact of applying US GAAP in calculating the provisions for mining assets in 2000 and 1997 was to reduce property, plant and equipment by $780 million offset by future income taxes of $97 million for a net reduction in shareholders’ equity of $683 million. 106 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS q) Reconciliation of consolidated net income For the years ended December 31 Notes Net income – US GAAP Amortization of property, plant and equipment Exploration and development expenditures Amortization of intangible assets Asset retirement obligations Cumulative effect of accounting changes under US GAAP Gains on asset sales1 Interest capitalized 2 Deferred income tax valuation allowances3 Future income tax expense4 Deferred revenue Non-hedge derivative adjustments5 Homestake inventory6 Merger related costs7 Pre-acquisition net loss of Homestake Impairment charge on goodwill Other items Net income – Canadian GAAP Net income per share (dollars) Basic and fully diluted c b d k c, k a a, f f m a a e 2003 $ 200 53 53 (41) 26 17 (10) 9 (87) 3 (29) – (2) – – (48) 2 $ 146 2002 $ 193 69 52 (33) 19 – – – – (15) (20) (26) (21) – – – 11 $ 229 2001 $ 96 24 23 – – 1 – – (12) – – (8) – 25 138 – (16) $ 271 $ 0.27 $ 0.42 $ 0.68 1. The gain on sale under Canadian GAAP is different from US GAAP due to the fact that the carrying amount of assets sold was higher under Canadian GAAP. 2. Under Canadian GAAP, the Veladero and Alto Chicama projects met the criteria for interest capitalization for the whole of 2003. 3. Under Canadian GAAP, differences in the carrying amount of certain assets recorded at fair value at the acquisition of Homestake resulted in valuation allowances totaling $23 million not being historically required under Canadian GAAP. The remaining amount relates to a release of valuation allowances under US GAAP totaling $118 million that has been recorded as a reduction of goodwill under Canadian GAAP, offset by the release of certain valuation allowances to earnings under Canadian GAAP totaling $54 million. 4. The adjustment to future tax expense reflects the reversal of temporary timing differences under Canadian GAAP caused by other adjustments that were made to reconcile US GAAP net income to Canadian GAAP income. The adjustment also reflects other differences in accounting for income taxes as described in note 28f. 5. Certain derivative instruments classified as “non-hedge derivatives” under US GAAP were accounted for under Canadian GAAP as either hedge derivatives; or recorded at cost with gains and losses recorded either at maturity or when losses were determined to be other than temporary. 6. Certain ore in stockpile and in process inventory held by Homestake, which was adjusted to fair value at the date of acquisition, caused an adjustment to cost of sales when the inventory was processed and sold. 7. Various costs totaling $25 million that were incurred in connection with the Homestake merger in 2001 were expensed under US GAAP. Under Canadian GAAP, these costs were included as part of the purchase consideration. 107 BARRICK Annual Report 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS r) Consolidated statements of cash flow under Canadian GAAP For the years ended December 31 2003 2002 2001 Operating Activities Net income Add (deduct): Amortization Change in capitalized mining costs Future income taxes Inmet litigation settlement (Gains) losses on sale of long-lived assets Impairment charge on goodwill Reclamation costs (Gains) losses on investments Amortization of deferred stock-based compensation Foreign currency translation adjustments Non-hedge derivative (gains) losses Inmet litigation expense Changes in operating assets and liabilities: Accounts receivable Inventories Accounts payable and accrued liabilities Current income taxes accrued Other assets and liabilities Cash payments: Merger related costs Reclamation and closure costs Income taxes Cash provided by operating activities1 Investing Activities Property, plant and equipment Capital expenditures Sales proceeds Purchase of investments Increase in restricted cash Business combinations and property acquisitions Short-term cash deposits Cash used in investing activities1 Financing Activities Capital stock Proceeds from shares issued on exercise of stock options Repurchased for cash Long-term debt Proceeds Repayments Dividends Cash used in financing activities Increase (decrease) in cash and equivalents Cash and equivalents at beginning of year Cash and equivalents at end of year $ 146 $ 229 $ 271 510 37 35 (86) (29) 48 28 12 4 (2) (71) 16 3 4 13 54 31 – (59) (111) 583 (384) 48 (55) – – – (391) 29 (154) – (23) (118) (266) (74) 1,044 483 29 (60) – (8) – 15 4 3 (1) 32 – (16) 45 (7) 59 17 (50) (70) (52) 652 (291) 11 – – – 159 (121) 83 – – (25) (119) (61) 470 574 343 17 (9) – 4 – 17 (2) – 8 (27) – (14) 34 117 36 (61) (13) (35) (7) 679 (549) 15 – (24) 18 (157) (697) 7 – 49 – (87) (31) (49) 623 $ 970 $ 1,044 $ 574 1. Exploration and development expenditures that were capitalized under Canadian GAAP, but expensed under US GAAP, were $53 million in 2003 (2002 – $52 million; 2001 – $23 million). This represents the differences in cash flows from operating and investing activities between US GAAP and Canadian GAAP. 108 BARRICK Annual Report 2003 Gold Mineral Reserves and Mineral Resources The table on the next page sets forth Barrick’s interest in the total proven and probable gold mineral reserves at each property. For further details of proven and probable mineral reserves and measured, indicated and inferred mineral resources by category, see pages 110 and 111. The Company has carefully prepared and verified the mineral reserve and mineral resource figures and believes that its method of estimating mineral reserves has been verified by mining experience. These figures are estimates, however, and no assurance can be given that the indicated quantities of gold will be produced. Gold price fluctuations may render mineral reserves containing relatively lower grades of gold mineralization uneconomic. Moreover, short-term operating factors relating to the mineral reserves, such as the need for orderly development of ore bodies or the processing of new or different ore grades, could affect the Company’s profitability in any particular accounting period. Definitions A mineral resource is a concentration 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, geo- logical characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological 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 quality can be estimated on the basis of geological evidence, limited sam- pling and reasonably assumed but not verified geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate 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 quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate appli- cation 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 exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological 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 sufficient 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 tech- niques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. Mineral resources, which are not mineral reserves, do not have demonstrated economic viability. 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 economic extraction can be jus- tified. A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined. Mineral reserves are sub-divided in order of increas- ing confidence into probable mineral reserves and proven mineral reserves. A probable mineral reserve is the economically mineable part of an indicated and, in some circumstances, a measured mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate infor- mation on mining, processing, metallurgical, economic 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 ade- quate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. 109 BARRICK Annual Report 2003 MINERAL RESERVES AND MINERAL RESOURCES Summary Gold Mineral Reserves and Mineral Resources For the year ended December 31 Based on attributable ounces North America Betze-Post Meikle Goldstrike Property Total Round Mountain (50%) Marigold (33%) Eskay Creek Hemlo (50%) Holt-McDermott South America Pascua-Lama Veladero Pierina Alto Chicama Australia/Africa Plutonic Lawlers Darlot Kalgoorlie (50%) Cowal Bulyanhulu Tulawaka (70%) Other Total 2003 2002 Tons Grade Ounces (000s) (000s) (oz/ton) Tons Grade Ounces (000s) (000s) (oz/ton) (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) 109,742 37,403 9,177 5,841 118,919 43,244 89,852 37,770 31,089 13,334 927 422 17,557 3,017 340 452 296,411 115,845 317,187 67,715 61,393 25,421 159,250 25,751 20,635 13,395 3,234 8,777 7,627 4,194 97,047 44,584 63,600 47,534 27,882 4,300 1,093 680 – 20,404 0.143 15,685 2,264 0.061 3,460 0.377 0.426 2,489 0.161 19,145 4,753 0.110 1,583 0.018 645 0.017 737 0.024 268 0.020 941 1.015 121 0.287 1,744 0.099 271 0.090 55 0.162 88 0.195 0.057 16,862 0.030 3,487 0.035 11,115 1,540 0.023 2,768 0.045 419 0.016 7,155 0.045 1,735 0.067 2,646 0.128 1,967 0.147 402 0.124 1,136 0.129 1,135 0.149 546 0.130 5,894 0.061 2,580 0.058 2,495 0.039 0.034 1,596 0.391 10,907 1,894 0.440 368 0.337 45 0.066 – 0.078 – 1,598 107,130 46,400 9,770 5,107 116,900 51,507 96,057 17,455 26,351 13,665 1,433 384 19,726 2,677 847 246 296,411 115,845 254,311 135,760 70,343 39,938 120,948 56,352 13,976 19,349 3,407 8,379 8,202 4,169 96,898 41,911 75,922 35,211 27,420 4,765 – – 0.150 16,051 3,231 0.070 3,888 0.398 0.466 2,378 0.171 19,939 5,609 0.109 1,875 0.020 176 0.010 678 0.026 219 0.016 1,430 0.998 153 0.398 2,118 0.107 248 0.093 154 0.182 61 0.248 0.057 16,862 3,487 0.030 9,384 0.037 3,260 0.024 3,602 0.051 626 0.016 6,535 0.054 1,998 0.035 2,533 0.181 2,287 0.118 509 0.149 1,115 0.133 1,269 0.155 540 0.130 5,551 0.057 2,279 0.054 2,835 0.037 0.036 1,255 0.425 11,653 1,678 0.352 – – – – – 1,085 – 0.335 – 364 (proven and probable) (mineral resource) 1,314,043 476,839 0.065 85,952 0.052 24,689 1,229,152 548,698 0.071 86,927 0.046 25,355 110 BARRICK Annual Report 2003 MINERAL RESERVES AND MINERAL RESOURCES Gold Mineral Reserves1 As at December 31, 2003 Based on attributable ounces North America Betze-Post Meikle Goldstrike Property Total Round Mountain (50%) Marigold (33%) Eskay Creek Hemlo (50%) Holt-McDermott South America Pierina Pascua-Lama Veladero Alto Chicama Australia/Africa Plutonic Lawlers Darlot Kalgoorlie (50%) Cowal Bulyanhulu Tulawaka (70%) Proven Probable Total Tons Grade Ounces (000s) (000s) (oz/ton) Tons Grade Ounces (000s) (000s) (oz/ton) Tons Grade Ounces (000s) (000s) (oz/ton) 61,551 3,316 64,867 64,933 3,122 387 10,766 31 26,112 37,738 19,037 4,443 403 790 3,181 37,799 5,191 1,784 – 0.128 0.467 0.145 0.017 0.031 1.398 0.113 0.161 0.060 0.062 0.042 0.051 0.057 0.133 0.119 0.054 0.046 0.407 – 7,856 1,547 9,403 1,081 98 541 1,213 5 1,560 2,355 801 225 23 105 379 2,042 238 726 – 48,191 5,862 54,053 24,919 27,967 540 6,791 309 0.162 0.326 0.180 0.020 0.023 0.741 0.078 0.162 7,829 1,913 9,742 502 638 400 531 50 109,742 9,177 118,919 89,852 31,089 927 17,557 340 0.143 15,685 3,460 0.377 0.161 19,145 1,583 0.018 737 0.024 941 1.015 1,744 0.099 55 0.162 35,281 258,673 298,150 154,807 1,208 0.034 0.056 14,507 0.035 10,314 6,930 0.045 61,393 296,411 317,187 159,250 2,768 0.045 0.057 16,862 0.035 11,115 7,155 0.045 20,232 2,444 4,446 59,248 58,409 26,098 1,093 2,623 0.130 297 0.122 756 0.170 3,852 0.065 0.039 2,257 0.390 10,181 368 0.337 20,635 3,234 7,627 97,047 63,600 27,882 1,093 2,646 0.128 402 0.124 1,135 0.149 5,894 0.061 0.039 2,495 0.391 10,907 368 0.337 Total 280,584 0.074 20,795 1,033,460 0.063 65,156 1,314,043 0.065 85,952 1. Mineral reserves (“reserves”) have been calculated as at December 31, 2003 in accordance with National Instrument 43-101, as required by Canadian securities regulatory authorities. For the 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 for U.S. reporting purposes as mineralized material. Calculations have been prepared by employees of Barrick under the supervision of René M. Marion, P.Eng., Vice-President, Technical Services of Barrick and/or Alexander J. Davidson, P.Geol., Executive Vice-President, Exploration of Barrick. Reserves have been calculated using an assumed long-term average gold price of US$325, a silver price of US$4.75 and exchange rates of $1.50 $Can/$US and $0.57 $US/$Aus. Reserves at the KCGM property assumed an exchange rate of $0.59 $US/$A. Reserves at the Hemlo property assumed an exchange rate of $1.53 $Can/$US. (In 2002, 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 in 2002 assumed a gold price of US$297.) Reserve calculations incorporate current and/or expected mine plans and cost levels at each property. Varying cut-off grades have been used depending on the mine and type of ore contained in the reserves. Barrick’s normal data verification procedures have been employed in connection with the calculations. For a more detailed description of the key assumptions, parameters and methods used in calculating Barrick’s reserves and resources, see Barrick’s most recent Annual Information Form on file with Canadian provincial securities regulatory authorities and the U.S. Securities and Exchange Commission. 111 BARRICK Annual Report 2003 MINERAL RESERVES AND MINERAL RESOURCES Gold Mineral Resources1 As at December 31, 2003 Measured (M) Indicated (I) (M) + (I) Inferred Based on attributable ounces Tons Grade Ounces (000s) (000s) (oz/ton) Tons Grade Ounces Ounces (000s) (000s) (oz/ton) (000s) Tons Grade Ounces (000s) (000s) (oz/ton) North America Betze-Post Meikle Goldstrike 14,077 1,580 0.059 0.435 831 687 23,326 4,261 0.061 0.423 1,433 1,802 2,264 2,489 323 7,725 0.065 0.366 21 2,827 Property Total 15,657 Round Mountain (50%) 10,050 6,645 Marigold (33%) 93 Eskay Creek 1,171 Hemlo (50%) – Holt-McDermott South America Pierina Pascua-Lama Veladero Alto Chicama Australia/Africa Plutonic Lawlers Darlot Kalgoorlie (50%) Cowal Bulyanhulu Tulawaka (70%) Other Total 0.097 0.013 0.020 0.290 0.112 – 0.017 0.055 0.021 0.063 0.216 0.153 0.142 0.055 0.038 0.222 – 1,518 133 134 27 131 – 27,587 27,720 6,689 329 1,846 452 103 19,404 216 111,883 64,292 24,127 72 103 41 307 156 794 98 12 – 13,205 6,768 3,096 30,137 44,940 4,246 680 0.117 0.018 0.020 0.286 0.076 0.195 0.016 0.029 0.023 0.068 0.146 0.122 0.126 0.059 0.033 0.443 0.066 3,235 512 134 94 140 88 316 3,271 1,468 1,632 1,926 829 390 1,786 1,498 1,882 45 8,048 4,753 645 9,790 268 59,144 277 121 3,952 271 133 88 0.354 0.018 0.014 0.513 0.142 0.271 419 154 3,487 126,841 1,540 73,462 1,735 10,233 8,624 1,967 1,745 1,136 144 546 2,580 4,621 1,596 31,053 5,268 1,894 161 45 0.013 0.027 0.023 0.060 0.175 0.122 0.194 0.043 0.033 0.512 0.075 2,848 180 826 142 562 36 2 3,475 1,704 617 1,508 213 28 197 1,011 2,697 12 6,017 3,962 3,423 1,624 190 2,009 1,098 14,447 2,594 54 – – – – 20,404 0.078 1,598 1,598 11,768 0.118 1,387 69,034 0.056 3,845 407,805 0.051 20,844 24,689 355,418 0.049 17,445 1. Resources which are not reserves do not have demonstrated economic viability. 112 BARRICK Annual Report 2003 MINERAL RESERVES AND MINERAL RESOURCES Contained Silver Within Reported Gold Reserves1 December 31, 2003 Metal Prices Exchange Rates Imperial Units Gold ($US/oz) $325 $Can/$US 1.50 Proven Probable Total Silver ($US/oz) $4.75 $US/$Aus 0.57 Copper ($US/lb) $0.80 Share Tons Grade Ounces (000s) (oz/t) (000s) Tons (000s) Grade Ounces (000s) (oz/t) Tons (000s) Grade Ounces (000s) (oz/t) Process Recovery % Africa Bulyanhulu North America Eskay Creek South America Alto Chicama Pascua-Lama Pierina Veladero Total 100% 1,784 0.25 446 26,098 0.31 8,207 27,882 0.31 8,653 65.0% 100% 387 70.60 27,324 540 29.70 16,037 927 46.78 43,361 94.0% 100% 4,443 100% 37,738 100% 26,112 100% 19,037 0.12 554 154,807 2.16 81,625 258,673 0.27 35,281 7,038 0.58 11,066 298,150 0.11 16,684 159,250 1.94 502,797 296,411 0.16 61,393 5,684 0.53 157,699 317,187 0.11 17,238 1.97 584,422 0.21 12,722 0.53 168,765 20.0% 78.0% 37.2% 6.2% 89,501 1.43 128,053 773,549 0.91 707,108 863,050 0.97 835,161 62.4% 1. Silver is accounted for as a by-product credit against reported or projected gold production costs. Contained Silver Within Reported Gold Resources December 31, 2003 Africa Bulyanhulu North America Eskay Creek South America Alto Chicama Pascua-Lama Pierina Veladero Total Imperial Units Measured (M) Indicated (I) Total (M) + (I) Tons (000s) Grade Ounces (000s) (oz/t) Tons (000s) Grade Ounces (000s) (oz/t) Tons (000s) Grade Ounces (000s) (oz/t) Share 100% 54 0.167 9 4,246 0.308 1,308 4,300 0.306 1,317 100% 93 10.097 939 329 9.389 3,089 422 9.545 4,028 100% 1,624 0.163 100% 3,962 0.930 100% 6,017 0.201 100% 3,423 0.342 264 24,127 0.128 3,364 3,100 3,685 111,883 1.545 172,847 115,845 1.524 176,532 4,478 3,266 1,212 24,342 23,172 1,170 19,404 0.168 64,292 0.360 25,421 0.176 67,715 0.359 25,751 0.131 15,173 0.480 7,279 224,281 0.922 206,782 239,454 0.894 214,061 113 BARRICK Annual Report 2003 Supplemental Information 5-Year Historical Review 1 (US GAAP basis, unless otherwise indicated) 2003 2002 2001 2000 1999 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 equivalents Total assets Working capital Long-term debt2 Shareholders’ equity Operational statistics (unaudited) Gold production (thousands of ounces) Total cash costs per ounce Average realized gold price per ounce Average spot gold price per ounce Gold reserves (proven and probable) (thousands of ounces)3 Other Net debt to total capitalization4 Shares outstanding (millions) $ 2,035 200 521 322 $ 0.37 0.22 0.97 6.53 $ 970 5,362 1,015 719 3,494 5,510 $ 189 $ 366 $ 363 $ 1,967 193 589 228 $ 0.36 0.22 1.09 6.15 1,044 5,261 839 761 3,334 5,695 $ 177 $ 339 $ 310 $ 1,989 96 588 474 $ 0.18 0.22 1.10 5.96 $ 779 5,202 579 793 3,192 6,124 $ 162 $ 317 $ 271 $ 1,936 (1,189) 842 612 $ (2.22) 0.22 1.57 5.95 $ 822 5,393 576 901 3,190 5,950 $ 155 $ 334 $ 279 $ 2,057 244 676 643 $ 0.45 0.20 1.28 8.45 $ 766 6,791 646 803 4,514 5,801 $ 152 $ 351 $ 279 85,952 86,927 82,272 79,300 78,049 (6%) 535 (7%) 542 1% 536 2% 536 1% 534 1. Information for all years has been derived from audited financial statements, except as indicated. 2. Long-term debt excludes current portion of $41 million in 2003, $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 equivalents to debt plus shareholders’ equity. 114 BARRICK Annual Report 2003 Corporate Governance and Committees of the Board Corporate Governance During 2003, there was a continued focus on corporate governance in both the United States and Canada. In November 2003, the US Securities and Exchange Commission approved the New York Stock Exchange’s proposal to add corporate governance standards to its listing rules. During late 2002 and 2003, Barrick under- took a review of its corporate governance practices in light of the various regulatory initiatives. Although, as a regulatory matter, the vast majority of the new NYSE standards are not directly applicable to Barrick as a Canadian company, Barrick has already implemented a number of the structures and procedures to comply with the NYSE standards. At the close of the 2004 Annual Meeting of Shareholders, assuming that all of the pro- posed nominees are elected as directors, Barrick will have a majority of independent directors and will be in material compliance with the requirements of the NYSE standards. The Board of Directors has approved a set of Corporate Governance Guidelines to promote the effective func- tioning of the Board of Directors and its Committees Committees of the Board Corporate Governance and Nominating Committee (M.A. Cohen, P.C. Godsoe, A.A. MacNaughton) Assists the Board in establishing Barrick’s corporate gover- nance policies and practices. The Committee also identifies individuals qualified to become members of the Board, and reviews the composition and functioning of the Board and its Committees. Audit Committee (H.L. Beck, P.A. Crossgrove, P.C. Godsoe) Reviews the Company’s financial statements and manage- ment’s discussion and analysis of financial and operating results, and assists the Board in its oversight 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 approv- ing Barrick’s compensation policies and practices, and administering Barrick’s share compensation plans. The and to set forth a common set of expectations as to how the Board should manage its affairs and perform its responsibilities. Barrick has also adopted a Code of Business Conduct and Ethics that is applicable to all directors, officers and employees of Barrick. In conjunc- tion with the adoption of the Code, Barrick established a toll-free compliance hotline to allow for anonymous reporting of any suspected Code violations, including concerns regarding accounting, internal accounting controls or other auditing matters. A copy of the Corporate Governance Guidelines, the Code of Business Conduct and Ethics and the mandates of each of the Committees of the Board, including the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee, is posted on Barrick’s website at www.barrick.com and is available in print from the Company to any shareholder upon request. 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 environ- mental 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. 115 BARRICK Annual Report 2003 Howard L. Beck, Q.C. Toronto, Ontario Corporate Director 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 Chief Executive Officer, ABX Financeco Inc. Mr. Birchall has had a long association with Barrick as one of the original Board members of the Company. Tye W. Burt Toronto, Ontario Vice Chairman and Executive Director, Corporate Development, Barrick Gold Corporation Mr. Burt was appointed a Vice Chairman of the Company in February 2004, in addition to his role as Executive Director, Corporate Development, which he assumed 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, Barrick Gold Corporation Mr. Carrington was appointed a Vice Chairman of the Company in March 1999. From 1996 to 2003, Mr. Carrington was the Chief Operating Officer of Barrick. He has been a member of the Barrick Board since 1996. Gustavo Cisneros Caracas, Venezuela Chairman and Chief Executive Officer, Cisneros Group of Companies Mr. Cisneros became a Director of Barrick in September 2003. Board of Directors Marshall A. Cohen, O.C. Toronto, Ontario Counsel, Cassels Brock & Blackwell LLP 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. Peter C. Godsoe, O.C. Toronto, Ontario Corporate Director Mr. Godsoe was the Chairman and Chief Executive Officer of The Bank of Nova Scotia from 1995 to 2003. Mr. Godsoe became a Director of Barrick in February 2004. 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. 116 BARRICK Annual Report 2003 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. 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. Officers and International Advisory Board Officers Peter Munk Chairman Jack E. Thompson Vice Chairman Gregory C. Wilkins President and Chief Executive Officer Tye W. Burt Vice Chairman and Executive Director, Corporate Development John K. Carrington Vice Chairman Alexander J. Davidson Executive Vice President, Exploration Patrick J. Garver Executive Vice President and General Counsel Peter J. Kinver Executive Vice President and Chief Operating Officer Gordon F. Fife Senior Vice President, Organizational Effectiveness Lawrence J. Parnell Senior Vice President, Corporate Relations Jamie C. Sokalsky Senior Vice President and Chief Financial Officer Ammar Al-Joundi Vice President and Treasurer Darren J. Blasutti Vice President, Investor Relations M. Vincent Borg Vice President, Corporate Communications Michael J. Brown Vice President, United States Public Affairs Kelvin Dushnisky Vice President, Regulatory Affairs André R. Falzon Vice President and Controller Igor Gonzales Vice President, Peru Gregory A. Lang Vice President, North America René Marion Vice President, Technical Services John T. McDonough Vice President, Environment Stephen A. Orr Vice President, Australia/Africa Calvin F. Pon Vice President, Tax Raymond W. Threlkeld Vice President, Chile/Argentina John R. Turney Vice President, Capital Projects David D. Young Vice President, Supply Chain Management Sybil E. Veenman Associate General Counsel and Secretary James W. Mavor Assistant Treasurer – Risk Management Jeffrey A. Swinoga Assistant Treasurer – Finance 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 Gustavo Cisneros Venezuela Chairman and Chief Executive Officer, Cisneros Group of Companies Secretary William S. Cohen United States Chairman and Chief Executive Officer, The Cohen Group The Honourable Paul G. Desmarais, Sr. Canada Director and Chairman of Executive Committee, Power Corporation of Canada 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. 117 BARRICK Annual Report 2003 Lord Charles Powell of Bayswater KCMG United Kingdom Chairman, Sagitta Asset Management Limited Karl Otto Pöhl Germany Senior Partner, Sal. Oppenheim Jr. & Cie. The Honorable Andrew Young United States Chairman, GoodWorks International Shareholder Information Shares traded on five major international stock exchanges > New York > Toronto > London > Paris > Swiss Ticker Symbol ABX Number of Registered Shareholders 21,932 Index Listings > S&P Global 1200 Index > S&P/TSX 60 Index > S&P/TSX Composite Index > S&P/TSX Capped Materials Index > S&P/TSX Capped Gold Index > FT of London Gold Index > Philadelphia Gold/Silver Index 2003 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 Common Shares (millions) Outstanding at December 31, 2003 Weighted average – 2003 Basic and fully diluted 535* 539* The Company’s shares were split on a two-for-one basis in 1987, 1989 and 1993. * Includes shares issuable upon conversion of Barrick Gold Inc. (formerly, Homestake Canada Inc.) exchangeable shares. Volume of Shares Traded (millions) TSE NYSE Closing Price of Shares December 31, 2003 TSE NYSE 2003 2002 495 521 698 762 C$29.31 US$22.71 Share Volume (millions) High Low 2003 2002 2003 2002 2003 2002 147 111 119 118 495 148 188 199 163 698 Share Volume (millions) C$26.48 C$31.20 36.05 28.92 26.09 25.43 28.95 30.29 C$20.90 C$25.35 27.30 22.52 21.85 21.34 23.31 24.39 High Low 2003 2002 2003 2002 2003 2002 US$17.43 US$19.50 23.49 19.61 16.74 18.97 21.13 23.15 US$14.11 US$15.90 17.18 13.46 13.82 14.61 16.67 18.35 143 115 135 128 521 155 190 273 144 762 118 BARRICK Annual Report 2003 SHAREHOLDER INFORMATION Dividend Payments In 2003, the Company paid a cash dividend of $0.22 per share – $0.11 on June 16 and $0.11 on December 15. A cash dividend of $0.22 per share was paid in 2002 – $0.11 on June 14 and $0.11 on December 20. Dividend Policy The Board of Directors reviews the dividend policy semi-annually based on the cash requirements of the Company’s operating assets, exploration and devel- opment activities, as well as potential acquisitions, combined with the current and projected financial position of the Company. Form 40-F Annual Report on Form 40-F is filed with the United States Securities and Exchange Commission. This report will be made available to shareholders, without charge, upon written request to the Secretary of the Company at the Corporate Office. Other Language Reports French and Spanish versions of this annual report are available from Investor Relations at the Corporate Office. Shareholder Contacts Shareholders are welcome to contact the Company for information or questions concerning their shares. For general information on the Company, contact the Investor Relations Department. For information on such matters as share transfers, dividend cheques and change of address, inquiries should be directed to the Transfer Agents. Transfer Agents and Registrars CIBC Mellon Trust Company P.O. Box 7010 Adelaide Street Postal Station Toronto, Ontario M5C 2W9 Telephone: (416) 643-5500 Toll-free throughout North America: 1-800-387-0825 Fax: (416) 643-5660 Email: inquiries@cibcmellon.com Web site: www.cibcmellon.com Mellon Investor Services, L.L.C. P.O. Box 3315 South Hackensack, New Jersey 07606 Telephone: (201) 329-8660 Toll-free within the United States and Canada: 1-888-835-2788 Email: shrrelations@mellon.com Web site: www.mellon-investor.com Annual Meeting The Annual and Special Meeting of Shareholders will be held on Thursday, April 22, 2004 at 10:00 a.m. in the Canadian Room, Fairmont Royal York Hotel, Toronto, Ontario. 119 BARRICK Annual Report 2003 Corporate Information 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 Operations Chile/Argentina Operations Raymond Threlkeld Vice President Av. Ricardo Lyon 222 Piso 11. Providencia Santiago, Chile Telephone: (56-2) 340-2022 Fax: (56-2) 233-0188 Peru Operations Igor Gonzales Vice President Pasaje Los Delfines, 159 3do Piso Urb. Las Gardenias Lima 33, Peru Telephone: (51-1) 275-0600 Fax: (51-1) 275-0249 Australia/Africa Operations Steve Orr Vice President 10th Floor 2 Mill Street Perth, WA 6000 Australia Telephone: (61-8) 9212-5777 Fax: (61-8) 9322 5700 Australia Operations Kalgoorlie Consolidated Gold Mines (KCGM) Russell Cole Acting General Manager Black Street Kalgoorlie WA 6430 Australia Telephone: (61-8) 9022 1100 Fax: (61-8) 9022 1119 Plutonic Gold Mine Michael Hulmes Resident Manager PMB 46 Meekatharra WA 6642 Australia Telephone: (61-8) 9981 0100 Fax: (61-8) 9981 0101 120 BARRICK Annual Report 2003 Darlot Gold Mine Richard Hay Resident Manager P.O. Box 127 Leonora WA 6438 Australia Telephone: (61-8) 9080 3400 Fax: (61-8) 9080 3440 Lawlers Gold Mine Mark Le Messurier Resident Manager PMB 47 Leinster WA 6437 Australia Telephone: (61-8) 9088 3300 Fax: (61-8) 9037 8899 East Africa Operations Bulyanhulu Mine Mrikao Street, Plot No. 847 Msasani Peninsula P.O. Box 1081 Dar es Salaam, Tanzania Neil Whitaker General Manager Telephone: (255-22) 2600 508 Fax: (255-22) 260 0222 Corporate Data Auditors PricewaterhouseCoopers LLP Toronto, Canada Corporate Relations Lawrence Parnell Senior Vice President Telephone: (416) 307-7489 Fax: (416) 861-0727 Email: lparnell@barrick.com Investor Relations Contacts: Darren Blasutti Vice President, Investor Relations Telephone: (416) 307-7341 Fax: (416) 861-0727 Email: dblasutti@barrick.com Kathy Sipos Director, Investor Relations Telephone: (416) 307-7441 Fax: (416) 861-0727 Email: ksipos@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 Operations Gregory Lang Vice President 136 East South Temple, Suite 1050 Salt Lake City, Utah USA 84111-1180 Telephone: (801) 741-4664 Fax: (801) 359-0875 United States Operations Goldstrike Property P.O. Box 29 Elko, Nevada U.S.A. 89803 Mike Feehan General Manager Telephone: (775) 778-8380 Fax: (775) 738-7685 Round Mountain Gold P.O. Box 480 Round Mountain Nevada U.S.A. 89045 Mike Iannacchione General Manager Telephone: (775) 377-2366 Fax: (775) 377-3240 Canada Operations Eskay Creek No. 1 Airport Way P.O. Box 3908 Smithers, B.C. Canada V0J 2N0 Steve Job General Manager Telephone: (604) 522-9877 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 BARRICK AT A GLANCE Barrick Gold Corporation is among the world’s largest gold producers in terms of market capitalization, production and reserves. Barrick operates a low-cost portfolio of 12 mines and four major development projects on four continents. Combined with the industry’s only A-rated balance sheet and an aggressive exploration program, these assets position Barrick to prosper in the years ahead. In 2003 Barrick produced 5.51 million ounces of gold at an average total cash cost of $189 per ounce1 – the lowest cash cost among senior gold producers. The Company’s development plan is expected to add four major new mines – Veladero, Alto Chicama, Cowal, and Pascua-Lama – between 2005 and 2008. Together, these mines are projected to produce approximately 2 million- plus ounces of gold annually. Their average cost will be well below our current cash cost over their fi rst decade of operation, augmenting the quality and profi tability of Barrick’s existing production portfolio. Barrick’s shares trade under the ticker symbol ABX on the Toronto, New York, London and Swiss stock exchanges, as well as the Paris Bourse. 1. See page 58 for a discussion of non-GAAP measures. Global Diversifi cation 28% 44% North America South America 60% 20% 15% 13% Australia East Africa 13% 7% North America South America Australia East Africa fi g. 1 2003 Reserves fi g. 2 2004E Production Barrick’s diversified portfolio provides a truly global presence on four continents. Contents Financial Highlights Letter to Shareholders Operations Review Reserves: Replacement and Growth Operational Review Financial Strategy pg. 1 pg. 2 pg. 11 pg. 13 pg. 18 pg. 20 Management’s Discussion and Analysis Financial Statements Notes to Financial Statements Reserves Board of Directors and Officers Shareholder Information Corporate Information pg. 21 pg. 64 pg. 68 pg. 109 pg. 116 pg. 118 pg. 120 . d t L , a d a n a C f o e n w o B : g n i t n i r P . c n I e l b a e v o M : g n i t t e s e p y T . c n I s i s e n e G : n g i s e D d n a t p e c n o C n o i t a r o p r o C d l o G k c i r r a B 4 0 0 2 t h g i r y p o C © r e p a p d e l c y c e r n o a d a n a C n i d e t n i r P Forward-Looking Statements 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 and electricity) and currencies; 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 Form on file with the US 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. T36264-Barrick AR Cvr.indd 2 T36264-Barrick AR Cvr.indd 2 3/10/04 12:27:47 PM 3/10/04 12:27:47 PM I B A R R C K G O L D C O R P O R A T O N I 2 0 0 3 A n n u a l R e p o r t What we said. What we did. What’s next. A Progress Report You can contact us toll-free within Canada and the United States: 800-720-7415 email us at: investor@barrick.com visit our investor relations website: www.barrick.com BARRICK GOLD 2003 Annual Report T36264-Barrick AR Cvr.indd 1 T36264-Barrick AR Cvr.indd 1 3/10/04 12:08:22 PM 3/10/04 12:08:22 PM 

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