Barrick Gold Corp. Annual Report 2004

Plain-text annual report

B A R R I C K G O L D C O R P O R A T I O N 2 0 0 4 A n n u a l R e p o r t t r o p e R l a u n n A 4 0 0 2 D L O G K C I R R A B Barrick is one of the world’s largest gold mining companies, with operating and development properties in the US, Canada, Australia, Peru, Chile, Argentina and Tanzania. Our vision is to be the world’s best gold mining company by ﬁ nding, developing and producing quality reserves in a proﬁ table and socially responsible manner. Barrick shares are traded on the Toronto, New York, London and Swiss stock exchanges and the Paris Bourse. 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 What’s next: Growth. Building Mines. Building Value. T39748-BAR Cover and Spine.indd 1 T39748-BAR Cover and Spine.indd 1 3/16/05 1:01:59 PM 3/16/05 1:01:59 PM Delivering Growth. Building Mines Barrick’s pipeline of gold development projects is unrivaled in size, quality, and immediacy. Three new mines will be in production in 2005, another in early 2006, with two more to follow in subsequent years. Building Value Barrick is targeting a 12% compound annual growth rate in gold production, 2004-2007 – substantially higher than any of our peers. Reserves have increased to 89 million ounces, and with our aggressive exploration strategy and large world-class gold districts we expect to grow them further. Our new mines are all high-quality assets with conventional open-pit technology and are also geopolitically well-diversiﬁ ed. Their contribution to our bottom line is expected to be immediate, and signiﬁ cant. . 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 5 0 0 2 t h g i r y p o C © Forward-Looking Statements Certain information contained or incorporated by reference in this Annual Report 2004, including any information as to our future financial or operating performance, constitutes “forward-looking statements”. All statements, other than statements of historical fact, are forward-looking statements. The words “believe”, “expect”, “anticipate”, “contemplate”, “target”, “plan”, “intends”, “continue”, “budget”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: fluctuations in the currency markets (such as the Canadian and Australian dollars versus the US dollar); fluctuations in the spot and forward price of gold or certain other commodities (such as silver, copper, diesel fuel and electricity); changes in US dollar interest rates or gold lease rates that could impact the mark-to-market value of outstanding derivative instruments and ongoing payments/ receipts under interest rate swaps and variable rate debt obligations; risks arising from holding derivative instruments (such as credit risk, market liquidity risk and mark-to-market risk); changes in national and local government legislation, taxation, controls, regulations and political or economic developments in Canada, the United States, Australia, Chile, Peru, Argentina, Tanzania, Russia or Barbados or other countries in which we do or may carry on business in the future; business opportunities that may be presented to, or pursued by, us; our ability to successfully integrate acquisitions; operating or technical difficulties in connection with mining or development activities; the speculative nature of gold exploration and development, including the risks of obtaining necessary licenses and permits; diminishing quantities or grades of reserves; adverse changes in our credit rating; and contests over title to properties, particularly title to undeveloped properties. In addition, there are risks and hazards associated with the business of gold exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this Annual Report 2004 are qualified by these cautionary statements. Specific reference is made to Barrick’s most recent Form 40-F/Annual Information Form on file with the US Securities and Exchange Commission and Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. T39748-BAR Cover and Spine.indd 2 T39748-BAR Cover and Spine.indd 2 3/16/05 1:02:01 PM 3/16/05 1:02:01 PM FINANCIAL HIGHLIGHTS Barrick Gold Corporation Barrick is one of the world’s largest gold mining companies, with operating and development properties in the US, Canada, Australia, Peru, Chile, Argentina and Tanzania. Our vision is to be the world’s best gold mining company by ﬁ nding, developing and producing quality reserves in a proﬁ table and socially responsible manner. Barrick shares are traded on the Toronto, New York, London and Swiss stock exchanges and the Paris Bourse. Financial Highlights (in millions of US dollars, except per share data) (US GAAP basis) Gold Sales Net Income for the Year Operating Cash Flow Cash and Equivalents Shareholders’ Equity Net Income per Share (Diluted) Operating Cash Flow per Share 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 Ounce 2004 2003 2002 $1,932 $2,035 $1,967 248 506 1,398 3,563 0.46 0.95 0.22 4,958 $391 $212 $298 200 519 970 3,494 0.37 0.97 0.22 5,510 $366 $189 $279 193 588 1,044 3,334 0.36 1.09 0.22 5,695 $339 $177 $268 Reserves: Proven and Probable (thousands of ounces)2 89,056 85,952 86,927 1. See page 67 for a discussion of non-GAAP measures. 2. For the remainder of this report – for a breakdown of reserves and resources by category in respect of each of Barrick’s mines and development projects, see page 126. Contents Financial Highlights Letter to Shareholders Responsible Mining Reserves: Replacement and Growth Financial Strategy Operations Review Management’s Discussion and Analysis pg. 1 pg. 2 pg. 8 pg. 11 pg. 18 pg. 20 pg. 25 Financial Statements Notes to Financial Statements Reserves Corporate Governance and Committees of the Board Board of Directors and Officers Shareholder Information Corporate Information pg. 76 pg. 80 pg. 125 pg. 131 pg. 132 pg. 134 pg. 136 1 1 LETTER TO SHAREHOLDERS Building Mines. Building Value. We met or surpassed the goals we set for ourselves in almost every area of our business, and once again we were able to demonstrate Barrick’s leadership, both in sustainable development and in social responsibility. Dear Shareholders: By all accounts, 2004 was a successful year for Barrick and its stakeholders. Our shares outperformed gold and those of our peer group in 2004. We met or surpassed the goals we set for ourselves in almost every area of our business, and once again we were able to demonstrate Barrick’s leadership, both in sustainable development and in social responsibility. Our share price performance in 2004 reafﬁ rms what we said in last year’s letter to our shareholders: Barrick is on track, with the right people and the right strategies for the challenges and opportunities that lie ahead. We said that 2004 would be a year of transition – a year of building a new generation of mines targeted to increase our production by 40% by 2007, and drive the Company’s future growth and proﬁ tability. In 2004, four of our development projects moved from the engineering stage to construction, with three of the four expected to contribute to our production in 2005, and the fourth, Cowal, expected to pour gold in the ﬁ rst quarter of 2006. During the year, we also announced positive development decisions for two new projects, Pascua-Lama and East Archimedes. In last year’s letter, we also pledged that we would put new energy into communicating our exciting future to the investment community – and we did. 2 LETTER TO SHAREHOLDERS Challenges for the industry... The gold price was up 6% during 2004 in US dollar terms, which, for the industry as a whole, should have meant signiﬁ cantly higher proﬁ ts and cash ﬂ ow. Instead, ﬁ nancial results for the industry failed to meet expectations due to a number of challenges that impeded performance. as demand in developing countries, such as China, put upward pressure on commodity prices. These increases, combined with the currency impacts, were a key factor in the rise of gold production costs by some 15% on an industry-wide basis. The rise in the gold price over the last two years was tied very closely to the devaluation of the US dollar. As the dollar fell, the gold price appreciated. We not only expect this close inverse correlation between the two to continue, we believe the combination of soaring US deﬁ cits and the trend of decreasing mine supply will provide a strong but volatile US-dollar gold price environment over the next three to ﬁ ve years. However, other currencies, notably the South African Rand and the Canadian and Australian dollars, appreciated along with the gold price. This had the effect of negating some or all of the beneﬁ t of the higher US-dollar gold price, which meant the proﬁ tability of mines in those regions may have actually declined. There were also signiﬁ cant cost increases in energy, consumables and other commodities, Although gold prices in US dollars were up in the last two years, industry production has been steadily contracting since 2002. Investment in the gold industry had been limited until 2003, when the gold price started to climb. The lack of investment resulted in very few large, new discoveries, and these require a lead time of some 7 to 10 years before coming into production. Existing operating mines are also maturing, which usually results in lower grade, lower production and higher costs. The increase in commodity prices has spurred a boom in the mining industry. The number of new projects in the base metals industry has increased as producers expand to meet the new demand. We are all members of the same industry, and compete for the same equipment, manpower and professional staff. Shortages and higher costs are a direct result. 2002 2003 2004 2.25 2.00 1.75 1.50 1.25 1.00 South African Rand Spot Gold Australian Dollar Canadian Dollar Indexed to US Dollar ﬁ g. 1 Gold Price and Currency Movements Several currencies appreciated along with the gold price affecting proﬁ tability of mines in those regions. 3 LETTER TO SHAREHOLDERS In today’s world, there is also a continuing rise in standards to be met when developing a new mine. Local communities are naturally interested in protecting their environment and sharing in the beneﬁ ts of new mining developments. The relationship between the mining industry and the communities in which it operates is critical to the success of any new project. Obtaining and maintaining the social license to proceed with new and existing operations is more complex and sophisticated than ever. It is an ongoing challenge, and any successful mining company must be ready to meet it. ...and Barrick’s response The ultimate proof of a company’s response is in its performance. In 2004, we responded to the challenges with good results and, more importantly, we positioned ourselves for future success. Although our cash costs per ounce were up approximately 10% over 2003, the increase was within our target range, and below the industry average, because we were able to mitigate some of the inﬂ ationary and currency cost pressures through our cost management initiatives (outlined more fully later in this report). Most of the cost increase was due to a 10% decline in ounces produced, as both the Pierina and Goldstrike mines sequenced through lower grade ore during the year. Production from these two mines is expected to return to better grades in 2005, which will have a beneﬁ cial impact on costs. In spite of the cost increase, Barrick emerged as the lowest-cost producer of the senior gold mining companies in 2004 – and we expect to maintain that ranking. The inﬂ ationary pressure we experienced in 2004 is unlikely to be as severe in the coming year, as energy and commodity prices appear to have stabilized. Our quality portfolio of operating mines are mining at or near reserve grade, which means that cost pressure arising from having mined above reserve grade is not a signiﬁ cant factor for Barrick. Through our continuous improvement program, we will remain focused on managing our costs and maximizing our operating margins. Currency ﬂ uctuations remain a concern, as the outlook for the US dollar remains weak. While this is favorable for the US-dollar gold price, the beneﬁ t will only be realized if the cost of production is also US-dollar denominated. Currently, more than 70% of Barrick’s cost of production is in US dollars and this percentage will grow to above 80% as the new mines come onstream. Barrick, of course, is hedged for most of its cost of production, through the deployment of hedging instruments to protect against currency volatility in our operations whose costs are not US-dollar based. “In spite of the cost increase, Barrick emerged as the lowest-cost producer of the senior gold mining companies in 2004 – and we expect to maintain that ranking.” 4 LETTER TO SHAREHOLDERS While the industry was retrenching, Barrick had the ﬁ nancial strength to aggressively invest in exploration and acquisitions. The key to Barrick’s reserve growth is its exploration focus on assets in new prospective districts. Assets such as Veladero and Lagunas Norte have a much better chance to grow because of their unexplored potential and the large land packages involved. In 2004, our low-cost suite of development projects increased their reserves by nearly 15%. Clearly, our focus on strong land positions in some of the most prospective gold districts is paying off. In 2004, we also continued our exploration success by ﬁ nding new reserves on existing properties – for example, Goldstrike in Nevada added 2.3 million ounces to its reserves. In short, while the gold industry overall worked to ramp up exploration investment, Barrick was already reaping the rewards of having maintained its strong, consistent exploration program during the years when low gold prices led others to retrench. These ambitious plans would not be possible without the ﬁ nancial strength to execute them. Barrick is able to fund its development projects without the need to raise additional equity. We expect to be able to fund a further $1.5 billion at Pascua-Lama without the need for dilution. In the long run, the fundamental response to the challenges we face is to invest in new high- quality, efﬁ cient, low-cost production. Barrick has done just that and will soon reap the rewards of that foresight. While the industry was retrenching, Barrick had the ﬁ nancial strength to aggressively invest in exploration and acquisitions. As a result, we are well along in the construction of three new mines, which will require a total investment of about $1.2 billion. The expected average production from these new operations over their ﬁ rst three full years is 1.8 million ounces, with operating costs expected to be much lower than our current cost structure. We made outstanding headway on these new projects in 2004, having invested more than half of the capital required, and we are keen to move from development to production and optimization. Not only are we converting some 25 million ounces of reserves from our new projects into long-lived, cash ﬂ ow generating assets, we are also delivering them into a sustained period of strong gold prices. In addition, and unlike the industry as a whole, during 2004 we increased our proven and probable reserves. At year-end they stood at 89.1 million ounces, an increase of 8.6 million ounces before production depletion of 5.5 million contained ounces. 5 LETTER TO SHAREHOLDERS Barrick’s deﬁ nition of success includes more than ﬁ nancial metrics. We have always emphasized the importance of sustainable development, as this is our social license to operate mines in communities all around the globe. We strive to improve the communities in which we operate – not just through the royalties and various taxes our workforce and mines generate, but also through our focus on building strong working relationships with local communities. We operate with a high degree of transparency, and provide these communities with skills training, social beneﬁ ts, local employment and access to medical assistance. Some of the highlights in 2004 include our partnership with World Vision in Peru, and the strengthening of our relationship with Habitat for Humanity, an NGO that is constructing housing in villages surrounding the Bulyanhulu Mine in Tanzania. Because of this deep, ongoing commitment to social responsibility, our social license to operate grows stronger every year. It is our calling card, and it continues to facilitate the successful development of our projects, worldwide. We also strengthened the organization with the addition of a number of extraordinary new people – including, at the Board level, two additional independent directors. Presently, 8 of our 13 directors are independent. We shall miss the wise counsel of Jack Thompson and John Carrington. Jack, the former Chairman and CEO of Homestake, has made an invaluable contribution to our organization since the 2001 merger, while John, our former COO, steered Barrick’s operations on the global stage for a decade. We are proud of our association with these two high-quality professionals, and wish them well in their future endeavors. Finally, we remained highly focused on our people during the year, because people execute the business plan. The successful execution of that plan in 2004 reﬂ ected our ability to develop leaders, manage talent, and place the right people at every level of the organization. More than ever, Barrick is a dynamic, professional, growth- oriented organization that challenges, develops and rewards its people. During the year, we increased employees’ responsibilities and their accountability, which led to exceptional results. 6.8-7.0 12% CAGR 5.0 2004 2005 2006 2007 ﬁ g. 2 Growth Proﬁ le – Target Production 2004-2007 2004 was a year of building a new generation of mines targeted to drive Barrick’s future growth. 6 LETTER TO SHAREHOLDERS Peter Munk (left) and Gregory C. Wilkins (right). The Year Ahead Our objectives for 2005 are straightforward. > Deliver consistent growth in earnings and cash ﬂ ow. > Focus on the execution of our development projects: Lagunas Norte, Veladero, Cowal, East Archimedes, and Pascua-Lama. > Build our resource base. Reserves are the lifeblood of a mining company, and our 2005 objective is to replace and augment both our reserves and resource base. By increasing our resource base, we prepare for the growth of reserves and production in the future. > Develop employees through an organization-wide culture of improvement and leadership. > Continue to grow the business, whether through success with the drill bit, asset optimization, or acquisition. > Ensure our employees’ safety, protect the environment, and strengthen the communities in which we operate. In last year’s letter, we said that 2004 would be a year of building mines – and it was. We said our reorganization into regional business units put us on track to achieve our business plan objective – and it did. We executed the plan, and our stakeholders beneﬁ ted. Finally, we told you that 2004 would position us for rising production and proﬁ tability in 2005 and beyond. It has. Three of our new mines are expected to make a meaningful contribution to production in 2005, with the fourth coming onstream in ﬁ rst quarter 2006. Barrick will continue to meet the industry’s challenges and run counter to industry trends, by delivering strong reserve development, new low cash-cost mines, a rising production proﬁ le, and the ﬁ nancial strength needed to execute our strategies and reward our stakeholders. We have the strategies, the balance sheet, the social license and above all the people, to plan well and then execute. In 2005, all stakeholders will see a signiﬁ cant return on all the hard work and perseverance of the last few years. Peter Munk Chairman Gregory C. Wilkins President and Chief Executive Officer March 1, 2005 7 Corporate Social Responsibility Responsible Mining At Barrick, contributing long-term benefits to the communities and countries where we operate is integral to our vision of building mines and building value. Our record of outstanding performance, partnership and ethical conduct is our calling card, creating opportunities to generate shareholder value while fostering sustainable development. Our shareholders rightly expect high standards of corporate responsibility as a matter of good business practice. Community Development For Barrick, community development is a priority. We have partnered with such organizations as World Vision who are effectively working on sustainable development programs and the needs of children. Environment Environmental excellence is a strategic business objective. Reclamation proceeds concurrently with mining. At Goldstrike in Nevada, an environmental engineer inspects the growth of native plants seeded on reclaimed land that has been recontoured to blend more naturally into the surrounding landscape. Safety and Health Wherever we operate, men and women have volunteered and trained to respond to emergencies. These volunteers have become skilled at providing medical attention, ﬁ re ﬁ ghting and other response techniques. Emergency preparedness is a key element of the Barrick Safety System. 8 RESPONSIBLE MINING Corporate Social Responsibility Charter Community Development Barrick’s commitment to Corporate Social Responsibility (CSR) is realized through corporate policies and initiatives that are implemented at sites worldwide, with regional and local priorities in mind. During 2004, Barrick’s Board of Directors approved a Corporate Social Responsibility Charter, which codifies the principles and practices that have long been a priority at Barrick sites. The Charter identifies four pillars that guide Barrick in its business conduct around the world: Ethics; Employees; Community; and Environment, Health and Safety. In all these areas, the Charter sets out performance expectations that aim to establish trust with all those with whom we interact, whether they be our employees, the communities where we live and work, or our government hosts. For more information on Barrick’s Charter and Corporate Responsibility policies and programs, please see Barrick’s 2004 Responsibility Report, which is available on our website: www.barrick.com. Barrick’s mines make significant contributions to community development, such as infrastructural investment, service industry development, education, small business development and health service improvement. Sharing the benefits associated with our mining operations is no more clearly exemplified than in Peru, where 98 percent of our employees are Peruvian and where 63 percent of the construction contractors at our Lagunas Norte development project are from the local La Libertad Region. Barrick engages with local and regional community representatives to understand their concerns and interests, and then factors this input into project design and operations planning. Whether it involves road or power system improvements, development of housing or medical facilities, or obtaining mine services, Barrick gives priority to building partnerships to enhance local capacity and sustainable community development. In addition, Barrick provides training in specific trades to allow local community members to establish their own businesses, from which they can benefit well into the future. Barrick’s partnership with World Vision in Peru is one example of the Company’s commitment to partner with others to promote community development, in this particular instance with the objective of improving the welfare of area children. 9 Employee Development Environment Safety and Health Charitable Giving RESPONSIBLE MINING Employee development is a vital part of Barrick’s efforts to strengthen the organization and ensure that we have the right leaders in place at the right time. Extensive training programs have been instituted to develop the skills of employees and to advance their career potential. Barrick is committed to fair employment practices and a workplace in which all individuals are treated with dignity and respect, and are free from harassment and discrimination as codified in the Company’s Code of Business Conduct and Ethics. Across Barrick operations, all employees receive a core group of health care benefits, such as medical, dental and life insurance, that can be tailored to meet local needs. For example, at the Bulyanhulu Mine in Tanzania, Barrick provides comprehensive employee health education, with a focus on HIV/AIDS, tuberculosis and malaria. Barrick is committed to protecting the environment wherever the Company is exploring, developing, operating, or closing mines. Extensive environmental investigations precede mine planning and design. They are then followed by ongoing monitoring and regular independent audits to ensure standards are upheld and performance improvement opportunities are recognized. Throughout a mine’s lifecycle, Barrick aims to meet or surpass regulatory requirements while safeguarding the environment for local communities and future generations. Examples of the wide variety of environmental initiatives Barrick undertakes include a conservation area established to promote wildlife at our Bulyanhulu mine and a tree planting program to prevent soil erosion in the communities surrounding our Pierina mine. For Barrick, the only acceptable health and safety goal is to ensure every person goes home safe and healthy every day. The Barrick Safety and Health System draws on best practices inside and outside the Company and establishes clear roles, responsibilities and accountabilities for individuals and teams, at all levels of the organization. Personal safety behaviors and decisions by managers are key to the establishment of the required safety culture. To reinforce leadership’s role in Barrick’s safety culture, ‘Courageous Safety Leadership’ training was initiated during 2004. Barrick’s Heart of Gold Fund is another way we contribute to the communities where we work and live. Barrick’s policy is to give one percent of annual pre-tax income to charitable causes. Recipients range from community outreach programs, to hospitals and schools, arts and cultural events, and major research institutions. Whether it is direct monetary support, in-kind service, or donation of materials or equipment, Barrick works closely with community representatives to identify needs and priorities. As one of many examples, in 2004, Barrick contributed toward the establishment of a local pediatric medical facility in one of the communities near our Veladero project. The Company has committed to further assist with the purchase of medical equipment for the facility in a collaborative effort with local governments. 10 RESERVES: REPLACEMENT AND GROWTH Development Projects Laying the Groundwork for Growth Barrick’s pipeline of gold development projects has no rival for size, quality and immediacy. During 2004 we were focused on building our new mines and laying the groundwork for growth. In 2005 we will begin to deliver that growth, and the value it creates, even as we bring the remainder of the development projects onstream. Tulawaka entered production in early 2005; of the remaining five projects, two more, Lagunas Norte and Veladero, are slated to come into production in 2005 and Cowal in 2006. Production from Pascua-Lama and East Archimedes is expected to follow. These first four high-quality projects are expected to drive Barrick to a targeted 40 percent increase in gold production by 2007 (from 2004 levels) – while maintaining our position with the lowest cash costs among the senior producers. Going forward, we expect more projects in the development pipeline, for as these current projects leave the development pipeline and begin production, others are rising through the exploration pipeline – for example, Buzwagi in Tanzania, which is now undergoing a scoping study. The following pages will discuss in more detail the three projects which are currently in construction (Lagunas Norte, Peru; Veladero, Argentina; and Cowal, Australia), followed by the two projects still in permitting (Pascua-Lama, Chile/Argentina; and East Archimedes, Nevada). 11 RESERVES: REPLACEMENT AND GROWTH Lagunas Norte Located about 175 kilometers from the Pierina Mine, Lagunas Norte is expected to come onstream in third quarter 2005 and contribute on average about 800,000 ounces per year at about $155 per ounce over the ﬁ rst three full years. Description > Located in north-central Peru, about 175 kilometers from Barrick’s Pierina Mine > Oxide mineralization similar to Pierina, with high-grade gold surface outcroppings and good metallurgy > Open-pit, valley-fill crushing/leaching operation Background > Barrick announced the Lagunas Norte discovery on April 23, 2002 Current Mineralization Status > Proven and probable gold reserves of 9.1 million ounces > 1,350 square kilometer land position with good exploration potential within a 15 kilometer radius of Lagunas Norte Activities Underway > Access road/power line completed > Site preparation complete > Pre-mine stripping activities commenced in December 2004 > Leach pad was completed in first quarter 2005 > Crushing facility to be completed in second quarter 2005 Timeline > Production expected to commence third quarter 2005 Construction Cost Estimate Production Proﬁ le > Approximately $340 million > Gold production is expected to average approximately 800,000 ounces per year at an average total cash cost of about $155 per ounce1 for the first three years 1. See page 67 for a discussion of non-GAAP measures. At Lagunas Norte, a grassroots exploration discovery in 2002, production is expected to start up in third quarter 2005, contributing an average of 800,000 ounces annually for the ﬁ rst three full years. One of two 23 cubic meter hydraulic shovels. 12 RESERVES: REPLACEMENT AND GROWTH Veladero Targeted to enter production in fourth quarter 2005, Veladero has gold reserves of 12.8 million ounces and is the foundation of one of the world’s largest gold districts, Frontera, with over 30 million ounces of gold reserves. Description > Located in San Juan Province, Argentina; 6 kilometers from the Pascua-Lama project in the Frontera District > Open-pit, 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 12.8 million ounces > Access road and camp construction completed > All major mining equipment has been delivered and pre-stripping is underway > Assay lab was commissioned in October 2004 > Primary and secondary crusher circuit to be completed June 2005 > Pad loading to commence in July 2005 > Plant facilities to be completed September 2005 > Valley-fill heap leach facility to be completed September 2005 > $250 million project financing signed, $198 million drawn down at year-end 2004 Timeline > Production targeted to commence in fourth quarter 2005 Construction Cost Estimate > Approximately $540 million Production Proﬁ le > Gold production is expected to average approximately 700,000 ounces per year at an average total cash cost of about $200 per ounce1, 2 over the first full three years 1. See page 67 for a discussion of non-GAAP measures. 2. Subject to exchange rate fluctuations and applicable export duties. Mining is well underway at Veladero and production is expected to commence in the fourth quarter of 2005. The primary crusher nears completion with an initial design capacity of 40,000 tons per day. 13 RESERVES: REPLACEMENT AND GROWTH Cowal An important addition to Barrick’s Australian operations, Cowal is expected to enter production in the ﬁ rst quarter of 2006. Description > Located in Central New South Wales, Australia, 350 kilometers northwest of Sydney > Open-pit, conventional carbon-in-leach circuit Background > Acquired as part of Barrick’s merger with Homestake Mining Company in December 2001 Current Mineralization Status > Proven and probable reserves of 2.5 million ounces; measured and indicated gold resource of 1.6 million ounces Activities Underway > Major equipment has been delivered in first quarter 2005 > SAG and ball mill footings completed in first quarter 2005 – SAG mill components arrived first quarter 2005 > Mine stripping activities expected to commence in second quarter 2005 > Process plant to be completed by end of 2005 Timeline > Production targeted to commence first quarter 2006 Construction Cost Estimate > Approximately $305 million Production Proﬁ le > Gold production is expected to average approximately 230,000 ounces at an average total cash cost of about $240 per ounce1, 2 over the first three years 1. See page 67 for a discussion of non-GAAP measures. 2. Subject to exchange rate ﬂ uctuations. The primary crusher area at Cowal is excavated in preparation for construction. Production is expected in the ﬁ rst quarter of 2006. Replanting program begins with the harvesting of native seeds. 14 RESERVES: REPLACEMENT AND GROWTH Pascua-Lama Pascua-Lama is the second stage of the over 30-million-ounce Frontera District, and is expected to start construction in 2006. Description > Part of the 30-million-ounce Frontera District straddling the border of Chile and Argentina > Barrick plans to develop Pascua-Lama as part of a unified district, starting with Veladero in 2005 > Open-pit mine with flotation and Merrill-Crowe Background > Barrick acquired the Pascua property through the Lac Minerals Ltd. acquisition 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 17.6 million ounces; measured and indicated gold resource of 2.8 million ounces > Silver contained within reported gold reserves of 643 million ounces Activities Underway > Received Board of Director approval for development in July 2004 > Awaiting environmental approvals > Finalizing fiscal and taxation matters > Implementing Protocol regime > Developing sustainable development community programs Timeline > Expect to receive approvals and finalize other fiscal and taxation matters in late 2005 > Expect to begin three-year construction schedule in 2006 > Production anticipated for 2009 Construction Cost Estimate Production Proﬁ le > Approximately $1.4-$1.5 billion > Gold production is expected to average 750,000-775,000 ounces per year for the first decade at an average total cash cost of $130-$140 per ounce1, 2 (silver production is expected to average approximately 30 million ounces annually for the first ten years). On a gold equivalent basis, production is expected to be 1,190,000-1,215,000 ounces per year at $220-$230 per ounce. 1. See page 67 for a discussion of non-GAAP measures. 2. Subject to exchange rate ﬂ uctuations and applicable export duties. East Archimedes Part of the Ruby Hill Mine, East Archimedes is now in development, with permits expected by the end of 2005 and production in mid-2007. Description Background Current Mineralization Status Activities Underway > Part of the Ruby Hill Mine located in Eureka, Nevada > Open-pit heap leach operation > Acquired as part of Barrick’s merger with Homestake Mining Company in December 2001 > Adjacent to West Archimedes (Ruby Hill Mine) which was mined out as planned in 2002 > Proven and probable reserves of 1.0 million ounces > Permits expected by end of 2005 > Mobile equipment purchased > Site development and refurbishment Timeline > Production targeted to start in mid-2007 Capital Cost Estimate > Approximately $75 million 15 RESERVES: REPLACEMENT AND GROWTH Exploration Growing Our Asset Base In 2004, Barrick invested a total of $95 million on regional and mine site exploration (excluding development and business development). Of this total, regional exploration accounted for $70 million (including Goldstrike) and mine site exploration accounted for $25 million. In 2005, Barrick’s exploration budget is approximately $120 million (excluding development and business development), where about $80 million will be spent on regional exploration and about $40 million on mine site exploration. Barrick has a motivated, discovery-driven team of over 150 geoscientists exploring on approximately 100 properties in 16 countries around the world. Reserve development and replacement of production is a major priority at all our sites. The Company consistently funds its exploration programs throughout all gold cycles, and has a proven track record of finding ounces at both the greenfield and brownfield projects. Exploration is focused on highly gold-endowed districts where we control large land positions, the primary ones being the Goldstrike District in Nevada, the Frontera District in Chile/Argentina, the Alto Chicama District in northern Peru, and the Lake Victoria District in Tanzania. In addition, the Company is exploring earlier stage projects in Australia, Canada, Russia and Central Asia. Three key factors drive our exploration success: the motivation and technical excellence of our Exploration team; the policy of consistently investing in exploration; and the robust and balanced pipeline of exploration projects. The Company’s disciplined exploration strategy maximizes the chance of near-term discovery by putting the best people on the best projects and advancing the best projects more quickly up the exploration pipeline. 16 RESERVES: REPLACEMENT AND GROWTH 2004 Highlights At Goldstrike, exploration drill programs, focused on targets north and south of the Open-Pit Mine, were successful in adding both reserves and resources. A total of 2.3 million contained ounces were added to Goldstrike’s reserves. This ongoing success underlines the continuing significant contribution that Goldstrike will make to Barrick’s future. In 2005, Barrick’s single largest exploration expenditure will be in the Goldstrike District and on the North Carlin Trend. At Storm, the year’s reserve development drill program was successful, and exploration in 2005 will be focused on continuing to expand the reserve. In the Frontera District (Chile/Argentina), Barrick reactivated exploration activity in mid-2004 after a four-year hiatus resulting in the addition of about 1.75 million and 0.75 million contained ounces to reserves at Veladero and Pascua-Lama respectively. Barrick has designed an integrated program to explore this 3,000 square kilometer land package that is now under its ownership. Data compilation and ground surveys carried out in the fourth quarter generated more than 30 untested exploration targets in the area. Some are prioritized targets for drill testing early in 2005. Barrick has an extensive land holding in the Alto Chicama District in Peru. First pass reconnaissance exploration was completed over most of the ground in 2004 and three properties were drilled. An oxide resource was outlined on the Lagunas Sur property, and transferred to the Alto Chicama development team. A total of about 2.0 million contained ounces were added to reserves at Lagunas Norte. At the Buzwagi project in Tanzania, Barrick successfully extended the known mineralization along strike and down dip and more than met the objective of doubling the geological resource, adding 2.0 million contained measured and indicated resource ounces. A scoping study is planned for 2005. As well, a $5 million exploration program is designed to extend the mineralization along strike and will test other areas on the property. Over the past few years, Barrick has reduced its extensive land position to 9,000 square kilometers in the Lake Victoria Goldfields in order to focus on the prospective areas identified during the regional work. Drill programs are also planned in the Golden Ridge and Nzega West areas. Barrick is exploring properties at various stages of exploration in Russia and Central Asia. Barrick’s own exploration and development programs are complemented by strategic relationships with Celtic Resources and Highland Gold. These relationships have broadened our strategy to develop gold assets in Russia and Central Asia. We have an equity position in Celtic and have back-in rights to participate on an exclusive basis for up to 50% in any assets acquired in Kazakhstan and to certain other assets including the Nezhdaninskoye project. Barrick’s investment in Highland gives it the right to participate on an exclusive basis for up to 50% on any acquisition made by Highland Gold in Russia; it extends similar rights to Highland for any acquisition made by Barrick in certain regions in Russia, excluding among others Irkutsk. These relationships are helping Barrick familiarize itself with the region and refine project development options in a highly prospective region. 17 FINANCIAL STRATEGY Financial Strength to Support Growth “Barrick’s ‘A’ rating reﬂ ects its leading cost proﬁ le, strong pipeline of development projects, solid reserve base, conservative ﬁ nancial policy, and low geopolitical risk.” - Standard & Poor’s Rating Services, November 2004 Our financial strategy is designed to provide the Being able to finance the project under these sound foundation and resources needed to bring conditions is a reflection not only of the quality our development pipeline into production over the of the project, but also of the operational and next five years, fund one of the largest exploration financial strength of the sponsor. Barrick has the programs in the industry, and continue to grow financial capability to get our current projects our business on a global basis. This strategy, built and the flexibility to source and develop gold, coupled with our positive outlook on the gold even in difficult economic environments. price, positions us well for the future. In November, Barrick issued a total of $750 million The cornerstone of this financial strategy is of long-term debt in the US capital markets strength. With the industry’s highest-rated balance ($350 million of 10-year debt and $400 million of sheet, $1.4 billion of cash, excellent access to 30-year debt). We are building world-class mines liquidity, and growing operating cash flows, that will be in production for decades. The issuance Barrick has the ability to execute the industry’s of this long-term debt reflects the Company’s most aggressive growth plan without the need to ability to raise long-term core capital, at very issue a single share of new equity. attractive yields, consistent with the Company’s Laying the Groundwork in 2004 In 2004, Barrick was focused on groundwork for our growth program. laying the In August, we signed a $250 million, nine-year project financing for our Veladero project. While this financing was being negotiated and executed, Argentina was going through a financial crisis and facing substantial challenges in attracting new foreign strategy of building and developing these long- lived world-class properties. Risk Mitigation and Cost Control Another important element of Barrick’s financial strategy is to work with our operations and supply chain management teams to identify exposures and to implement strategies aimed at controlling risk – and, where possible, to reduce costs. direct investment. Despite this situation, Barrick was In 2004, this effort helped Barrick reduce costs in able to gain the support of key OECD governmental equipment, currencies, oil, interest rates and a host and commercial bank investors, and finance the of other areas. As a result, Barrick maintained its project on a limited recourse basis. It was the first position as the lowest cash-cost senior producer limited recourse project financing executed in in the industry. Argentina since the crisis. 18 FINANCIAL STRATEGY Gold Sales Contracts Barrick historically entered into fixed price sales specifically to the Pascua-Lama project in the fourth quarter of 2004. The allocation of these contracts as part of a gold hedging program contracts will reduce gold price risk and provide designed to manage exposure to market gold prices an acceptable return on the Pascua-Lama capital, and protect the earnings and cash flow from while representing only about one-third of current declining gold prices. Given the strength of our Pascua-Lama gold reserves (and leaving the balance sheet, we no longer need to add any new 643 million ounces of silver contained in gold gold sales contracts, and we are opportunistically reserves unhedged). reducing the remaining position. Barrick believes the long-term fundamentals for gold will remain Our remaining 7.0 million ounces of gold sales strong, and we will benefit directly in a stronger contracts (the “Corporate Gold Sales Contracts”) gold price environment – both immediately, and in represent just over one year of planned production the long term. and about 10% of non-Pascua-Lama reserves. In July 2004, we announced the decision to proceed with the Pascua-Lama project (subject to receiving required permits and clarification of the applicable fiscal regimes from the governments of Argentina 90% 10% Corporate Gold Sales Contracts Leveraged to Market Gold Prices and Chile). We expect to put in place third-party financing for up to $750 million of the expected $1.4-$1.5 billion construction cost of Pascua- Lama. In anticipation of building the mine, and in support of any related financing, we allocated 6.5 million ounces of existing gold sales contracts ﬁ g. 3 Corporate Gold Sales Position With approximately 90% of our non-Pascua-Lama reserves unhedged, Barrick has signiﬁ cant leverage to the gold price. “…although closed for routine ﬁ nancing transactions in Argentina, Ex-Im Bank is open to consider specially structured deals [like Veladero] that externalize the risk and provide reasonable assurance of repayment. It is Ex-Im Bank’s ﬁ rst project ﬁ nancing in the mining sector since 1997.” - Washington D.C.-based Export-Import Bank of the United States (Ex-Im Bank), which provided $80 million of the Veladero financing, April 2004 19 OPERATIONS REVIEW Cost Management Cost management is a strategic and collaborative process that goes beyond cost cutting. It is proactive, focuses on optimizing efﬁ ciency, and is aligned with Barrick’s long-term business plan. The Company’s cost management strategy is focused on these key areas: Supply chain management Because scale and scope are so large in mining, > Development of high-quality, low-cost projects Barrick’s ability to introduce efﬁ ciencies into > A culture of continuous improvement the supply chain signiﬁ cantly affects both its > Supply chain management proﬁ tability, and its continuing position as the > Commodity and currency price protection lowest cash-cost senior producer in the gold > Capital investment Development of high-quality projects The cost structure of a mining company is largely industry. We are enhancing our management of supply chain issues through a shift in focus from the initial price of procuring materials, services and equipment, to a focus on their true total cost. In the dependent on the quality of the assets within that long run, this approach leads to better strategic company’s portfolio. Barrick is fortunate to have purchasing decisions and lower total costs. 12 quality operating mines and enjoys the lowest cash-cost structure of the senior gold producers. The Company looks to solidify this position as it Commodity and currency price protection Inﬂ ationary pressures and exposures to exchange brings two large low-cost development projects rates can signiﬁ cantly affect the Company’s capital into production in 2005. Barrick also has three and operating costs. Barrick carefully assesses these more quality projects in the development pipeline. exposures as part of its overall cost management Continuous improvement In its quest to achieve greater operating efﬁ ciencies and lower costs, Barrick continues to work towards exercise, and will proactively implement commodity and currency hedge positions to provide protection against adverse movements in these two areas. a culture of continuous improvement in the organization. The attitude the workforce brings to Additional capital investment As Barrick looks to minimize costs and maximize each mine will dictate how effective the Company value, it is continually evaluating capital projects. is at creating value. Continuous improvement Because of its long-life asset base, Barrick is fosters an environment of collaboration and prepared to make investments today that will result knowledge-sharing, in which multidisciplinary in signiﬁ cant long-term value to the organization. teams work across time zones and geographic regions to solve common problems or to develop signiﬁ cant new opportunities. 20 OPERATIONS REVIEW Barrick’s Portfolio of Properties 2004 Performance – 2005 Prospects 2004 Performance In 2004, Barrick’s portfolio of mines met its originally stated production and cost targets. Overall, its 12 operating mines had a solid year producing 4.96 million ounces of gold at an average total cash cost of $212 per ounce1. Production in 2004 was 10% lower than the prior year as expected, primarily as a result of mining lower-grade ore at Goldstrike Open Pit, Pierina and Eskay Creek, partly offset by higher production at Bulyanhulu. For the year, seven of Barrick’s mines met or exceeded our 2004 production forecasts, with signiﬁ cant increases at Goldstrike Open Pit, Kalgoorlie and Round Mountain offsetting shortfalls at the Goldstrike Underground, Plutonic and Hemlo mines. Total cash costs for 2004 – although the lowest for all senior gold producers – were 12% higher than 2003. This was primarily a result of expected processing of lower-grade ore at Goldstrike Open Pit, Round Mountain and Pierina, combined with the effect of changes in average currency hedge rates on total cash costs at our Australian mines. At year-end 2004, proven and probable gold reserves increased to over 89 million ounces calculated at a $375 per ounce gold price. The Company’s suite of quality development projects increased their reserves by about 15%. While the Company’s overall reserves increased by approximately 4%, there was a decline in reserves at some of the older underground mines with short remaining mine lives. Silver contained in Barrick’s gold reserves at year end is 911 million ounces2 and is primarily derived from the Pascua-Lama deposit, one of the largest silver resources in the world, which contains 643 million ounces of silver. 2005 Prospects Overall for 2005, the Company anticipates producing 5.4 to 5.5 million ounces at an average total cash cost of $220-$230 per ounce as three new mines come onstream throughout the year. Tulawaka in Tanzania came into production in the ﬁ rst quarter, Lagunas Norte in Peru is expected to start contributing to production in the third quarter, followed by Veladero in Argentina in the fourth quarter. Accordingly, production and total cash costs in the second half of 2005 are expected to improve signiﬁ cantly. Construction will continue on Cowal in Australia which is anticipated to come into production in early 2006. 1. See page 67 for a discussion of non-GAAP measures. 2. See page 129 for details. 21 OPERATIONS REVIEW Operational Summary For year ending December 31 Operational Statistics Tons Mined (000s) Tons Processed (000s) Grade Processed (ounces per ton) Recovery Rate (percent) Gold Production (000s of ounces) Mineral Reserves* (000s of ounces) 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Financial Statistics Production costs per ounce Cash Operating Costs Royalties and Production Taxes Total Cash Costs Amortization Total Production Costs Capital Expenditures (millions) 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 North America Goldstrike Property Total 135,785 143,324 12,345 11,663 0.18 0.22 86.2 83.6 1,942 2,111 19,158 19,145 $231 220 18 18 $249 238 79 72 $328 310 $72 51 Barrick’s Total Production (ounces) Barrick’s Total Cash Cost (per ounce) 4,957,889 $212 Barrick’s Total Mineral Reserves (ounces) 89,056,000 22 Goldstrike Open Pit Goldstrike Underground Round Mountain Mine Eskay Creek Mine 134,212 141,693 10,779 10,041 0.15 0.19 85.1 82.0 1,381 1,559 16,188 15,685 $231 215 16 18 $247 233 61 53 $308 286 $42 23 1,573 1,631 1,566 1,622 0.40 0.39 89.7 88.3 561 552 2,970 3,460 $234 234 21 19 $255 253 120 122 $375 375 $30 28 19,743 24,563 36,963 31,470 0.02 0.02 – – 381 393 1,538 1,583 $187 150 34 23 $221 173 46 54 $267 227 $5 6 269 272 263 275 1.18 1.43 93.1 93.7 290 352 513 941 $26 48 5 4 $31 52 176 132 $207 184 $7 5 OPERATIONS REVIEW South America Africa Australia Hemlo Mine Holt- McDermott Mine Pierina Mine Bulyanhulu Mine Kalgoorlie Mine Plutonic Mine Darlot Mine Lawlers Mine 4,715 4,178 2,019 1,971 0.13 0.14 94.0 95.0 247 268 1,260 1,744 $231 218 9 8 $240 226 50 40 $290 266 $8 10 380 557 394 559 0.15 0.17 93.1 94.3 55 90 – 55 $197 239 – – $197 239 114 131 $311 370 – – 40,225 39,501 16,746 15,839 0.03 0.07 – – 646 912 2,508 2,768 $106 83 – – $106 83 165 182 $271 265 $8 17 1,118 945 1,123 980 0.35 0.36 88.4 88.1 350 314 45,459 48,677 7,142 7,171 0.07 0.07 86.6 85.8 444 436 13,722 14,180 2,662 3,010 0.13 0.12 90.0 89.9 304 334 896 876 861 879 0.17 0.18 95.8 96.9 140 155 10,596 10,907 5,181 5,894 2,512 2,646 1,048 1,135 $270 235 13 11 $283 246 99 123 $382 369 $46 36 $223 201 8 8 $231 209 44 48 $275 257 $10 14 $214 185 9 8 $223 193 34 31 $257 224 $15 44 $203 156 7 8 $210 164 53 52 $263 216 $7 7 3,365 1,152 866 806 0.13 0.13 96.1 95.8 110 99 405 402 $238 241 8 8 $246 249 53 42 $299 291 $5 14 * For reserve table see page 126. 23 OPERATIONS REVIEW Barrick’s Portfolio of Properties North America Barrick’s North America region consists of the Goldstrike, Round Mountain and Marigold mines in the US, plus the Hemlo and Eskay Creek mines in Canada. East Archimedes in Nevada is a new development project which is expected to contribute to production in mid-2007. This region contains proven and probable gold reserves representing 27% of our reserve base, or 24.3 million ounces. In 2004, North America produced 2.96 million ounces of gold at average total cash costs of $222 per ounce. At the Company’s North American operations, production is projected to decline slightly in 2005, primarily as a result of processing lower-grade ore at Eskay Creek and the depletion of reserves at Holt-McDermott in 2004. In 2005, the region is expected to produce about 2.8 million ounces at an average total cash cost of about $245 per ounce. South America South America consists of the Pierina Mine and three signiﬁ cant development projects: Lagunas Norte and Veladero, which are expected to contribute to production in the second half of 2005, and Pascua-Lama, which is expected to come onstream in 2009. (See “Development Projects”, page 11.) The region contains 47% of the Company’s overall proven and probable gold reserves, or 42.1 million ounces. The Pierina mine produced about 646,000 ounces at an average total cash cost of $106 per ounce. In 2005, South American production will increase by about 90% to about 1.2 million ounces of gold, as Lagunas Norte and Veladero commence production in the second half of the year. Total cash costs are expected to be about $133 per ounce. Australia/Africa Barrick’s Australia/Africa region consists of the Kalgoorlie, Plutonic, Darlot and Lawlers mines in Australia, and Bulyanhulu and the recently producing Tulawaka mine in Tanzania. One new development project, Cowal in Australia, is projected to commence production in early 2006. The region contains 26% of the Company’s overall proven and probable gold reserves, or 22.6 million ounces. In 2004, Australia/Africa production reached 1.35 million ounces of gold at an average total cash cost of $241 per ounce. In the Australia/Africa region for 2005, Barrick’s six operations are expecting collective production of about 1.4 million ounces of gold, at increased total cash costs of about $257 per ounce. 24 Management’s Discussion and Analysis (“MD&A”) Contents Core Business pg. 26 Overview of 2003 versus 2002 Executive Overview and 2005 Outlook pg. 26 Balance Sheet Vision and Strategy Capability to Deliver Results Impact of Key Economic Trends Results Overview of 2004 versus 2003 Consolidated Gold Production and Sales Results of Operating Segments Other Costs and Expenses Cash Flow pg. 28 pg. 29 pg. 30 pg. 35 pg. 35 pg. 36 pg. 38 pg. 45 pg. 48 Quarterly Information Off-Balance Sheet Arrangements Liquidity Canadian Supplement Critical Accounting Policies and Estimates Non-GAAP Performance Measures Cautionary Statement on Forward-Looking Information Glossary of Technical Terms pg. 49 pg. 50 pg. 52 pg. 53 pg. 57 pg. 60 pg. 60 pg. 67 pg. 71 pg. 72 This MD&A has been prepared as of February 9, 2005, and is intended to supplement and comple- ment our audited financial statements and notes thereto for the year ended December 31, 2004 prepared in accordance with United States generally accepted accounting principles, or US GAAP (col- lectively, our “Financial Statements”). As required by Canadian Securities Authorities, a reconciliation of our US GAAP Financial Statements to Canadian GAAP is included in note 25 to the Financial State- ments. You are encouraged to review our Financial Statements in conjunction with your review of this MD&A. Additional information relating to the Company, including our Annual Information Form, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For an explanation of terminology used in this MD&A that is unique to the mining industry, readers should refer to the glossary on pages 72 and 73. All dollar amounts in this MD&A are in US dollars, unless otherwise specified. Unless otherwise indicated, the financial information in this MD&A has been prepared in accordance with US GAAP. For the purposes of preparing this MD&A, we con- sider the materiality of information. Information is considered material if: (i) such information results in, and would reasonably be expected to result in, a significant change in the market price or value of Barrick Gold Corporation’s shares; or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an invest- ment decision, or if it would significantly alter the total mix of information available to investors. Materiality is evaluated by reference to all relevant circumstances, including potential market sensitivity. 25 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Core Business Barrick Gold Corporation (“Barrick”) is one of the world’s largest gold producers in terms of market capitalization, annual gold production and gold reserves. Our operations are concentrated in three regions: North America, Australia/Africa and South America. Over the next two years, after production begins at four of our development projects, we are targeting our annual gold production to grow to 6.8–7.0 mil- lion ounces, with South America contributing an increasing proportion of our production. To grow our business, we are also exploring for gold in areas of the world outside of our three regions, particularly in Russia and Central Asia. Ounces Produced by Region in 2004 27% 60% Australia/Africa North America 13% South America We generate revenue and cash flow from the production and sale of gold in both bullion and concentrate form. We sell our gold production through three primary distribution channels: gold bullion is sold in either the gold spot market or under gold sales contracts between Barrick and various third parties, and gold concentrate is sold to independent smelting companies. Selling prices reflect the market price for gold at the time an agreement is reached on pricing. Executive Overview and 2005 Outlook Our share price appreciated by 6.65% in 2004, out- performing senior gold producers Newmont Mining Corporation, Placer Dome Inc., Anglogold Ashanti Limited and Gold Fields Limited, while the spot gold price appreciated by 5.54% over the same period. In 2004, we produced 4.96 million ounces of gold at an average total cash cost of $2121 per ounce, achieving our original guidance for the year. Higher gold production at Goldstrike Open Pit, Goldstrike Underground and Pierina more than offset lower production at the Plutonic, Round Mountain, Darlot and Eskay Creek mine sites. Despite an environ- ment of rising commodity prices, appreciation of currencies against the US dollar, and increased royalty and mining tax payments driven by higher market gold prices, we met our original total cash costs per ounce guidance. Our currency and com- modity hedge programs enabled us to mitigate the impact of commodity prices and currency exchange rates on total cash costs per ounce and operating cash flow. We had earnings of $248 million ($0.46 per share) and generated operating cash flow of $506 million ($0.95 per share) in 2004. Our 2004 earnings and operating cash flow included an after-tax oppor- tunity cost of $89 million ($0.17 per share) due to the voluntary reduction of our fixed-price gold sales contracts, with deliveries into contracts at prices below the prevailing market gold price, and corresponding lower revenues from gold sales. Earnings in 2004 also included tax credits totaling $227 million relating to the resolution of a Peruvian tax assessment and a change in tax status 1. Total cash costs per ounce is a non-GAAP performance measure that is used throughout this MD&A. For more information see pages 67 to 70. 26 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS in Australia; as well as impairment charges recorded against long-lived assets of $139 million pre-tax. In 2004, we exceeded our target (of 1.5 million ounces) for reducing our fixed-price gold sales contracts with a reduction of 2 million ounces. At year-end, we had proven and probable reserves of 89.1 million ounces of gold 2, based on a $375 gold price, after producing 5.5 million contained ounces. Reserve increases in 2004 were due to exploration projects at operating mines and devel- opment projects, and a lower cut-off grade as a result of a higher gold price assumption in 2004. We continue to effectively support and shape our growth profile, including a focus on Russia and Central Asia. We made steady progress on the con- struction of four new mines, with three of them planned to enter production in 2005. Construction is proceeding on schedule for Lagunas Norte in Peru, Veladero in Argentina, Tulawaka in Tanzania, and Cowal in Australia. We are making progress in planning for our Pascua-Lama Project, which strad- dles the Chilean and Argentine border, our fifth development project, and East Archimedes which is located in Nevada, our sixth development project. We have the capital resources to fund our develop- ment projects without the need for any equity dilution. During the year, we entered into a nine- year commitment in Argentina for $250 million in Veladero project financing and completed a $750 million public debenture offering. We also continued to optimize our capital structure through a share buyback program. At the same time, we have the gold mining industry’s only A-rated balance sheet, as rated by Standard & Poor’s. During 2004, we implemented a number of initiatives to strengthen our organization, including making changes to the composition of our Board of Directors and governance practices as part of a com- mitment towards improved corporate governance. An organizational redesign was fully implemented in 2004. The new organizational design consolidated life-of-mine accountabilities under our Chief Operat- ing Officer and established regional business units to add greater value to the global enterprise. We expect 2005 gold production to be between 5.4–5.5 million ounces at an average total cash cost of $220–$230 per ounce, and we remain committed to our 40% targeted growth plan and gold pro- duction target for 2007 of 6.8–7.0 million ounces, at total cash costs slightly above $200 per ounce.3 The first and second quarters of 2005 are expected to have lower production and higher cash costs, with the second half of the year improving as Lagunas Norte and Veladero come on stream. For the year, amortization is expected to be about $475–$485 million, and administration expense is expected to be approximately $90 million, including an estimated $15 million in costs on adoption of new accounting rules that require the expensing of stock options beginning in the second half of 2005. Exploration, development and business devel- opment expense is expected to be approximately $150 million, with the possibility that positive results could lead to additional exploration spending. Capital expenditures for 2005 are anticipated to be approximately $743 million for development excluding capitalized interest of $103 million and $245 million for sustaining capital. 2. For a breakdown of reserves by category and additional information relating to reserves, see page 127 of this Annual Report. 3. See page 36 for further information on forward-looking estimates of gold production and total cash costs per ounce. 27 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Vision and Strategy Our vision is to be the world’s best gold company by finding, developing and producing quality reserves in a profitable and socially responsible manner. The overriding goal of our strategy is to create value for our shareholders. To achieve this, cash flow from our mines is consistently reinvested in exploration, development projects and other strategic investments to work towards sustainable growth in production and cash flow. It can take a number of years for a project to move from the exploration stage through to mine construction and production. Our business strategy reflects this long lead time, but shorter-term priorities are also set for current areas of focus. We use strategic relationships to share risk and exper- tise. Examples include joint venture arrangements for the Hemlo, Round Mountain and Kalgoorlie mines, and also for exploration programs in certain areas. We have investments in Highland Gold Mining PLC (“Highland Gold”) and Celtic Resources Holdings PLC (“Celtic Resources”), as well as strategic alliances with both companies, as part of our plan to develop a business unit in Russia and Central Asia. Long-term Strategy Elements Growth in reserves and production Focus Areas > Growth at existing mine sites by finding new resources and converting to reserves. Measures > Additions to reserves and resources. > Growth through successful exploration focused > Consistent investment in principally in key exploration districts (Goldstrike, Frontera, Lake Victoria, Alto Chicama) and in Russia/Central Asia. > Execute the development and construction of Veladero, Lagunas Norte, Tulawaka, Cowal, Pascua-Lama and East Archimedes. > Develop a business unit in Russia/Central Asia through investments in, and strategic alliances with Highland Gold and Celtic Resources. Operational excellence > Control costs. • Global supply chain management. • Continuous improvement initiatives. • Currency, interest rate and fuel/propane hedge programs. > Optimize productivity through continuous improvement initiatives. > Effective assessment and management of risk. > Effective capital allocation and management. > Sourcing of funding for capital needs. > Workforce – identify and develop talent. > Leadership development and succession planning. > Adopt best practices in corporate governance, including strengthening internal controls. > Reinforce health and safety culture. > Enhance environmental performance, including use of innovative technology to protect the environment. > Maintain positive community and government relations. Strengthen the organization Responsible mining exploration and development. > Growth in annual gold production. > Size of gold reserves. > Construction progress versus schedules. > Actual construction costs. > Status of regulatory requirements. > Total cash costs per ounce.1 > Amortization per ounce.1 > Ore throughput. > Equipment utilization statistics. > Liquidity – operating cash flow and credit rating. > Key balance sheet ratios. > Talent review and performance management. > Compliance with Sarbanes-Oxley Act. > Safety leadership and other training initiatives. > Medical aid injury frequency. > Environmental performance. 1. Total cash costs per ounce and amortization per ounce are non-GAAP performance measures. For more information, see pages 67 to 70. 28 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Capability to Deliver Results Resources and processes provide us with the capa- bility to execute our strategy and deliver results. Our critical resources and processes are as follows: Critical Non-Capital Resources and Processes Experienced Management Team and Skilled Workforce We have an experienced management team that has a proven track record in the mining industry. Our management team is critical to the achieve- ment of our strategic goals, and we are focused on retaining and developing key members. The team is focused on the execution of our strategy and business plan. Strong leadership and governance are critical to the successful implementation of our core strategy. We are focusing on leadership development for key members of executive-level and senior mine management. A skilled workforce is one of our most significant non-capital resources. Competition for appropriately trained and skilled employees is high in the mining industry. Employee retention, the ability to recruit skilled employees, and labor relations have a signifi- cant impact on the effectiveness of our workforce, and ultimately the efficiency and effectiveness of our operations. We maintain training programs to develop the skills that certain employees need to fulfill their roles and responsibilities. The remote nature of many mine sites can present a challenge to us in maintaining an appropriately skilled workforce. Priorities for our Human Resources group include strengthening our workforce and developing leadership and succession capabilities by focusing on attracting and retaining the best people, as well as enhancing the process for identifying and developing the leadership pool. We are implementing Human Resources systems solutions to enhance our ability to analyze and compare labor costs, produc- tivity and other key statistics to better manage the effect our workforce has on our mining operations. Health and Safety As part of our commitment to corporate responsi- bility, we focus on continuously improving health and safety programs, systems and resources to help control workplace hazards. Continuous monitoring and integration of health and safety into decision- making enables us to operate effectively, while also focusing on health and safety. Key areas of focus include safety leadership through training and risk management practices; designing and enhancing processes and programs to ensure safety require- ments are met; and communicating a safety culture as part of Company and personal core values. Environmental We are subject to extensive laws and regulations governing the protection of the environment, endangered and protected species, waste disposal and worker safety. We incur significant expenditures each year to comply with such laws and regulations. We seek to continuously implement operational improvements to enhance environmental perform- ance. We also integrate environmental evaluation, planning, and design into the development stage of new projects to ensure environmental matters are identified and managed at an early stage. Cost Control Successful cost control depends upon our ability to obtain and maintain equipment, consumables and supplies as required by our operations at competitive prices. Through a culture of continuous improvement, we are also focusing on identifying and implementing steps to make our operations more effective and efficient. Our Supply Chain group is focusing on improving long-term cost controls and sourcing strategies for major consumables and supplies used in our mining activities through global commodity purchasing teams. They are also focusing on knowledge shar- ing across our global business and implementing best practices in procurement. We are developing strategies to help us analyze and source consumables and supplies at the lowest cost over the life of a mine, as well as long-term alliances with suppliers. 29 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Maintenance is a significant component of our operating costs. Our Global Maintenance team is working to reduce maintenance costs and increase equipment utilization through an internal mainte- nance community. Key areas of focus include setting standards for maintenance to optimize usage of mine equipment and enable cost-effective purchasing of mine equipment. They are implementing a global maintenance system to facilitate sharing of best practices and tracking of capital equipment statistics such as utilization, availability and useful lives. Technology Our Information Technology group monitors signif- icant risks, such as security, the risk of failure of critical systems, risks relating to the implementation of new applications, and the potential impact of a systems failure. They are implementing strategies to manage these risks, including ongoing enhancements to security; monitoring of operating procedures; the effectiveness of system controls to safeguard data; evaluating technology resources; and main- taining disaster recovery plans. Other areas of focus include reducing technology diversity through standardizing systems solutions, and ongoing analysis of business needs and the potential benefits that can be gained from new applications. Internal Controls We maintain a system of internal controls designed to safeguard assets and ensure financial information is reliable. We undertake ongoing evaluations of the effectiveness of internal controls and implement con- trol enhancements, where appropriate, to improve the effectiveness of controls. In 2004 and 2003, we focused on the design, testing and assessment of the effectiveness of internal controls to enable us to meet the certification and attestation requirements of the Sarbanes-Oxley Act. We presently file manage- ment certifications annually under Section 302 and Section 906 and expect to comply with the reporting requirements of Section 404 as required by law. We also maintain a system of disclosure controls and procedures designed to ensure the reliability, completeness and timeliness of the information we disclose in this MD&A and other public dis- closure documents. Critical Capital Resources and Processes We expect to fund capital requirements of about $2.5 billion over the next four years to finish con- struction activities at our development projects and for a power plant to supply our Goldstrike mine. Adequate funding is in place or available for all our development projects. We plan to put in place project financing for a portion of the expected construction cost of Pascua-Lama, however, if we are unable to do so because of unforeseen political or other challenges, we expect to be able to fund the capital required through a combination of existing capital resources and future operating cash flow. We may also invest capital in Russia and Central Asia in 2005 to exercise certain rights we hold through agreements with Highland Gold and Celtic Resources to acquire interests in various mineral properties, and also to acquire future com- mon shares of Celtic. These rights are described in note 10 to the Financial Statements. We expect that any capital required will be funded from a combination of our existing cash position and operating cash flow in 2005. Impact of Key Economic Trends 1. Higher Market Gold Prices Gold Prices (Dollars per Ounce) $500 $450 $400 $350 $300 $250 2002 Average Spot Price Average Barrick Realized Price 2003 2004 30 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Market gold prices are subject to volatile price movements over short periods of time, and are affected by numerous industry and macroeconomic factors that are beyond our control. The US dollar gold price has increased over the past few years, mainly due to the weakening of the US dollar against most major currencies, a decline in gold supply and an increase in demand for gold. The gold price over the last few years has had a high correlation with the US dollar, and we expect this correlation to continue. With global financial markets experiencing signifi- cant volatility, political and security issues in a state of uncertainty, and with the US dollar – the “secure investment of choice” globally – coming under pressure, the global investment community has re- awakened to the potential for gold as an alternative investment vehicle. The past few years have seen a resurgence in gold as an investment vehicle, and we believe the prospects for gold to experience further investment interest are good, particularly in light of expected global economic/political uncertainties going forward. We believe that the introduction of more readily accessible and more liquid gold investment vehicles (such as gold exchange traded funds – “ETFs”) will further enhance gold’s appeal to investors. Our revenues are significantly impacted by the market price of gold. We have historically used fixed-price gold sales contracts to provide pro- tection in periods of low market gold prices, but since 2001 we have been focusing on reducing the level of outstanding fixed-price gold sales contracts. In 2004, we reduced our fixed-price gold sales contracts by 2 million ounces. The terms of our fixed-price gold sales contracts enable us to deliver gold whenever we choose over the primarily ten- year term of the contracts. Our fixed-price gold sales contracts have allowed us to benefit from higher market gold prices, while the flexibility implicit in contract terms allows us to reduce the outstanding sales contracts over time. Over the last three years, our realized gold sales prices have largely tracked the rising market gold price. Periods when our average realized price was below average market prices were primarily caused by us voluntarily choosing to deliver into gold sales contracts at prices lower than prevailing market prices to reduce outstanding gold sales contracts. We view the outlook for market gold prices to be positive due to our view of a declining US dollar and the present supply/demand fundamentals. In the future, we expect to be able to benefit from higher gold prices. The flexibility under our fixed- price gold sales contracts will enable us to deliver gold at market prices, however, if we choose to deliver a portion of our production under gold sales contracts, the prices for those deliveries may be below prevailing market prices. 2. Higher Market Silver Prices Spot Silver Prices (Dollars per Ounce) 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 2002 2003 2004 Market silver prices are subject to volatile price movements over short periods of time, and are affected by numerous industry and macroeconomic factors that are beyond our control. Market silver prices have increased since late 2003 mainly due to increasing investment and industrial demand, along with higher world economic growth in 2004. Market prices fluctuated in 2004 as higher prices caused demand from jewelry and silverware fabri- cation to decrease. An expected decline in the use of silver for photographic film due to increases in digital photography may negatively impact market prices, but this trend has been partly offset by increased demand for photographic film in developing countries. 31 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Market silver prices impact the value of silver pro- duced as a by-product at some of our mines. When the silver price increases, by-product credits increase and our total cash costs per ounce decrease. In the past, we have used silver sales contracts to sell a portion of our annual silver production, which has helped to mitigate the impact of volatility in market prices, and we may use such contracts in the future. The flexibility under our silver sales contracts allows us to benefit from higher market silver prices by choosing to deliver silver production into the silver spot market. If we choose to deliver a portion of our silver production under silver sales contracts, the prices for those deliveries may be below prevailing market prices. 3. Weakening of the US dollar Against Major Currencies AUD$ Spot and Average Monthly Hedge Rates (A$:US$ exchange rate) 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 2002 Spot Rate 2003 Average Hedge Rate 2004 CAD$ Spot and Average Monthly Hedge Rates (C$:US$ exchange rate) 0.85 0.80 0.75 0.70 0.65 0.60 The US dollar significantly depreciated against many major currencies in 2003 and 2004. The weakening of the US dollar was largely due to a record US trade deficit and low interest rates that, after taking into account inflation, provided negative real returns. As these conditions remain, and as the United States seeks to improve the competitiveness of its exports, further devaluation of the US dollar may occur. Results of our mining operations in Australia and Canada, reported in US dollars, are affected by exchange rates between the Australian and Canadian dollar and the US dollar, because a portion of our annual expenditures are based in local currencies. A weaker US dollar causes costs reported in US dollars to increase, because local currency denominated expenditures have become more expensive in US dollars. We have a currency hedge position as part of our strategy to control costs by mitigating the impact of a weaker US dollar on Canadian and Australian dollar-based expendi- tures. Over the last three years, our currency hedge position has provided benefits to us in the form of hedge gains when contract exchange rates are compared to prevailing market exchange rates as follows: 2004 – $96 million; 2003 – $58 million; 2002 – $7 million. These gains are included in our operating costs. At December 31, 2004, we had hedged local currency-based expenditures for about the next three years at average exchange rates that are more favorable than market rates in early 2005. The average rates for currency contracts designated against operating costs over the next three years are $0.64 for Australian dollar contracts and $0.72 for Canadian dollar contracts. Further details of our currency hedge position are included in note 16 to the Financial Statements. Beyond three years, most of our local currency denominated costs are subject to market currency exchange rates. If the trend of a weakening US dollar continues, we do not expect that this will significantly impact our results of 2002 Spot Rate 2003 Average Hedge Rate 2004 32 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS operations over the next three years because of the protection we have under our currency hedge posi- tion. Beyond the next three years, our results could be affected, depending upon whether we add to our currency hedge positions in the future. 4. Higher Energy Prices Crude Oil Market Price (Dollars per Barrel) $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 2002 2003 2004 Diesel Fuel and Propane Prices of commodities, such as diesel fuel and propane, are subject to volatile price movements over short periods of time and are affected by factors that are beyond our control. Annually, we consume about 1.3–1.7 million barrels of diesel fuel and 20–25 million gallons of propane at our mines. The cost of these commodities affects our costs to produce gold. Crude oil is refined into diesel fuel that is used by us at our mines. Due mainly to global supply shortages and a weakening US dollar, crude oil prices rose in 2004, with a corresponding rise in diesel fuel prices. To control costs by mitigating the impact of rising diesel fuel prices, we put in place a fuel hedge position of 2.4 million barrels, a portion of estimated future diesel fuel consumption over the next three years with an average cap price of $39 per barrel and participation to an average floor price of $29 per barrel on about half the position. In 2004, we realized benefits in the form of hedge gains totaling $4 million when contract prices were compared to market prices. If the trend of increasing diesel fuel prices continues, this could impact future gold production costs, albeit mitigated by our present fuel hedge position. We also have a propane hedge position of 29 million gallons at an average price of $0.79 per gallon, that will help to control the cost of a portion of propane consumption at our mining operations over the next two years, and mitigate the impact of volatility in propane prices. Electricity Electricity prices have risen in recent years as a result of diesel fuel price increases and natural gas demand, as well as excess demand for electricity. Annually we consume about 1.3–1.5 billion kilo- watts of electricity at our mines. Fluctuations in electricity prices or in electricity supply impact costs to produce gold. To control electricity costs, we are building a 115-megawatt natural gas-fired power plant in Nevada that will supply our Goldstrike mine, and reduce the mine’s dependence on the regulated utility in Nevada. The sourcing of elec- tricity from this power plant is expected to reduce total cash costs by an average of about $10 per ounce at Goldstrike over the remaining life of the mine, compared to recent costs of obtaining power from the regulated power utility. The plant is targeted to begin operating in fourth quarter 2005. We are also entering into long-term power supply arrangements for some mines; building powerlines to link into power grids; actively reviewing alter- native sources of supply of electricity; and looking at other options across many of our larger mines and development projects. 33 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS 5. Other Inﬂationary Cost Pressures The mining industry has been experiencing signifi- cant inflationary cost pressures with increasing costs of labor and prices of consumables such as steel, concrete and tires. The cost of consumables such as steel and concrete mainly impacts mine construction costs. The costs of tires mainly impacts cash production costs. For steel in particu- lar, world demand in excess of supply caused steel prices to increase significantly in 2004. We are directly and indirectly impacted by rising steel prices through the cost of new mine equipment and grinding media, as well as structural steel used in mine construction. We are focusing on supply chain management and continuous improvement initiatives to mitigate the impact of higher steel prices, including controlling usage and extending the life of plant and equipment, where possible. 6. Declining US dollar interest rates Interest Rate % 6.5 5.5 4.5 3.5 2.5 1.5 0.5 2002 2003 2004 1 Year Interest Rates 2 Year Interest Rates 5 Year Interest Rates US dollar interest rates have been relatively low by historic standards over the past three years due mainly to ongoing weak economic conditions; easy monetary policies; low inflation expectations; and increasing demand for low-risk investments. This lower interest-rate environment has enabled us to secure new sources of financing in 2004 at relatively attractive interest rates. Volatility in interest rates mainly affects interest receipts on our cash balances ($1,398 million outstanding at the end of 2004), and interest pay- ments on variable-rate long-term debt ($411 million outstanding at the end of 2004). Based on the rela- tive amounts of variable-rate financial assets and liabilities at the end of 2004, declining interest rates would have a negative impact on our results. In the future we expect these relative amounts to change as we invest cash in our development projects. The amount of cash balances may decrease from levels at December 31, 2004, subject to the amount of operating cash flow we generate in the future, as well as other sources of and uses for cash. In response to the volatility in interest rates, we have used interest rate swaps to alter the relative amounts of variable-rate financial assets and liabilities and to mitigate the overall impact of changes in interest rates. Management of interest-rate risk takes into account the term structure of variable-rate financial assets and liabilities. On $300 million of our cash balances, we have fixed the interest rate through 2008 at 3.3%. On our Bulyanhulu project financing, we have fixed the Libor-based rate for the remaining term of the debt at 4.45%. These interest rate swaps have provided benefits to us in the form of hedge gains, when rates under the swaps are compared to market interest rates, totaling $16 million in 2004, $13 million in 2003 and $6 million in 2002. In the future we may alter the notional amounts of interest rate swaps outstanding, as the relative amounts of variable-rate assets and liabilities change, to attempt to manage our exposure to interest rates. Interest rates have historically been correlated with forward gold prices compared to current market prices. In periods of higher interest rates, forward gold prices have generally been higher. Consequently in periods of higher interest rates we have been able to secure more favorable future prices under fixed- price gold sales contracts. 34 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Results Selected Annual Information For the years ended December 31 ($ millions, except per share and per ounce data in dollars) Gold production (’000s oz) Gold sales (’000s oz) $ millions Market gold price3 Realized gold price3 Total cash costs3,4 Amortization Net income Net income per share Basic Diluted Dividends per share Cash inflow (outflow) Operating activities Capital expenditures Financing activities Total assets Total long-term financial liabilities Gold reserves (millions of contained oz) Fixed-price gold sales contracts (millions of oz) 1. As disclosed in the 2003 Annual Report. 2. As disclosed in the second quarter 2004 report. 3. Per ounce weighted average. Targets for 20041 4,900–5,000 $ 205–215 480–490 (900)2 2004 4,958 4,936 $ 1,932 409 391 212 452 248 0.47 0.46 0.22 506 (824) 741 6,274 $ 1,707 89.1 13.5 2003 5,510 5,554 $ 2,035 363 366 189 522 200 0.37 0.37 0.22 519 (322) (266) 5,358 $ 789 85.9 15.5 2002 5,695 5,805 $ 1,967 310 339 177 519 193 0.36 0.36 0.22 588 (228) (61) 5,261 $ 819 86.9 18.1 4. For an explanation of the use of non-GAAP performance measures, refer to pages 67 to 70 of Management’s Discussion and Analysis. Overview of 2004 Versus 2003 Earnings In 2004, higher cash production costs were offset by higher gold selling prices, but earnings were impacted by lower gold sales volumes. Based on the difference between average realized gold prices and average total production costs per ounce, the impact of lower sales volumes was to decrease pre-tax earnings by about $54 million. As expected, gold production in 2004 was lower than 2003, and total cash costs per ounce were higher, mainly due to the expected mining of lower ore grades in 2004. Higher spot gold prices enabled us to realize higher selling prices for our gold production, and mitigate the impact on revenue of 11% lower sales volumes. We sold about 59% of our production into the spot market, and 41% into our gold sales contracts at prices lower than prevailing market prices. By voluntarily delivering into some of our gold sales contracts, we reduced our fixed- price gold sales contracts by 2 million ounces, and we accepted an $89 million opportunity cost, compared to delivering all of our production at market prices, with corresponding lower revenues from gold sales. 35 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Earnings in 2004 benefited from $25 million lower pre-tax interest expense, a $203 million income tax recovery, and pre-tax gains on sale of assets totaling $34 million, partly offset by pre-tax impairment charges totaling $139 million on long-lived assets. Interest expense decreased by $25 million mainly due to amounts capitalized at development projects in 2004. The $203 million income tax recovery in 2004 included a credit of $141 million following the resolution of a tax assessment in Peru, and a credit of $81 million due to a change in tax status in Australia following the adoption of certain aspects of new tax legislation. Earnings in 2003 included a $60 million post-tax non-hedge derivative gain (2004 – $9 million post-tax) and deferred tax credits totaling $62 million, partly offset by post-tax charges of $11 million on settlement of the Inmet litigation and $17 million for the cumulative effect of accounting changes. Special Items – Effect on earnings increase (decrease) ($ millions) For the years ended December 31 Pre-tax Post-Tax Pre-tax Post-Tax Pre-tax Post-Tax 2004 2003 2002 Non-hedge derivative gains (losses) Inmet litigation costs Gains on asset sales Impairment charges on long-lived assets Impairment charges on investments Changes in asset retirement obligation cost estimates Cumulative effect of accounting changes Resolution of Peruvian tax assessment Outcome of tax uncertainties Reversal of other accrued costs Deferred tax credits Change in Australian tax status Release of valuation allowances/ outcome of uncertainties Total $ 5 – 34 (139) (5) (22) – – 21 – – (106) $ 9 – 28 (96) (5) (17) – 141 15 81 5 161 $ 71 (16) 34 (5) (11) (10) (17) – – – – 46 $ 60 (11) 27 (3) (11) (10) (17) – – – 62 97 $ (6) – 8 (11) – – – – – – – (9) $ 6 – 5 (11) – – – – – – 22 22 Cash Flow Our closing cash position at the end of 2004 in- creased by $428 million to $1,398 million. Operating cash flow decreased slightly in 2004 mainly due to the lower gold sales volumes and increases in supplies inventory at our development projects, partly offset by lower payments for income taxes. Capital expenditures increased by $502 million to $824 million mainly due to construction activity at our development projects. We received $974 million from new financing put in place primarily to fund construction at our development projects; we paid dividends totaling $118 million and we spent $95 million on our share buyback program. Consolidated Gold Production and Sales Gold production and production costs By replacing gold reserves depleted by production year over year, we can maintain production levels over the long term. If depletion of reserves exceeded discoveries over the long term, then we may not be able to sustain gold production levels. Reserves can be replaced by expanding known orebodies or by locating new deposits. Once a site with gold mineralization is discovered, it may take several years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish 36 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS proven and probable reserves and to construct mining and processing facilities. Given that gold exploration is speculative in nature, some explo- ration projects may prove unsuccessful. Our financial performance is affected by our ability to achieve targets for production volumes and total cash costs. We prepare estimates of future production and total cash costs of production for our operations. These estimates are based on mine plans that reflect the expected method by which we will mine reserves at each mine, and the expected costs associated with the plans. Actual gold pro- duction and total cash costs may vary from these estimates for a number of reasons, including if the volume of ore mined and ore grade differs from estimates, which could occur because of changing mining rates; ore dilution; metallurgical and other ore characteristics; and short-term mining condi- tions that require different sequential development of ore bodies or mining in different areas of the mine. Mining rates are impacted by various risks and hazards inherent at each operation, including natural phenomena, such as inclement weather conditions, floods, and earthquakes; and unexpected labor shortages or strikes. Total cash costs per ounce are also affected by changing waste-to-ore stripping ratios, ore metallurgy that impacts gold recovery rates, labor costs, the cost of mining supplies and services, and foreign currency exchange rates. In the normal course of our operations, we attempt to man- age each of these risks to mitigate, where possible, the effect they have on our operating results. In 2004, production from our portfolio of mines was in line with plan. As expected, production in 2004 was 10% lower than in 2003 primarily as a result of mining lower-grade ore at Goldstrike Open Pit, Pierina and Eskay Creek, partly offset by higher production at Bulyanhulu. Ounces sold decreased by 11% compared to 2003, consistent with the lower production levels. As our develop- ment projects commence production beginning in 2005, we are targeting annual gold production to rise to between 6.8 and 7.0 million ounces by 2007 at total cash costs slightly above $200 per ounce. In 2005, we expect to produce about 5.4–5.5 million ounces at total cash costs of between $220 and $230 per ounce. Our Pierina and Eskay Creek mines produced about 17 million ounces of silver by-products in 2004. The incidental revenue from sales of silver is classified as a component of our reported “total cash costs per ounce” statistics, which is one of the key perform- ance measures that we use to manage our business. At December 31, 2004, the silver content in our gold reserves was about 911 million ounces. After pro- duction begins at Pascua-Lama, we expect that our annual silver production will increase significantly. Consolidated Total Cash Costs Per Ounce For the years ended December 31 (in dollars per ounce) Target for 2004 Cost of sales1 Currency hedge gains By-product credits Cash operating costs Royalties/mining taxes Total cash costs2 $ 205–215 2004 $ 248 (19) (30) 199 13 $ 212 2003 $ 210 (12) (21) 177 12 $ 189 2002 $ 191 (1) (20) 170 7 $ 177 1. At market currency exchange rates. 2. For an explanation of the use of non-GAAP performance measures, refer to pages 67 to 70 of Management’s Discussion and Analysis. 37 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Total cash costs for 2004 were in line with the orig- inal full-year guidance. As expected, total cash costs in 2004 were higher than in 2003, primarily due to processing lower-grade ore at Goldstrike Open Pit, Round Mountain and Pierina, combined with the effect of changes in average currency hedge rates on total cash costs at our Australian mines. Revenue from gold sales We realized an average selling price of $391 per ounce for our gold production in 2004, compared to $366 per ounce in 2003, when average market gold prices were lower. Our average realized price in 2004 reflects delivery of 59% of ounces sold into the spot market at market prices, and 41% into gold sales contracts at selling prices below prevailing market prices. We exceeded our target for reducing our fixed-price gold sales contracts by 0.5 million ounces in 2004, ending the year with a 2 million ounce reduction. The price realized for gold sales in 2005 and beyond will depend upon spot market conditions and the selling prices of any gold sales contracts into which we voluntarily deliver, which could be below prevailing spot market prices. Results of Operating Segments In our Financial Statements we present a measure of historical segment income that reflects gold sales at average consolidated realized gold prices, less segment operating costs and amortization of seg- ment property, plant and equipment. Our segments include: producing mines, development projects and our corporate exploration group. For each segment, factors influencing consolidated realized gold prices apply equally to the segments, and therefore the factors have not been repeated in the discussion of individual segment results. We monitor segment operating costs using “total cash costs per ounce” statistics that represent segment operating costs divided by ounces of gold sold in each period. The discussion of results for each segment focuses on this statistic in explaining changes in segment operating costs. We also discuss significant variances from prior public guidance for gold production and total cash costs per ounce statistics for each segment. Conducting mining activities in countries outside North America subjects us to various risks and uncertainties that arise from carrying on business in foreign countries including: uncertain political and economic environments; war and civil disturbances; changes in laws or fiscal policies; interpretation of foreign taxation legislation; and tax implications on repatriation of foreign earnings. We monitor these risks on an ongoing basis and mitigate their effects where possible, but events or changes in circum- stances could materially impact our results and financial condition. For development projects, we prepare estimates of capital expenditures; reserves and costs to produce reserves. We also assess the likelihood of obtaining key governmental permits, land rights and other government approvals. Estimates of capital expen- ditures are based on studies completed for each project, which also include estimates of annual pro- duction and production costs. Adverse changes in any of the key assumptions in these studies or other factors could affect estimated capital expenditures, production levels and production costs, and also the economic feasibility of a project. We take steps to mitigate potentially adverse effects of changes in assumptions or other factors. Prior to the com- mencement of production, the segment results for development projects reflect expensed mine development and mine start-up costs. North America In 2004, production was at the low end of the original guidance for the year and total cash costs were better than the original guidance for the year. Total cash costs per ounce reflected lower costs than plan at the Goldstrike Open Pit and Eskay Creek, partly offset by higher costs at Round Mountain and Hemlo. Total cash costs for the North America region in 2004 were not significantly affected by the impact of a weakening US dollar on our Canadian mines or by rising fuel prices, because we mitigated these exposures through our currency 38 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS and fuel hedge programs as part of our focus on controlling costs. The region produced 8% less gold in 2004 com- pared with 2003 mainly because of the expected mining of lower-grade ore at the Goldstrike Open Pit and Eskay Creek. Compared to 2003, total cash costs per ounce were 6% higher in 2004, as a result of the processing of lower-grade ore. In 2005, gold production from the North America region is expected to decline by 5% to about 2.8 mil- lion ounces due to the processing of lower-grade ore at Eskay Creek and following the depletion of reserves at Holt-McDermott in 2004. Total cash costs for the region are expected to increase by 10% to about $245 per ounce, mainly due to the process- ing of lower-grade ore at Round Mountain and Eskay Creek, as well as slightly higher costs at Goldstrike. Goldstrike, United States Segment income decreased by $1 million in 2004 from 2003 levels, mainly due to 14% lower gold sales volumes and 5% higher total cash costs per ounce, partly offset by 7% higher realized gold prices and 7% lower amortization expense. Gold production at the open pit was slightly higher than plan in 2004, and total cash costs per ounce were slightly lower than plan. With the planned mining of lower-grade ore in 2004, partly offset by better gold recovery rates, open-pit production was 11% lower and total cash costs per ounce were 6% higher than in 2003. Revenues decreased by 8%, with a 17% decrease in ounces sold, due to the lower gold production levels in 2004, partly offset by a 7% increase in realized gold prices. At the underground mine, production was 5% below the low end of the original range of guidance due to lower than expected availability of the Rodeo backfill raise, changes to mine sequencing, and higher maintenance costs due to unexpected repairs to electrical transformers. Total cash costs per ounce were at the high end of the original range of guidance for 2004 due to the lower production vol- umes and higher backfill haulage costs. Production was slightly higher than 2003 and total cash costs per ounce were similar to 2003, mainly due to bet- ter gold recovery rates and processing of slightly higher-grade ore in 2004. Amortization expense decreased by $11 million in 2004 mainly due to the effect of lower gold sales volumes, combined with the impact of reserve increases at the beginning of 2004 that caused a $15 million decrease in amortization expense. In 2004, the Nevada Public Utilities Commission approved our proposal to build a 115-megawatt natural gas-fired power plant in Nevada to supply our Goldstrike mine. The plant is targeted to commence operations in fourth quarter 2005. Highlights include: > The construction permit for the foundation and buried services was received in fourth quarter 2004. > Engineering work for the project is substantially complete and site preparation commenced in fourth quarter 2004. Construction of the power plant was subcontracted to a third-party contractor, and $18 million was spent on construction in 2004. > We expect to file an application for a building construction permit in first quarter 2005. > The natural gas supplier to the power plant is applying for permits to enable the construction of a short extension from an existing gas pipeline to the power plant site. Eskay Creek, Canada Segment income decreased by $13 million in 2004, mainly due to 18% lower gold sales volumes and 9% higher amortization expense, partly offset by 40% lower total cash costs per ounce and 7% higher realized gold prices. Revenues decreased by 14%, with an 18% decrease in ounces sold, due to the lower gold production levels in 2004, partly offset by a 7% increase in realized gold prices. Production for 2004 was slightly lower than plan due to lower than expected ore grades and unscheduled backfill plant maintenance. Total cash costs per ounce were better than plan, mainly due 39 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS to higher by-product credits caused by higher silver prices, partly offset by the impact of processing lower-grade ore and higher maintenance costs. Com- pared to 2003, as expected, production decreased by 18% because of a 4% decline in quantity of ore processed, and an 18% decline in ore grade. Total cash costs per ounce were 40% lower than 2003 mainly due to higher by-product credits in 2004 caused by higher silver prices, partly offset by the impact of lower ore grades. Amortization expense increased by $4 million in 2004 mainly due to the impact of downward revisions to reserve estimates in 2004 that increased amortization rates, partly offset by the effect of lower gold sales volumes. In fourth quarter 2004, the Eskay Creek mine was tested for impairment effective December 31, 2004. An impairment charge of $58 million was recorded, which is not included in the measure of segment income. For further details see page 64. Round Mountain (50% owned), United States Segment income decreased by $5 million in 2004, mainly due to 28% higher total cash costs, partly offset by 7% higher realized gold prices. Revenues increased by 6% mainly due to 7% higher realized gold prices. Production was 4% higher than the high end of the original range of guidance for 2004, but at slightly higher total cash costs per ounce. Production was positively impacted by the continuing recovery of gold from leach pads where ore was placed in prior years. Higher total cash costs per ounce were mainly due to higher royalty costs, caused by higher market gold prices, as well as higher purchase costs and consumption of both cyanide and lime. Compared to 2003, gold production was 3% lower due to an expected decline in ore grades partly off- set by an increase in quantities of ore processed. Total cash costs per ounce increased by 28% over 2003 as a result of mining lower-grade ore in 2004, higher royalties, and higher purchase costs and consumption of both cyanide and lime. Higher recovery rates of gold from leach pads in 2003 also contributed to the year on year change in total cash costs per ounce. Amortization expense decreased by $3 million mainly due to slightly lower gold sales volumes combined with the effect of reserve increases at the beginning of 2004 on amortization rates. Hemlo (50% owned), Canada Segment income decreased by $3 million in 2004, mainly due to 10% lower gold sales volumes, combined with 6% higher total cash costs per ounce, partly offset by 7% higher realized gold prices. Revenues decreased by $5 million as 10% lower gold sales volumes were partly offset by 7% higher realized gold prices. In 2004, production was 10% lower than plan and total cash costs per ounce were 13% higher than plan primarily because ground stability issues caused mining to occur in lower-grade areas of the mine. A decline in ore grades in 2004 was the primary reason for the lower gold production and higher total cash costs per ounce compared with 2003. East Archimedes, United States In September 2004, a decision was made to proceed with the East Archimedes project at the Ruby Hill mine site in Nevada. The project is an open-pit, heap leach operation exploiting the East Archimedes deposit, a deeper continuation of the ore mined previously at Ruby Hill. Construction capital is estimated at about $75 million over an expected two-year construction phase that begins once permitting is secured. The mining fleet has been ordered and permitting work is ongoing. The proj- ect has an expected life-of-mine strip ratio of 9:1 and assumes an average mining rate of 100,000 tons per day. The first gold pour is targeted for mid-2007. 40 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS South America In 2004, all production was from the Pierina mine. Lagunas Norte and Veladero are expected to begin production and contribute to the South America region’s results in the second half of 2005. In 2005, we expect production to increase by about 90% to about 1.2 million ounces, mainly due to the pro- duction start-up at Lagunas Norte and Veladero. Total cash costs are expected to increase by 25% to about $133 per ounce, mainly due to higher costs at Pierina following an increase in the stripping ratio from 60:1 to 86:1 and the impact of new production from Veladero and Lagunas Norte. The higher stripping ratio at Pierina mainly reflects the updat- ing of the mine plan to incorporate additions to reserves at the end of 2004. Pierina, Peru Segment income decreased by $15 million in 2004 mainly due to 29% lower gold sales volumes, com- bined with 28% higher total cash costs per ounce, partly offset by 7% higher realized gold prices and lower amortization rates. Revenues decreased by $81 million as 29% lower gold sales volumes were partly offset by 7% higher realized gold prices. In 2004, production was slightly higher than plan, however total cash costs per ounce were 6% higher than the upper end of the range of guidance for the year. The ability to access higher-grade ore at the mine was delayed due to a change in the mining plan to adjust for minor pit slope instability in the west pit wall. Higher fuel prices and lower by-product credits, due to lower quantities of silver contained in the ore processed in 2004, as well as processing of lower-grade ore, all contributed to higher total cash costs per ounce. Compared to 2003, produc- tion was 29% lower and total cash costs per ounce were 28% higher, due to the expected mining of lower-grade ore. Higher labor costs in 2004 also contributed to the increase in total cash costs over 2003. Amortization expense decreased by $59 million mainly due to the lower gold sales volumes, com- bined with the effect of reserve increases at the beginning of the year that lowered amortization rates and caused amortization expense to decrease in 2004 by $9 million. Lagunas Norte, Peru In 2004, the segment loss of $12 million represents expensed mine development costs prior to May 1, 2004 when the project achieved the criteria to classify mineralization as a reserve for US reporting purposes, together with $3 million of expensed mine start-up costs. In 2003, the segment loss of $29 million represented expensed mine develop- ment costs for a full year. The project remains on schedule for its first gold pour in the third quarter of 2005. The first three full years of production at Lagunas Norte are now expected to average approximately 800,000 ounces of gold annually at total cash costs of about $155 per ounce. The project’s reserves increased by 2.0 million ounces, or 28%, to 9.1 million ounces at year-end 2004. Higher gold prices have allowed us to bring more ounces into production in the first three full years, but due to the lower ore grades associated with these ounces, our total cash costs per ounce have also increased. Highlights include: > The Lagunas Norte/Alto Chicama Legal Stability Agreement between Barrick and the Peruvian Government was executed in January 2005. This agreement will provide greater certainty over the foreign exchange and fiscal administrative regime for 15 years, including real estate taxes, custom duties, VAT and excise taxes. > Construction of the overall project was about 70% complete at the end of 2004, with about 4,000 workers on-site. > Construction costs of $182 million were spent in 2004, of which $40 million relates to the purchase of the mine fleet, main auxiliary mine equipment and other mine equipment. > Approval of the Environmental Impact Statement and principal construction permit was received in first quarter 2004. > Overliner material is being placed on the leach pad. > The power line was completed and energized in January 2005. 41 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Veladero, Argentina In 2004, the segment loss of $5 million represents expensed mine start-up costs. In 2003, the segment loss of $18 million represented expensed mine development costs prior to October 1, 2003 when the project achieved the criteria to classify mineral- ization as a reserve for US reporting purposes. The project remains on schedule for its first gold pour in the fourth quarter of 2005. The first three full years of production at Veladero are now expected to average approximately 700,000 ounces of gold annually at total cash costs of about $2001 per ounce. The project’s reserves increased by 1.7 million ounces, or 16%, to 12.8 million ounces at year-end 2004. Higher gold prices have allowed us to bring more ounces into production in the first three full years, but due to the lower ore grades associated with these ounces, our total cash costs per ounce have also increased. During 2004, we revised our construction capital estimate upwards to about $540 million from our previous estimate of $475 million due to a number of factors including: increases in prices for commodities, such as fuel, concrete and steel; exchange rate variations; higher labor costs; increased winter operations costs; and some preliminary changes to the scope of the project. Estimated future total cash costs are also being affected by similar cost pressures. We are evaluating a number of alternatives to control the cost increases, which may require some additional capital investment. Highlights include: > Construction costs of $284 million were spent in 2004 and the project is about 65% complete. > Internal mine road construction is complete. > Work on the truck shop facility was complete in December 2004. > Steel erection on the secondary crusher is progressing on schedule and the main crusher components have been installed. Construction of the other plant facilities is well advanced. > The assay lab was commissioned in fourth quarter 2004. > Construction of the valley-fill heap leach facility embankment began in 2004 and was complete in February 2005. > Pre-stripping activities have steadily improved in fourth quarter 2004 due to improvements in equipment availability, blasting techniques and the use of experienced shovel operators brought in to assist with mining activities and to train others. Pascua-Lama, Chile/Argentina In 2004, we made a decision to proceed with the development of the Pascua-Lama project in Chile/ Argentina. The development is contingent on obtaining the necessary permits, approvals and fis- cal regimes. Pascua-Lama is a large, low total cash cost, long-life asset that is expected to contribute to our production, cash flow and earnings for many years. We believe that few undeveloped gold deposits exist in the world that are of comparable size and quality to Pascua-Lama. Pascua-Lama is also expected to increase our leverage to silver. Furthermore, development of the Pascua-Lama project, combined with Veladero and the large associated land holdings with regional exploration potential, presents an opportunity to develop the area as one large gold district. Annual production is estimated between 750,000- 775,000 ounces of gold and about 30 million ounces of silver over the first ten years at estimated total cash costs of about $130–1401 per ounce. The proj- ect’s gold reserves increased by 0.8 million ounces, or 5%, to 17.6 million ounces at year-end 2004. Pre-production construction costs are estimated at about $1.4–1.5 billion, excluding capitalized interest. A further $0.3 billion of capital is expected to be spent in the three years after production start- up for a plant expansion and flotation circuit to increase capacity from 33,000 to 44,000 metric tons per day. The permitting phase of the Pascua-Lama project is expected to be completed by the end of 2005. An expected three-year construction phase will begin once permitting has been completed and other fiscal and taxation matters have been finalized, with production targeted to commence in 2009. 1. Subject to exchange rate ﬂuctuations and applicable export duties. 42 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS In 2004, the segment loss of $4 million represents expensed mine start-up costs. In 2003, all project costs incurred were capitalized, resulting in no segment income or loss. We incurred capital expen- ditures of $35 million in 2004. Recent focus has been on community/government relations, permitting, protocol implementation and tax stability. A mining protocol for the project, which straddles the border of Chile and Argentina, was signed by both governments. The protocol provides the framework for resolving certain issues such as border crossings by personnel and materials. Environmental impact assessments were filed by the end of 2004 and approval is sought by the end of 2005. Australia /Africa Gold production in 2004 was slightly higher than plan mainly due to the mining of higher-grade ore at Kalgoorlie, partly offset by slightly lower produc- tion than plan at Plutonic and Bulyanhulu. Total cash costs per ounce were 3% higher than the upper end of the range of original guidance for the year mainly due to higher costs at Plutonic and Bulyanhulu. Changes in market currency exchange rates in 2004 did not significantly impact total cash costs per ounce because we mitigated this exposure through our currency hedge program. In 2004, gold production was 1% higher than 2003 as higher production at Kalgoorlie and Bulyanhulu was partly offset by lower production at Plutonic. Total cash costs per ounce were 14% higher than 2003 mainly because of the processing of lower- grade ore at Plutonic, combined with the effect of increases in average Australian dollar currency hedge rates. The average rates of currency hedge contracts vary year on year, which impacts reported total cash costs per ounce. The average exchange rate of hedge contracts in 2004 was $0.58 compared to $0.55 in 2003, which caused total cash costs per ounce to increase slightly in 2004. In 2005, production from the Australia/Africa region is expected to increase by 7% to about 1.4 million ounces, mainly due to the production start-up at Tulawaka in first quarter 2005. Total cash costs per ounce are expected to increase by 7% to about $257 per ounce, mainly due to a 5% increase in the average exchange rate of Australian currency hedge contracts designated for 2005, but the average exchange rate remains significantly better than current spot exchange rates. Kalgoorlie (50% owned), Australia Segment income increased by $10 million in 2004, mainly due to the combined effect of 12% higher gold sales volumes and 7% higher realized gold prices, partly offset by 11% higher total cash costs per ounce. Production was higher than plan in 2004 due to better-than-expected ore grades and gold recovery rates. Total cash costs per ounce were at the low end of the range of the guidance for the year as better ore grades and recovery rates were partly offset by higher than expected maintenance costs. Gold production was consistent with 2003 as ore tons processed and ore grades were similar to 2003. Total cash costs per ounce were 11% higher than 2003 primarily due to higher maintenance and labor costs, higher fuel prices, and the year on year effect of average exchange rates of currency hedge contracts. Plutonic, Australia Segment income decreased by $6 million in 2004 as 4% lower gold sales volumes, combined with 16% higher total cash costs per ounce, were partly offset by 7% higher realized gold prices. Revenues were higher in 2004 as 7% higher realized gold prices were partly offset by 4% lower gold sales volumes. Production in 2004 was slightly lower than plan and total cash costs per ounce were 14% higher than the upper end of the range of guidance for the year primarily due to the mining of greater quantities of lower-grade open-pit ore. Temporary problems with ground conditions restricted mining 43 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS of higher-grade ore in the Timor underground area for part of the year, and consequently the mine processed more open-pit ore than planned. Compared with 2003, gold production was 9% lower mainly due to a 12% decrease in ore tons processed. In 2003, ore tons processed were higher because a secondary mill was operating but this mill ceased operating in mid-2004. Total cash costs per ounce were 16% higher than 2003 mainly due to the combined effect of higher fuel, haulage and maintenance costs and the year on year effect of average rates of currency hedge contracts. Bulyanhulu, Tanzania Segment income was $6 million higher in 2004 as 14% higher gold sales volumes, combined with 7% higher realized gold prices, were partly offset by 15% higher total cash costs per ounce. Revenues were 24% higher in 2004 reflecting the higher gold sales volumes and realized gold prices. Gold production in 2004 was slightly lower than plan and total cash costs per ounce were 9% higher than the upper end of the range of guidance for the year. Both production and total cash costs per ounce were impacted by higher ore dilution, which caused an 8% decline in the grade of ore processed compared with plan. Compared with 2003, gold production was 12% higher mainly due to a 15% increase in the tons of ore processed due to improved mill performance. Total cash costs per ounce were 15% higher than 2003 due to higher costs of mine site administration and underground maintenance, partly offset by higher copper by- product credits due to higher market copper prices. Cowal, Australia In 2004, the segment loss of $1 million represents expensed mine start-up costs. In 2003, all project costs incurred were capitalized, resulting in no seg- ment income or loss. The Cowal project in Australia is progressing well and production is expected to commence in first quarter 2006. The first full three years of produc- tion at Cowal are expected to be approximately 230,000 ounces of gold annually at total cash costs of about $2401 per ounce. During 2004, we revised our construction capital estimate up to approximately $305 million due to factors including increases in commodity and consumable prices, and the very competitive construction labor market in Australia. Expected total cash costs per ounce are also being affected by similar cost pressures. Highlights include: > Capital expenditures were $73 million, slightly higher than plan as expenditures, originally expected to occur in 2006, were brought forward to 2005 to realize construction efficiencies. > The pipeline for water supply is complete. > Bulk excavation for the primary crusher is substantially complete. > Drilling of pit dewatering bores is complete and the design of additional bores for water supply is underway. > Purchase orders have been placed for major mining equipment items. > The construction contract for the electricity transmission line was awarded to a contractor. The contractor started construction on permitted sections in early 2005 and the timing of completion of the entire line is dependent upon receipt of the remaining permits. > Earthworks is progressing with the northern tailings facility 80% complete and the tailings return pipeline substantially complete. > The principal authorizations necessary for construction of Cowal have been obtained or are in process, with the additional required sectoral permits expected in due course. Tulawaka (70% owned), Tanzania In 2004, development costs were capitalized from January 1, 2004, when the project achieved the criteria to classify mineralization as a reserve for US reporting purposes, resulting in no segment income or loss. In 2003, all mine development costs were expensed as incurred. The Tulawaka project is on schedule for its first gold pour in first quarter 2005. Our economic share under the terms of the joint venture of the 1. Subject to exchange rate ﬂuctuations. 44 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS first full three years of production at Tulawaka is expected to average about 90,000 ounces of gold annually at total cash costs of approximately $180 per ounce. Highlights include: > Construction capital of $48 million (100% basis) was spent in 2004. > Earthworks and site preparation were near completion at the end of 2004. > The mining contract has been awarded to an external contractor. > Process plant construction is well underway with the completion of power plant installation and commissioning, substantial completion of the SAG mill, concrete and structured steel installation and other site infrastructure buildings. > Plant handover is expected in first quarter 2005. Other Costs and Expenses Exploration, Development and Business Development Expense For the years ended December 31 ($ millions) 2004 2003 2002 Exploration costs North America Australia/Africa South America Russia/Central Asia Other countries Mine development costs Veladero Lagunas Norte Other projects Mine start-up costs Veladero Lagunas Norte Cowal Pascua-Lama Business development/other $ 30 40 20 5 1 96 – 9 5 14 5 3 1 4 13 18 $ 141 $ 22 22 19 4 – 67 18 29 6 53 – – – – – 17 $ 137 $ 16 15 7 4 – 42 20 29 3 52 – – – – – 10 $ 104 In 2004, we spent more than both plan and the prior year on our exploration program as part of our strategy to grow our reserves. Higher activity at Goldstrike, Eskay Creek and Round Mountain led to an increase in expenditures for North America. Higher activity in Tanzania, primarily at the Buzwagi project, led to the increase in Australia/Africa. Development costs are expensed until mineraliza- tion is classified as proven and probable reserves for US reporting purposes. At Lagunas Norte, we expensed development costs until May 1, 2004, and at Veladero, we expensed development costs until October 1, 2003, which are the dates when the projects achieved the criteria to classify mineral- ization as a reserve for US reporting purposes. In 2005, we expect to spend $150 million on explo- ration, development and business development. Our exploration expense reflects our planned funding of our various exploration projects. We may spend more or less on these projects depending on the results of ongoing exploration activities, and we may also fund further exploration projects in addi- tion to the presently planned projects for 2005. 45 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Other Income Statement Variances For the years ended December 31 ($ millions, except per ounce data and percentages) 2004 2003 % change Comments Amortization Absolute amount $ 452 $ 522 (13)% 11% lower sales volumes, combined with lower amortization Per ounce (dollars)1 86 90 rates per ounce. For 2005, amortization expense will reflect an expected 8–10% increase in gold sales volumes and a further expected decline in rates per ounce. (4)% Reserve increases effective January 1, 2004 caused rates per ounce to decrease. For 2005, rates per ounce are expected to decrease to between $80 and $85 due to reserve additions at the end of 2004 and the effect of an impairment charge recorded at Eskay Creek in 2004. Administration 71 73 (3)% Severance costs of $9 million were incurred in 2003. Higher regulatory compliance costs impacted 2004. Costs in 2005 will increase due to the expensing of stock options in the second half of the year, which is estimated to add about $15 million to costs. Interest income 25 31 (19)% The decrease in 2004 is due to lower average cash balances in 2004 compared to 2003. In 2005, interest income is expected to increase due to higher expected average cash balances. Interest costs Incurred 60 49 22% The impact of new financings in second half of 2004 caused Capitalized (41) (5) an increase over 2003. Interest incurred is expected to increase to between $115 to $120 million in 2005 due to new financing put in place in 2004. 720% Higher amounts were capitalized at development projects due to construction costs capitalized in 2004, and capitalization at Pascua-Lama from July 1, 2004. In 2005, we expect to capitalize about $103 million at our development projects. Expensed 19 44 (57)% 1. For an explanation of the use of non-GAAP performance measures, refer to pages 67 to 70 of Management’s Discussion and Analysis. Other (Income) Expense For the years ended December 31 ($ millions) 2004 2003 Comments Non-hedge derivative gains $ (5) $(71) Gains in 2003 included $32 million on gold lease rate swaps (2004 – $16 million); and $18 million on currency hedge contracts that became ineffective for hedge accounting purposes. Impairment charge Eskay Creek Peruvian exploration properties Gains on asset sales Environmental remediation costs Litigation costs (Gains) losses on investments Other items 58 – See page 64. 67 (34) 43 – (1) – (34) 55 16 7 30 $ 158 23 $ (4) See page 64. Costs in 2003 relate to the settlement of the Inmet litigation. Losses in 2003 mainly related to investments under a deferred compensation plan. 46 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Income Taxes For the years ended December 31 ($ millions, except percentages) Effective income tax rates on elements of income Net income excluding elements below Deliveries into gold sales contracts1 Non-hedge derivative gains (losses) Other items Tax only items: Change in Australian tax status Outcome of tax uncertainties Release of deferred tax valuation allowances recorded in prior years Other items 2004 Effective tax rate 28% (80%) 30% 78% (180%) (313%) (11%) (25%) (451%) Income tax expense (recovery) $ 33 – (4) 6 35 (81) (141) (5) (11) $(203) Pre-tax income $ 118 (89) (5) 21 45 – – – – $ 45 2003 Effective tax rate 20% 15% 34% 21% – – (17%) (2%) 2% Income tax expense (recovery) $ 23 – 11 12 46 – – (36) (5) $ 5 Pre-tax income $ 116 – 71 35 222 – – – – $ 222 1. Impact of deliveries in a low tax-rate jurisdiction at contract prices below prevailing market prices. Our income tax expense or recovery is a function of an underlying effective tax rate applied to income plus the effect of other items that we track separately. The underlying effective rate increased to 28% in 2004 reflecting the higher market gold price environment, with an average market gold price of $409 per ounce. In 2005, we expect our underlying effective tax rate to decrease to about 22% due to a change in the geographic mix of gold production and therefore taxable income by juris- diction. As gold prices increase, this underlying tax rate also increases, reaching a high of about 25% with market gold prices at or above $475 per ounce. The underlying rate excludes deferred tax credits from changes in valuation allowances; taxes on non-hedge derivative gains and losses; and the impact of deliveries into gold sales contracts in a low tax rate jurisdiction. Deliveries into gold sales contracts in a low tax rate jurisdiction can distort the overall effective tax rate if market gold prices differ from the contract prices, but do not affect the absolute amount of income tax expense. We record deferred tax charges or credits if changes in facts or circumstances affect the estimated tax basis of assets and therefore the amount of deferred tax assets or liabilities or because of changes in val- uation allowances reflecting changing expectations in our ability to realize deferred tax assets. In 2004, we recorded a credit of $141 million on final resolu- tion of a Peruvian tax assessment in our favor. We also recorded credits of $81 million due to a change in tax status in Australia following an election that resulted in a revaluation of assets for tax purposes; and also an election to file tax returns from 2004 onwards in US dollars, rather than Australian dollars. As well, $5 million of valuation allowance was released in Australia in 2004. The interpretation of tax regulations and legislation and their application to our business is complex and subject to change. We have significant amounts of deferred tax assets, including tax loss carry forwards, and also deferred tax liabilities. Potential changes to any of these amounts, as well as our ability to realize deferred tax assets, could signif- icantly affect net income or cash flow in future periods. For more information on tax valuation allowances, see page 66. 47 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Cash Flow Cash Flow Components ($ millions) 900 700 500 300 100 –100 –300 –500 –700 –900 2004 Operating Investing Financing Cash Inflow Cash Outflow 2003 2002 Operating Activities Operating cash flow decreased by $13 million in 2004 to $506 million. The key factors that contributed to the year over year decrease are summarized in the table below. Key Factors Affecting Operating Cash Flow For the years ended December 31 ($ millions, except per ounce data) 2004 Impact on operating cash flow Comments 2003 Gold sales volumes (’000s oz) 4,936 5,554 $ 391 $ 366 Realized gold prices ($/oz) Total cash costs ($/oz)1 189 Sub-total 212 $ (109) 123 (114) (100) Refer to pages 36 to 38 for explanations of changes Income tax payments Non-cash working capital 45 141 111 34 66 (107) Cost of Inmet settlement Interest expense – 19 86 44 Effect of other factors Total 86 25 17 $ (13) in gold production and sales. Payments in 2005 are expected to be similar to 2004. Increases in inventory primarily reflect supplies required to support construction at development projects. Inventory is expected to increase again in 2005 at development projects reflecting higher ore in process and in stockpiles. Tax recoverable increased in 2004 for goods and services tax on supplies and material used in construction at development projects. Amounts are expected to be recovered after production begins. Settlement reached in 2003. Increase in amounts capitalized to development projects in 2004. 1. Total cash costs per ounce is a non-GAAP performance measure. For more information, see pages 67 to 70. 48 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Investing Activities For the years ended December 31 ($ millions) 2005E 2004 2003 $ change Comments Growth capital expenditures1 Veladero Lagunas Norte Tulawaka Cowal Pascua-Lama $ 208 $ 284 $ 68 4 1 24 9 147 3 268 93 182 48 73 35 Nevada Power Plant East Archimedes Sub-total Sustaining capital expenditures North America Australia/Africa 84 43 846 South America Other Sub-total 245 18 – 640 86 83 8 7 184 – – 106 80 115 17 4 216 $ 216 Full year of construction activity in 2004. 178 Construction started in Q2, 2004. 47 Construction started in Q1, 2004. 49 Construction started in Q1, 2004. 26 Increased development activity and capitalization of interest from Q3, 2004. 18 Construction started in Q4, 2004. – Construction expected to start in 2005. 534 6 (32) 2003 was higher due to a transition to owner mining at Plutonic that resulted in equipment purchases. (9) 3 (32) The increase in 2005 mainly reflects capital planned for 2004 at Goldstrike that was deferred into 2005, and sustaining capital at Lagunas Norte after production begins. Total $ 1,091 $ 824 $ 322 $ 502 1. Includes construction costs and capitalized interest. We plan to fund the expected capital expenditures for 2005 from a combination of our $1,398 million cash position at the end of 2004, and operating cash flow that we expect to generate in 2005. Financing Activities The most significant financing cash flows in 2004 were $974 million on issue of new long-term debt obligations, $49 million received on the exercise of employee stock options, dividend payments totaling $118 million, and $95 million spent repurchasing 4 million common shares under our share buyback program. We also made scheduled payments under our long-term debt obligations totaling $41 million in 2004. Overview of 2003 Versus 2002 Earnings Earnings in 2003 were slightly higher than in 2002. We benefited from higher spot gold prices, which enabled us to realize a $27 per ounce higher selling price for our gold production (an increase in revenue of $150 million in comparison to 2002). In a higher spot gold price environment, we pay higher royal- ties, 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, or an increase of $38 million. 49 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS As a result of the closure of five mines in 2002 on depletion of their reserves, we produced and sold 3% fewer ounces in 2003 compared to the prior year. These five closed mines generated a profit contribution, before tax, of $42 million in 2002. Excluding the closed mines, cash operating costs per ounce excluding royalties and production taxes were $7 per ounce higher in 2003, mainly due to higher costs at Goldstrike Open Pit and Bulyanhulu, which added $39 million to our cash operating costs. We invested $33 million more in exploration, mine development and business development in 2003 compared to 2002. Development costs are expensed until mineralization is classified as proven and probable reserves for US reporting purposes. In 2003, we expensed $53 million of development costs, mainly at Veladero and Lagunas Norte, compared with $52 million in 2002. A $25 million increase in exploration costs to $67 million accounts for most of the increase in exploration, development and business development expense year over year. Earnings in both 2003 and 2002 included various items that significantly impacted the comparability of our results year on year. In 2003, the major items included gains of $71 million on non-hedge derivatives and gains totaling $34 million on the sale of various assets, offset by a $19 million higher charge for reclamation and closure costs following a change in accounting policy for these types of costs. We recorded tax credits of $62 million in 2003. We released valuation allowances totaling $15 million in Argentina following the decision to begin construction at Veladero and the classification of mineralization there as a proven and probable reserve, $16 million in Australia due to higher levels of taxable income in a higher gold price environ- ment, and $21 million in North America following a corporate reorganization. In 2002, we recorded a credit of $22 million due to the outcome of various tax uncertainties. These credits were offset by valu- ation allowances against unrecognized tax losses. Cash Flow We generated $69 million less operating cash flow in 2003 compared to 2002. Excluding the $86 million settlement of the Inmet litigation, our operating cash flow would have been $17 million higher in 2003 than 2002. Higher realized gold selling prices in 2003 were partly offset by higher total cash costs per ounce and higher payments of income taxes. Both our cash expenditures for investing and financing activities increased in 2003 compared to 2002. In part, this was a result of increased capital spending with the construction start up at Veladero, as well as $154 million spent on our share buyback program. Balance Sheet Key Balance Sheet Ratios Year ended December 31 2004 2003 Non-cash working capital ($ millions)1 Net debt (cash) ($ millions)2 Net debt:equity ratio3 Current ratio4 $ 34 $ 141 $ 288 $(210) 0.08:1 (0.06:1) 3.75:1 4.68:1 1. Represents current assets, excluding cash and equivalents, less current liabilities. 2. Represents long-term debt less cash and equivalents. 3. Represents net debt divided by shareholders’ equity. 4. Represents current assets divided by current liabilities. We regularly review our capital structure with an overall goal of lowering our cost of capital, while preserving the balance sheet strength and flexibility that is important due to the cyclical nature of com- modity markets, and ensuring 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 was consistent with 50 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS this goal. In 2004, we repurchased 4 million shares at a total cost of $95 million which was in addition to repurchasing 9 million shares at a total cost of $154 million in 2003. The combined impact of new financing secured in 2004 to fund our development projects, and activity under the share buyback program in 2004, caused an increase in our net debt:equity ratio at the end of 2004. Non-cash working capital increased in 2004 mainly due to a build-up of supplies inventory at our development projects to support normal operating activities, combined with an increase in tax recover- able that relates to goods and services taxes on various elements of mine construction costs that will be recoverable after production begins. Our net cash position at the end of 2003 changed to net debt at the end of 2004 mainly because our investment in capital expenditures in 2004 exceeded operating cash flow. Shareholders’ Equity Outstanding Share Data As at February 9, 2005, 532.9 million of our com- mon shares, one special voting share and 1.4 million Exchangeable Shares not owned by Barrick (ex- changeable into 0.7 million of our common shares) were issued and outstanding. As at February 9, 2005, options to purchase 24.1 million common shares were outstanding under our option plans, as well as options to purchase 1.3 million common shares under certain option plans inherited by us in connection with prior acquisitions. For further information regarding the outstanding shares and stock options, please refer to the Financial State- ments and our 2005 Management Information Circular and Proxy Statement. Dividend Policy In each of the last three years, we paid a total cash dividend of $0.22 per share – $0.11 in mid-June and $0.11 in mid-December. The amount and timing of any dividends is within the discretion of our Board of Directors. The Board of Directors reviews the dividend policy semi-annually based on the cash requirements of our operating assets, exploration and development activities, as well as potential acquisitions, combined with our current and projected financial position. Comprehensive Income Comprehensive income consists of net income or loss, together with certain other economic gains and losses that collectively are described as “other comprehensive income”, and excluded from the income statement. In 2004, the other comprehensive loss of $15 million mainly included gains of $147 million on hedge contracts designated for future periods caused primarily by changes in currency exchange rates and fuel prices; offset by reclassification adjust- ments totaling $132 million for gains on hedge contracts designated for 2004 that were transferred to earnings in 2004; and a $32 million decrease in the fair value of investments. Included in other comprehensive income at Decem- ber 31, 2004 were unrealized pre-tax gains on currency hedge contracts totaling $321 million, based on December 31, 2004 market foreign exchange rates. The related hedge contracts are designated against operating costs and capital expenditures primarily over the next three years, and are expected to help protect against the impact of strengthening of the Australian and Canadian dollar against the US dollar. The hedge gains are expected to be recorded in earnings at the same time as the corresponding hedged operating costs and amortization of capital expenditures are also recorded in earnings. 51 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Quarterly Information ($ millions, except where indicated) 2004 2003 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Gold production (’000s oz) Gold sales (’000s oz) Gold sales Income (loss) before taxes Income tax recovery (expense) Net income Net income per share – 1,169 1,200 $ 501 (47) 203 156 1,232 1,267 $ 500 37 (5) 32 1,279 1,222 $ 454 15 19 34 1,278 1,247 $ 477 40 (14) 26 1,301 1,362 $ 536 73 4 77 1,479 1,505 $ 549 57 (22) 35 1,467 1,395 $ 491 44 15 59 1,263 1,292 $ 459 48 (2) 29 basic (dollars) 0.30 0.06 0.06 0.05 0.14 0.07 0.11 0.05 Per ounce statistics (dollars) Average spot gold price Average realized gold price Total cash costs per ounce 1 Cash inflow (outflow) from Operating activities Investing activities Financing activities 434 417 221 120 (242) 742 401 395 218 152 (219) 154 393 372 209 108 (194) (73) 408 382 199 126 (164) (82) 392 394 199 140 (156) (54) 364 365 180 187 (58) (83) 347 352 185 62 (59) (130) 352 355 194 130 (61) 1 1. For an explanation of the use of non-GAAP performance measures, refer to pages 67 to 70. Our financial results for the last eight quarters reflect the following general trends: rising spot gold prices with a corresponding rise in prices realized from gold sales; and declining gold pro- duction, sales volumes, and rising total cash costs per ounce as a number of our mines were pro- cessing lower grade ore. These historic trends are discussed elsewhere in this MD&A. The quarterly trends are consistent with explanations for annual trends over the last two years. Beginning in the second half of 2005, we expect that the historic trend in gold production, sales volumes, and total cash costs per ounce will reverse as our lower cost mines in development begin production. Net income in each quarter also reflects the timing of various special items that are presented in the table on page 36. Fourth Quarter Results Revenue for fourth quarter 2004 was $501 million on gold sales of 1.2 million ounces, compared to $536 million in revenue on gold sales of 1.36 million ounces for the prior-year quarter. During the quarter, spot gold prices averaged $434 per ounce. We real- ized an average price of $417 per ounce during the quarter compared to $394 per ounce in the prior-year quarter. For the quarter, we produced 1.17 million ounces at total cash costs of $221 per ounce compared to 1.30 million ounces at total cash costs of $199 per ounce in the prior-year quarter. Earnings for fourth quarter 2004 were $156 million ($0.29 per share) as compared to earnings of $77 million ($0.14 per share) in the prior-year quarter. This increase in earnings over the prior-year quarter reflects a $23 per ounce higher realized gold price, a $141 million tax recovery on final resolution of the Peruvian tax assessment and a $48 million deferred tax credit due to a change in tax status in Australia. These increases were partly offset by higher total cash costs, and an impairment charge for certain long-lived assets of $131 million pre-tax. 52 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Effect on earnings increase (decrease) Three months ended December 31 ($ millions) Non-hedge derivative gains Gains on asset sales Litigation costs Impairment charges on long-lived assets Impairment charges on investments Change in asset retirement obligation estimates Resolution of Peruvian tax assessment Outcome of tax uncertainties Reversal of other accrued costs Deferred tax credits Change in Australian tax status Other Total 2004 2003 Pre-tax Post-tax Pre-tax Post-tax $ 6 29 – (131) (4) (19) – 21 – – $ (98) $ 6 24 – (91) (4) (15) 141 15 48 – $ 124 $ 46 5 (16) (5) (4) (6) – – – – $ 20 $ 37 3 (11) (3) (4) (6) – – – 41 $ 57 In the quarter, we generated operating cash flow of $120 million as compared to operating cash flow of $134 million in the prior-year period. Lower oper- ating cash flow in the quarter primarily relates to the combined effect of lower gold sales volumes and higher total cash costs per ounce, partly offset by higher realized gold prices. Off-Balance Sheet Arrangements Gold Sales Contracts We have historically used gold sales contracts as a means of selling a portion of our annual gold production. The contracting parties are bullion- banking counterparties whose business includes entering into contracts to purchase gold from gold mining companies. Since 2001, we have been focusing on reducing the level of outstanding gold sales contracts. In 2004, spot market sales made up the majority of our consolidated gold sales. Allocation of Gold Sales Contracts to Support Pascua-Lama Financing and Construction In July 2004, we announced a decision to proceed with the Pascua-Lama project (“Pascua-Lama”) subject to receiving required permits and clarifi- cation of the applicable fiscal regimes from the governments of Argentina and Chile. We currently expect to put in place third-party financing for up to $750 million of the expected $1.4–$1.5 billion initial construction cost of Pascua- Lama. In anticipation of building Pascua-Lama and in support of any related financing, we allocated 6.5 million ounces of existing fixed-price gold sales contracts specifically to Pascua-Lama (the “Pascua-Lama Gold Sales Contracts”) in fourth quarter 2004. The allocation of these contracts will help reduce gold price risk at Pascua-Lama and will help secure the financing for its construction. We expect the allocation of these contracts to eliminate any requirement by lenders to add any incremental gold sales contracts in the future to support the financing of Pascua-Lama. 53 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Key Aspects of Pascua-Lama Gold Sales Contracts (as of December 31, 2004) Expected delivery dates.1 Future estimated average realizable selling price. Mark-to-market value at December 31, 2004. 2009–2017, the term of the expected financing. $372/oz.2 ($966) million.3 1. The contract termination dates are 2014–2017 in most cases, but we expect to deliver Pascua-Lama production against these contracts starting in 2009. 2. Upon delivery of production from 2009–2017, the term of expected financing. Approximate estimated value based on current market US dollar interest rates and an average lease rate assumption of 1%. 3. At a spot gold price of $436 per ounce and market interest rates. The allocation of 6.5 million ounces of gold sales contracts to Pascua-Lama involves: i) the identifica- tion of contracts, in quantities, and for terms that mitigate gold price risk for Pascua-Lama during the term of the expected financing (contracts were chosen where the existing termination dates are spread between 2009, the targeted first year of production, and 2017, the expected retirement of financing for the project); ii) the segregation of these contracts from the remaining non-Pascua- Lama gold sales contracts (the “Corporate Gold Sales contracts”); iii) the eventual settlement of proceeds from these contracts for the benefit of Pascua-Lama production. Barrick will continue to guarantee the Pascua-Lama Gold Sales Contracts, and the remaining Corporate Gold Sales Contracts. The Barrick guarantee is a critical component in allocating long-term contracts with termination dates out to 2009–2017 to support the future Pascua-Lama financing. Through allocation of these gold sales contracts to Pascua-Lama, we significantly reduce capital risk. It protects the gold price during the term of the forecasted financing, while leaving the remaining reserves fully levered to spot gold prices. The con- tracts represent just over 35% of the 17.6 million ounces of gold reserves at Pascua-Lama, and do not impact any of the 643 million ounces of silver contained in gold reserves at Pascua-Lama. These Pascua-Lama Gold Sales Contracts, while allocated to Pascua production, retain all the bene- fits of our gold sales Master Trading Agreements (MTAs) and are not subject to margining, down- grade or unilateral and discretionary “right to break” provisions. Furthermore, as part of our MTAs, these Pascua-Lama Gold Sales Contracts are not subject to any provisions regarding any final go-ahead decisions with Pascua-Lama con- struction, or any possible delay or change in the Pascua-Lama project. Corporate Gold Sales Contracts In addition to the gold sales contracts allocated against Pascua-Lama, we have Corporate Gold Sales Contracts, which at December 31, 2004 totaled 7.0 million ounces of fixed-price gold sales contracts. This represents slightly over one year of expected future gold production and approximately 10% of our proven and probable reserves, excluding Pascua-Lama. 54 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Key Aspects of Corporate Gold Sales Contracts (as of December 31, 2004) Current termination date of contracts. Average estimated realizable selling price in 2014. Mark-to-market value at December 31, 2004. 2014 in most cases. $426/oz.1 ($949) million.2 1. Approximate estimated value based on current market US dollar interest rates and an average lease rate assumption of 1%. Accelerating gold deliveries would likely lead to reduced contango that would otherwise have built up over time. Barrick may choose to settle any gold sales contract in advance of this termination date at any time, at its discretion. Historically, delivery has occurred in advance of the contractual termination date. 2. At a spot gold price of $436 per ounce, and market interest rates. We have an obligation to deliver gold by the termi- nation date (currently 2014 in most cases). However, because we typically fix the price of gold under our gold sales contracts to a date that is earlier than the termination date of the contract (referred to as the “interim price-setting date”), the actual realized price on the contract termination date depends upon the actual gold market forward premium (“contango”) between the interim price-setting date and the termination date. Therefore, the $426/oz price estimate could change over time due to a number of factors, including but not limited to: US dollar interest rates, gold lease rates, spot gold prices, and extensions of the termination date. This price, which is an average for the total Corporate Gold Sales Contract position, is not necessarily rep- resentative of the prices that may be realized each quarter for actual deliveries into gold sales contracts, in particular if we choose to settle any gold sales contract in advance of the termination date (which we have the right to do at our discretion). If we chose to accelerate gold deliveries, this would likely lead to reduced contango that would otherwise have built up over time (and therefore a lower realized price). The gold market forward premium, or contango, is typically closely correlated with the difference between US dollar interest rates and gold lease rates. An increase or decrease in US dollar interest rates would generally lead to a corresponding increase or decrease in contango, and therefore an increase or decrease in the estimated future price of the contract at the termination date. Furthermore, the greater the time period between the interim price-setting date and the termination date, the greater the sensitivity of the final realized price to US dollar interest rates. A short-term spike in gold lease rates would not have a material negative impact on us because we are not significantly exposed under our fixed-price gold sales contracts to short-term gold lease rate variations. A prolonged rise in gold lease rates could result in lower contango (or negative con- tango, i.e. “backwardation”). Gold lease rates have historically tended to be low, and any spikes short- lived, because of the large amount of gold available for lending relative to demand. In addition to the Corporate Gold Sales Contracts, we also have floating spot-price gold sales contracts under which we are committed to deliver 0.5 mil- lion ounces of gold over the next ten years at spot prices, less an average fixed-price adjustment of $52 per ounce. These floating spot-price contracts were previously fixed-price contracts, for which, under the price-setting mechanisms of the MTAs, we elected to receive a price based on the market gold spot price at the time of delivery adjusted by the difference between the spot price and the contract price at the time of such election. 55 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Fixed-price Silver Sales Contracts (as of December 31, 2004) Millions of silver ounces Current termination date of silver sales contracts Average estimated realizable selling price at 2014 termination date Mark-to-market value at December 31, 2004 12.4 2014 in most cases. $8.50/oz.1 ($14) million.2 1. Approximate estimated value based on current market US dollar interest rates and an average lease rate assumption of 1%. Accelerating silver deliveries could potentially lead to reduced contango that would otherwise have built up over time. Barrick may choose to settle any silver sales contract in advance of this termination date at any time, at its discretion. Historically, delivery has occurred in advance of the contractual termination date. 2. At a spot silver price of $6.82 per ounce. We also have floating spot-price silver sales contracts under which we are committed to deliver 12 million ounces of silver over the next ten years at spot prices, less an average fixed-price adjustment of $0.96 per ounce. These floating spot-price contracts were previously fixed-price contracts, for which, under the price-setting mechanisms of the MTAs, we elected to receive a price based on the market silver spot price at the time of delivery adjusted by the difference between the spot price and the contract price at the time of such election. Key terms of Gold and Silver Sales Contracts In all of our MTAs, which govern the terms of gold and silver sales contracts with our 19 counterparties, the following applies: > The counterparties do not have unilateral and discretionary “right to break” provisions. > There are no credit downgrade provisions. > We are not subject to any margin calls – regardless of the price of gold or silver. > We have the right to settle our gold and silver sales contracts on two days notice at any time during the life of the contracts, or keep these forward gold and silver sales contracts outstanding for up to 15 years. > At our option, we can sell gold or silver at the market price or the contract price, whichever is higher, up to the termination date of the contracts (currently 2014 in most cases). The MTAs with our counterparties do provide for early close out of certain transactions in the event of a material adverse change in our ability or that of our principal hedging subsidiary’s ability to perform our or its gold and silver delivery and other obligations under the trading agreements and related parent guarantees or a lack of gold or silver market, and for customary events of default such as covenant breaches, insolvency or bankruptcy. The principal financial covenants are: > We must maintain a minimum consolidated net worth of at least $2 billion; currently, it is $3.6 billion. The MTAs exclude unrealized mark-to-market valuations in the calculation of consolidated net worth. > We must maintain a maximum long-term debt to consolidated net worth ratio of 2:1; currently it is 0.51:1. In most cases, under the terms of the MTAs, the period over which we are required to deliver gold is extended annually by one year, or kept “evergreen”, regardless of the intended delivery dates, unless otherwise notified by the counterparty. This means that, with each year that passes, the termination date of most MTAs is extended into the future by one year. 56 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS As spot gold prices increase or decrease, the value of our gold mineral reserves and amount of poten- tial operating cash inflows generally increases or decreases. The unrealized mark-to-market loss on our fixed-price forward gold sales contracts also increases or decreases. The mark-to-market value represents the cancellation value of these contracts based on current market levels, and does not represent an immediate economic obligation for payment by us. Our obligations under the gold forward sales contracts are to deliver an agreed upon quantity of gold at a contracted price by the termination date of the contracts (currently 2014 in most cases). Gold sales contracts are not recorded on our balance sheet. The economic impact of these contracts is reflected in our Financial State- ments within gold sales based on selling prices under the contracts at the time we record revenue from the physical delivery of gold and silver under the contracts. Change in the Fair Value of Gold and Silver Sales Contracts ($ millions) Unrealized loss Gold1 Silver at January 1, 2004 $ 1,725 Impact of change in spot price2 288 (119) Contango earned in the period Impact of change in valuation inputs3 136 Mark-to-market impact of deliveries into contracts (89) $ 20 11 (1) 2 (6) Unrealized loss at December 31, 2004 $ 1,941 $ 26 1. Includes both the Pascua-Lama Gold Sales Contracts and the Corporate Gold Sales Contracts. 2. From $415 per ounce to $436 per ounce for gold, and $5.92 per ounce to $6.82 per ounce for silver. 3. Other than spot metal prices (i.e. interest rates and gold and silver lease rates). Fair Value of Derivative Positions At December 31, 2004 ($ millions) Corporate Gold Sales Contracts Pascua-Lama Gold Sales Contracts Floating Spot-Price Gold Sales Contracts Silver Sales Contracts Floating Spot-Price Silver Sales Contracts Foreign currency contracts Interest rate contracts Fuel contracts Unrealized Gain/(Loss) $ (949) (966) (26) (14) (12) 298 45 4 $(1,620) Liquidity Liquidity Management Liquidity is managed dynamically, and factors that could impact liquidity are regularly monitored. The primary factors that affect liquidity include gold production levels, realized gold sales prices, cash production costs, future capital expenditure require- ments, scheduled repayments of long-term debt obligations, our credit capacity and expected future debt market conditions. Working capital require- ments have not historically had a material effect on liquidity. Counterparties to the financial instruments and gold sales contracts that we hold do not have unilateral and discretionary rights to accelerate settlement of financial instruments or gold sales contracts, and we are not subject to any margin calls. We consider our liquidity profile to be sound, as there are no reasonably foreseeable trends, demands, commitments, events or circumstances expected to prevent us from funding the capital needed to implement our strategy. 57 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Capital Resources1 Credit rating ($ millions) 2004 2003 2002 Opening capital resource $ 1,970 $ 2,044 $ 1,733 New sources 506 Operating cash flow New financing facilities2 1,056 3,532 519 – 2,563 588 – 2,321 Allocations Growth capital3 (640) Sustaining capital4 (184) Dividends/share buyback (213) (19) Other (29) (199) (119) 70 Closing capital resources $ 2,476 $ 1,970 $ 2,044 Components of closing capital resources (106) (216) (272) 1 Cash and equivalents Unutilized credit facilities Total $ 1,398 $ 970 $ 1,044 1,078 1,000 1,000 $ 2,476 $ 1,970 $ 2,044 1. Capital resources include cash balances and sources of financing that have been arranged but not utilized. 2. Includes the $250 million Veladero financing, $750 million bond offering, and $56 million lease facility for Lagunas Norte. 3. Growth capital represents capital invested in new projects to bring new mines into production. 4. Sustaining capital represents capital required at existing mining operations. Credit ratings at December 31, 2004, from major rating agencies Standard and Poor’s Moody’s DBRS A Baa1 A Our ability to access unsecured debt markets and the related cost of debt financing is, in part, dependent upon maintaining an acceptable credit rating. A deterioration in our credit rating would not adversely affect existing debt securities or the terms of gold sales contracts, but could impact funding costs for any new debt financing. The key factors that are important to our credit rating include the following: our market capitalization; the strength of our balance sheet, including the amount of net debt and our debt-to-equity ratio; our net cash flow, including cash generated by oper- ating activities and expected capital expenditure requirements; the quantity of our gold reserves; and our geo-political risk profile. Contractual Obligations and Commitments Payments due At December 31, 2004 ($ millions) Contractual obligations Long-term debt (1) Asset retirement obligations (2) Capital leases A Operating leases Post-retirement benefits Other post-retirement benefits $ Royalty arrangements (3) Purchase obligations for supplies and consumables Power contracts (4) Capital commitments (5) Total 2005 2006 2007 2008 2009 31 35 12 16 16 2 61 11 6 314 504 $ 58 28 15 16 15 2 66 3 5 8 216 $ 580 19 12 16 16 2 66 1 1 – 713 $ 72 42 11 17 16 2 67 1 5 – 233 $ 17 35 11 5 16 2 67 – 2 – 155 2010 and thereafter $ 903 208 – 6 89 9 510 – – – 1,725 Total $ 1,661 367 61 76 168 19 837 16 19 322 3,546 A. Includes the $56 million build to suit lease facility. 58 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Contractual Obligations and Commitments (1) Long-term debt Our debt obligations do not include any subjective acceleration clauses or other clauses that enable the holder of the debt to call for early repayment, except in the event that we breach any of the terms and conditions of the debt or for other customary events of default. The Bulyanhulu and Veladero project financings are secured by assets at the Bulyanhulu Mine and Veladero project respectively. Other than this security, we are not required to post any collateral under any debt obligations. The terms of our debt obligations would not be affected by a deterioration in our credit rating. (2) Asset retirement obligations Amounts presented in the table represent the discounted future payments for the expected cost of asset retirement obligations. (3) Royalties Virtually all of the royalty arrangements give rise to obligations as we produce gold. In the event that we do not produce gold at our mining properties, we have no payment obligation to the royalty holders. The amounts disclosed are based on expected future gold production, using a $425 gold price assump- tion. The most significant royalty agreements are disclosed in note 5 to our Financial Statements. (4) Power contracts We enter into contracts to purchase power at each of our operating mines. These 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 percentage of actual consumption. These contracts extend through various dates in 2005 to 2009. In addition to the purchase obligations set out in the table, we purchase about 1 billion kilowatt- hours annually at market rates. Under the terms of the Goldstrike Power contract, we purchase power based on actual consumption; this contract has an exit fee that we will pay when we commence com- mercial operation of our Nevada Power Plant and leave the utility. (5) Capital commitments Purchase obligations for capital expenditures include only those items where binding commitments have been entered into. Commitments at the end of 2004 mainly related to construction at our development projects and also the power plant in Nevada. Capital expenditures not yet committed We expect to incur about $2.5 billion to complete the development/construction of our present devel- opment projects over the next five years (Veladero, Lagunas Norte, Tulawaka, Cowal, Pascua-Lama and East Archimedes) and the Nevada Power Plant, as well as an average of approximately $175 million per year in sustaining capital at our producing mines over the same time period. A total of $322 million of these amounts had been committed at the end of 2004, with the remainder not yet committed. Payments to maintain land tenure and mineral property rights In the normal course of business, we are required to make annual payments to maintain title to certain of our properties and to maintain our rights to mine gold at certain of our properties. If we choose to abandon a property or discontinue mining oper- ations, the payments relating to that property can be suspended, resulting in our rights to the prop- erty lapsing. The validity of mining claims can be uncertain and may be contested. Although we have attempted to acquire satisfactory title to our prop- erties, some risk exists that some titles, particularly title to undeveloped properties, may be defective. Contingencies – Litigation We are currently subject to various litigation as disclosed in note 23 to the Financial Statements, and we may be involved in disputes with other parties in the future that may result in litigation. If we are unable to resolve these disputes favorably, it may have a material adverse impact on our finan- cial condition, cash flow and results of operations. 59 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Canadian Supplement In note 25 to our Financial Statements we have provided a reconciliation between Canadian and US GAAP, including a description of the significant measurement differences affecting our balance sheet, income statement and statement of cash flow. Under Canadian GAAP we incurred a loss of $102 million ($0.19 per share) compared to income of $248 million ($0.46 per share). The principal continuing reconciling differences that affect earnings relate to the amortization of property, plant and equipment under Canadian GAAP, as well as the outcome of impairment assessments for property, plant and equipment and goodwill and the measurement of gains on sale of long-lived assets. These differences primarily arise due to differences in the carrying amounts of the assets due to differences in historic accounting for business combinations. In addition, the measure- ment of amortization under Canadian GAAP includes certain mineralization not classified as a reserve under SEC rules. We expect to see continu- ing differences in the measurement of amortization and impairment of property, plant and equipment and goodwill. In 2004, we adopted new accounting rules that require the expensing of stock options under Canadian GAAP, with retroactive restatement of prior periods. Similar rules will become effective for US GAAP in 2005, but we expect to see continuing differences due to different transition methods for these new rules between US and Canadian GAAP. Certain mine development costs are expensed under US GAAP, but capitalized for Canadian GAAP purposes. These differences exist at devel- opment projects where mineralization has not yet been classified as a reserve under SEC rules. We expect to see continuing differences in our accounting for exploration and development expen- ditures, where some expenditures qualify for capitalization under Canadian GAAP, but are expensed under US GAAP. The major expenditures in 2005 that will be affected by this difference in accounting are expenditures on our Buzwagi project, which will not qualify for capitalization under US GAAP until mineralization at the project qualifies as a reserve for US reporting purposes. Critical Accounting Policies and Estimates Management has discussed the development and selection of our critical accounting estimates with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure relating to such estimates in conjunction with its review of this MD&A. The accounting policies and methods we utilize determine how we report our financial condition and results of operations, and they may require management to make estimates or rely on assumptions about matters that are inherently uncertain. Our financial condition and results of operations are reported using accounting policies and methods prescribed by US GAAP. In certain cases, US GAAP allows accounting policies and methods to be selected from two or more alternatives, any of which might be reasonable yet result in our report- ing materially different amounts. Management exercises judgment in selecting and applying our accounting policies and methods to ensure that, while US GAAP compliant, they reflect our judgment of an appropriate manner in which to record and report our financial condition and results of operations. Accounting Policy Changes There were no changes in accounting policies in 2004 that significantly impacted our financial state- ments. As disclosed in note 2c to the Financial Statements, in 2005 we are required to adopt FAS 123R, Accounting for Stock-based Com- pensation, and we may be required to change our accounting policy for stripping costs once the Emerging Issues Task Force has completed its deliberations on EITF 04-6. 60 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Critical Accounting Estimates Certain accounting estimates have been identified as being “critical” to the presentation of our financial condition and results of operations because they require management to make particularly subjective and/or complex judgments about matters that are inherently uncertain; and there is a reasonable likelihood that materially different amounts could be reported under different conditions or using different assumptions and estimates. Critical accounting estimates include: > Reserve estimates used to measure amortization of property, plant and equipment; > Stripping ratios used to measure amortization of capitalized mining costs; > Impairment assessments of long-lived assets; > The fair value of asset retirement obligations; and > The measurement of deferred income tax assets and liabilities and assessments of the amounts of valuation allowances recorded. Reserve Estimates Used to Measure Amortization of Property, Plant and Equipment We record amortization expense based on the estimated useful economic lives of long-lived assets. The estimate that most significantly affects the measurement of amortization is quantities of proven and probable gold reserves, because we amortize a large portion of property, plant and equipment using the units-of-production method. Reserves are estimated in accordance with the prin- ciples in Industry Guide No. 7, issued by the SEC. The estimation of quantities of gold reserves is complex, requiring significant subjective assump- tions that arise from the evaluation of geological, geophysical, engineering and economic data for a given ore body. This data could change over time as a result of numerous factors, including new information gained from development activities, evolving production history and a reassessment of the viability of production under different economic conditions. Changes in data and/or assumptions could cause reserve estimates to substantially change from period to period. Because mineral reserves are estimates, there is a risk that actual gold production could differ from expected gold production from our reserves. Factors that could cause actual gold production to differ include adverse changes in gold or silver prices, which could make the reserve uneconomic to mine; and variations in actual ore grade and gold and silver recovery rates from estimates. A key trend that could reasonably impact reserve estimates is rising market gold prices. As market gold prices rise, the gold price assumption used in reserve estimation also rises. This assumption is closely related to the trailing three-year average market price. As this assumption rises, this could result in an upward revision to reserve estimates as material not previously classified as a reserve becomes economic at higher gold prices. Changes in reserve estimates are generally calculated at the end of each year and cause amortization expense to increase or decrease prospectively. In general, amortization expense is more signifi- cantly impacted by changes in reserve estimates at underground mines than open-pit mines due to the following factors: > Underground development costs incurred to access ore at underground mines are significant and amortized using the units-of-production method; and > Reserves at underground mines are often more sensitive to gold price assumptions and changes in production costs. Production costs at underground mines are impacted by factors such as dilution, which can significantly impact mining and processing costs per ounce. The mines where amortization expense is most sensitive to changes in reserve estimates are: Pierina, Goldstrike Underground, Eskay Creek and Bulyanhulu. These mines have significant carrying amounts of property, plant and equipment that are amortized using the units-of-production method and make up a significant proportion of property, plant and equipment at our operating mines. 61 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Impact of Historic Changes in Reserve Estimates on Amortization For the years ended December 31 ($ millions, except reserves in millions of contained oz) 2004 2003 Goldstrike Underground Open Pit Plutonic Eskay Creek Kalgoorlie Pierina Reserves increase (decrease)1 Amortization increase (decrease) Reserves increase (decrease)1 Amortization increase (decrease) 0.2 1.5 0.5 (0.1) 0.9 0.3 $(8) (7) (2) 4 (3) (9) 0.6 1.3 1.3 – – – $(10) (6) (4) – – – 1. Each year we updated our reserve estimates as at the end of the year as part of our normal business cycle. Reserve changes presented were calculated at the beginning of the applicable fiscal year and are in millions of contained ounces. Stripping Ratios Used to Measure Amortization of Capitalized Mining Costs Amortization of capitalized mining costs is recorded in the cost of inventory produced using a “stripping ratio”. The stripping ratio is calculated as the total tons of ore and waste that must be mined compared to recoverable proven and prob- able gold reserves. Estimates Used to Measure Amortization of Property, Plant and Equipment”. The estimated tons of ore and waste that must be mined to pro- duce reserves are calculated based on a mine plan that contemplates a design for the open pit relating to the mining of reserves. As reserve estimates change, the design of the open pit also changes, and both of these factors impact the stripping ratio. Both reserve estimates and the estimated tons of ore and waste that must be mined to produce reserves are estimates that are highly uncertain. The assumptions and uncertainty relating to reserve estimates are described on page 61 under “Reserve Changes in this ratio affect the amortization of cap- italized mining costs to inventory, and ultimately cost of sales when the inventory is sold. In general, stripping ratios are higher at open-pit mines where the ore body is deep below the surface of the earth. Impact of Historic Changes in Stripping Ratios ($ millions, except ratios) Stripping ratio used in Amortization increase (decrease)1 2005 2004 2003 2005 2004 2003 Goldstrike Open Pit Pierina 127:1 89:1 109:1 60:1 112:1 48:1 $ 5 20 $(1) 7 $ – – 1. Impact of the year on year change in the stripping ratio used to amortize capitalized mining costs. Stripping ratios are updated annually at the same time as reserve estimates are updated. At the end of 2004, the stripping ratios for Goldstrike Open-Pit and Pierina were updated to reflect the updated reserves at the end of 2004. The amount presented represents the estimated impact on annual amortiza- tion caused by these changes, based on production levels and sales volumes in 2004. 62 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Impairment Assessments of Operating Mines, Development Projects and Exploration Stage Properties We review and test the carrying amounts of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. We group assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For operating mines and development projects, all assets are included in one group. If there are indications that an impairment may have occurred, we prepare estimates of expected future cash flows for each group of assets. Expected future cash flows are based on a probability-weighted approach applied to potential outcomes. Estimates of expected future cash flow reflect: > Estimated sales proceeds from the production and sale of recoverable ounces of gold contained in proven and probable reserves; > Expected future commodity prices and currency exchange rates (considering historical and current prices, price trends and related factors). In impairment assessments conducted in 2004 we used an expected future market gold price of $400 per ounce, and an expected future market US$:A$ exchange rate of $0.70 and US$:C$ exchange rate of $0.82; > Expected future operating costs and capital expenditures to produce proven and probable gold reserves based on mine plans that assume current plant capacity, but exclude the impact of inflation; > Expected cash flows associated with value beyond proven and probable reserves, which includes the expected cash outflows required to develop and extract the value beyond proven and probable reserves; and > Environmental remediation costs excluded from the measurement of asset retirement obligations. We record a reduction of a group of assets to fair value as a charge to earnings if expected future cash flows are less than the carrying amount. We estimated fair value by discounting the expected future cash flows using a discount factor that reflects the risk-free rate of interest for a term consistent with the period of expected cash flows. Expected future cash flows are inherently uncer- tain, and could materially change over time. They are significantly affected by reserve estimates, together with economic factors such as gold and silver prices, and currency exchange rates, estimates of costs to produce reserves and future sustaining capital. The assessment and measurement of impairment excludes the impact of derivatives designated in a cash flow hedge relationship for future cash flows arising from operating mines and development projects. Because of the significant capital investment that is required at many mines, if an impairment occurs, it could materially impact earnings. Due to the long- life nature of many mines, the difference between total estimated undiscounted net cash flows and fair value can be substantial. An impairment is generally only recorded when the carrying amount of a long-lived asset exceeds the total estimated undiscounted net cash flows. Therefore, although the value of a mine may decline gradually over multiple reporting periods, the application of impairment accounting rules could lead to recogni- tion of the full amount of the decline in value in one period. Due to the highly uncertain nature of future cash flows, the determination of when to record an impairment charge can be very subjective. Management makes this determination using avail- able evidence taking into account current expecta- tions for each mining property. For acquired exploration-stage properties, the purchase price is capitalized, but post-acquisition exploration expenditures are expensed. The future economic viability of exploration stage properties largely depends upon the outcome of exploration activity, which can take a number of years to com- plete for large properties. Management monitors the results of exploration activity over time to assess whether an impairment may have occurred. 63 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS The measurement of any impairment is made more difficult because there is not an active market for exploration properties, and because it is not possi- ble to use discounted cash flow techniques due to the very limited information that is available to accurately model future cash flows. In general, if an impairment occurs at an exploration stage property, it would probably have minimal value and most of the acquisition cost may have to be written down. Impairment charges are recorded in other income/ expense and impact earnings in the year they are recorded. Prospectively, the impairment could also impact the calculation of amortization of an asset. In fourth quarter 2004, we performed detailed impairment assessments for three groups of assets: the Eskay Creek mine in North America; various exploration-stage properties in Peru; and the Cowal mine in Australia. For the Eskay Creek mine, the requirement to com- plete an impairment test was due to the following combination of factors: downward revisions to reserves in 2004; the continued weakening of the US dollar that impacts Canadian dollar operating costs measured at market rates; and upward revi- sions in asset retirement obligations at the end of 2004. On completion of this test, we concluded that the mine was impaired at the end of 2004, and we recorded a pre-tax impairment charge of $58 million. For a group of Peruvian exploration-stage proper- ties acquired as part of the Arequipa acquisition in 1996, we completed an impairment test in fourth quarter 2004 following the finalization of the exploration program for the year and based on an updated assessment of future plans for the properties. On completion of this test, we con- cluded that the properties were impaired at the end of 2004 and we recorded a pre-tax impairment charge of $67 million. For the Cowal development project, an impairment test was completed following upward revisions to estimated capital and operating costs for the project; and the continued weakening of the US dollar that impacts the amounts reported in US dollars for Australian dollar expenditures, measured at market prices. On completion of this test we concluded that the mine was not impaired at the end of 2004. We completed these impairment tests using a $400 average future gold price assumption. If a significant adverse change in the market gold price occurred that caused us to revise this price assumption down- wards, the amount by which the Eskay Creek mine is impaired could increase and the conclusion on the Cowal impairment test could change, subject to the effect of changes in other factors and assumptions. The revised gold price assumption would have no impact on the Peruvian exploration-stage properties because the properties were fully written down at the end of 2004. Fair Value of Asset Retirement Obligations (AROs) AROs arise from the acquisition, development, construction and normal operation of mining property, plant and equipment, due to government controls and regulations that protect the environ- ment on the closure and reclamation of mining properties. We record the fair value of an ARO in our Financial Statements when it is incurred and capitalize this amount as an increase in the carrying amount of the related asset. At operating mines, the effect is recorded as an adjustment to the cor- responding asset carrying amount and results in a prospective increase or decrease in amortization expense. At closed mines, the adjustment is charged directly to earnings. The fair values of AROs are measured by discount- ing the expected cash flows using a discount factor that reflects the risk-free rate of interest. We prepare estimates of the timing and amounts of expected cash flows when an ARO is incurred, which are updated to reflect changes in facts and circumstances, or if we are required to submit up- dated mine closure plans to regulatory authorities. In the future, changes in regulations or laws or enforcement could adversely affect our operations; 64 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS and any instances of noncompliance with laws or regulations that result in fines or injunctions or delays in projects, or any unforeseen environmental contamination at, or related to, our mining proper- ties could result in us suffering significant costs. We mitigate these risks through environmental and health and safety programs under which we monitor compliance with laws and regulations and take steps to reduce the risk of environmental contam- ination occurring. We maintain insurance for some environmental risks, however, for some risks coverage cannot be purchased at a reasonable cost. Our coverage may not provide full recovery for all possible causes of loss. The principal factors that can cause expected cash flows to change are: the construction of new processing facilities; changes in the quantities of material in reserves and a corre- sponding change in the life of mine plan; changing ore characteristics that ultimately impact the envi- ronment; changes in water quality that impact the extent of water treatment required; and changes in laws and regulations governing the protection of the environment. In general, as the end of the mine life becomes nearer, the reliability of expected cash flows increases, but earlier in the mine life, the estimation of an ARO is inherently more subjective. Significant judgments and estimates are made when estimating the fair value of AROs. Expected cash flows relating to AROs could occur over periods up to 40 years and the assessment of the extent of environmental remediation work is highly subjective. Considering all of these factors, the fair value of AROs can materially change over time. In 2004, we recorded charges in AROs totaling $54 million, of which $32 million was recorded as an adjustment to the corresponding asset and $22 million was recorded as a charge to earnings. The $22 million charge to earnings mainly reflects increases in the expected cost of water treatment at certain closed mines. In 2003, we recorded revisions to AROs totaling $10 million for various closed mines that were charged to earnings and mainly reflect increases in the expected cost of water treatment. AROs at December 31, 2004 ($ millions) Operating mines Closed mines Development projects Total $ 204 148 15 $ 367 At our operating mines, it is reasonably possible that circumstances could arise by the end of the mine life that will require material revisions to AROs. In particular, the extent of water treatment can have a material effect on the fair value of AROs, and the expected water quality at the end of the mine life, which is the primary driver of the extent of water treatment, can change significantly. We periodically prepare updated studies for certain mines, following which it may be necessary to adjust the fair value of AROs. At one closed mine, the principal uncertainty that could impact the fair value of an ARO is the manner in which a tailings facility will need to be remediated. In measuring the ARO, we have concluded that there are two possible methods that could be used. We have recorded the ARO using the more costly method, which we believe to be the most probable, but it is reasonably possible that a less costly method may ultimately prove to be technically feasible, in which case the ARO may decrease and any revision to the ARO would be recorded in earnings in the period of change. The period of time over which we have assumed that water quality monitoring and treatment will be required also have a significant impact on AROs at closed mines. The amount of AROs recorded reflects the expected cost taking into account the probability of particular scenarios. The difference between the upper end of the range of these assump- tions and the lower end of the range is significant, and consequently changes in these assumptions could have a material effect on the fair value of AROs and future earnings in a period of change. 65 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Deferred Tax Assets and Liabilities Measurement of Timing Differences We are periodically required to estimate the tax basis of assets and liabilities. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in our Financial Statements. Changes in deferred tax assets and liabilities gener- ally have a direct impact on earnings in the period of changes. The most significant such estimate is the tax basis of certain Australian assets following elections in 2004 under new tax regimes in Australia. These elections resulted in the revaluation of certain assets in Australia for income tax purposes. Part of the revalued tax basis of these assets was estimated based on a valuation completed for tax purposes. This valuation is under review by the Australian Tax Office (“ATO”) and the amount finally accepted by the ATO may differ from the assumption used to measure deferred tax balances at the end of 2004. Valuation Allowances Each period, we evaluate the likelihood of whether some portion or all of each deferred tax asset will not be realized. This evaluation is based on historic and future expected levels of taxable income, the pattern and timing of reversals of taxable tempo- rary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, market gold prices, production costs, quan- tities of proven and probable gold reserves, interest rates and foreign currency exchange rates. If we determine that it is more likely than not (a likeli- hood of more than 50%) that all or some portion of a deferred tax asset will not be realized, then we record a valuation allowance against the amount we do not expect to realize. Changes in valuation allowances are recorded as a component of income tax expense or recovery for each period. The most significant recent trend impacting expected levels of future taxable income and valuation allowances has been rising gold prices. A continuation of this trend could lead to the release of some of the valuation allowances recorded, with a corresponding effect on earnings in the period of release. We released valuation allowances totaling $5 million in 2004 and $62 million in 2003. In 2004, the release was as a consequence of an election to consolidate our Australian operations into one tax group. The $62 million release in 2003 was mainly a result of a corporate reorganization for tax pur- poses in North America and the impact of higher expected levels of taxable income in Australia and Argentina caused by rising market gold prices. A further continuation of the recent trend of rising gold prices could lead to the release of some portion or all of the valuation allowances in the United States and Argentina. Valuation allowances at December 31 ($ millions) United States Chile Argentina Canada Tanzania Australia Other 2004 2003 $ 189 141 75 73 89 3 8 $ 578 $ 181 146 73 72 68 8 6 $ 554 United States: most of the valuation allowances relate to the full amount of Alternative Minimum Tax credits, which have an unlimited carry-forward period. Increasing levels of future taxable income due to gold selling prices and other factors and circumstances may result in an adjustment to these valuation allowances. Chile: valuation allowances relate to the full amount of tax assets in subsidiaries that do not have any present sources of income. In the event that these subsidiaries have sources of income in the future, we may release some or all of the allowances. Argentina: a valuation allowance of $75 million has been set up against certain deferred tax assets in Argentina. Historically, we have had no income 66 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS generating operations in Argentina, but following the production start-up at Veladero in 2005, various factors will affect future levels of taxable income in Argentina, including the volume of gold produced and sold, gold selling prices and costs incurred to produce gold. It is reasonably possible that an adjustment to a $34 million portion of this valuation allowance that relates to Veladero will be made in the near term. Canada: substantially all of the valuation allowances relate to capital losses that will only be utilized if any capital gains arise. Tanzania: considering the local fiscal regime appli- cable to mining companies and expected levels of future taxable income from the Bulyanhulu mine, a valuation allowance exists against a portion of the deferred tax assets. If we conclude that expected levels of future taxable income from Bulyanhulu will be higher, we may release some or all of the valuation allowance. Non-GAAP Performance Measures For the years ended December 31 ($ millions, except per ounce information) Total cash costs – per US GAAP 1 Accretion expense and reclamation 2004 2003 $ 1,062 $ 1,065 costs at the operating mines (18) (14) Total cash costs – per Gold Institute Production Cost Standard Ounces sold (thousands) Total cash costs per ounce – per US GAAP (dollars)2 Total cash costs per ounce – $ 1,044 $ 1,051 5,554 4,936 $ 215 $ 192 per Gold Institute Production Cost Standard (dollars)2 $ 212 $ 189 1. Equal to cost of sales and other operating expenses less accretion expense and reclamation costs at non-operating mines. 2. Per ounce weighted average. We have included total cash costs per ounce data because these statistics are a key performance mea- sure that management uses to monitor performance. We use these statistics to assess how well our pro- ducing mines are performing compared to plan and also to assess the overall effectiveness and efficiency of our mining operations. We believe that the inclu- sion of these statistics in MD&A helps an investor to assess performance “through the eyes of manage- ment”. We understand that certain investors also use these statistics to assess our performance. The inclusion of total cash costs per ounce statistics enables investors to better understand year on year changes in production costs, which in turn affect profitability and the ability to generate operating cash flow for use in investing and other activities. 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 State- ments of Income and 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. A US GAAP measure of costs per ounce has also been presented as required by securities regulations that govern non-GAAP performance measures. Commentary within this Management’s Discussion and Analysis is focused on the “total cash costs” measure as defined by the Standard. The data is intended to provide additional informa- tion and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP. As can be seen from the tables on pages 68 to 70 reconciling the GAAP and non-GAAP measures, the GAAP and non-GAAP measures are not signifi- cantly different. 67 BARRICK Annual Report 2004 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)3 Goldstrike – Open pit Goldstrike – Underground Eskay Creek2 Round Mountain 2004 2003 2004 2003 2004 2003 2004 2003 $336.5 $380.6 $141.2 $152.1 $ 9.3 $ 18.6 $ 84.5 $ 67.2 (2.5) (2.5) (0.2) – (0.2) (0.3) (1.6) (1.6) $334.0 1,352 $378.1 1,625 $141.0 554 $152.1 600 $ 9.1 290 $ 18.3 354 $ 82.9 375 $ 65.6 379 $ 249 $ 234 $ 256 $ 253 $ 32 $ 53 $ 225 $ 177 Total cash costs per ounce sold – per Gold Institute Production Cost Standard (dollars)4 $ 247 $ 233 $ 255 $ 253 $ 31 $ 52 $ 221 $ 173 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)3 Hemlo Holt-McDermott Marigold Total North America 2004 2003 2004 2003 2004 2003 2004 2003 $ 57.6 $ 60.4 $ 12.3 $ 20.9 $ 9.1 $ 8.1 $650.5 $707.9 (0.2) (0.2) (0.1) (0.1) (0.1) (0.1) (4.9) (4.8) $ 57.4 239 $ 60.2 266 $ 12.2 62 $ 20.8 87 $ 9.0 46 $ 8.0 47 $645.6 2,918 $703.1 3,358 $ 241 $ 227 $ 198 $ 240 $ 198 $ 172 $ 223 $ 211 Total cash costs per ounce sold – per Gold Institute Production Cost Standard (dollars)4 $ 240 $ 226 $ 197 $ 239 $ 197 $ 171 $ 221 $ 209 1. Represents cost of sales and other operating costs (excluding amortization and accretion expense and reclamation costs for non-operating mines). 2. Eskay Creek’s total cash costs in 2004 are impacted by higher silver prices which the Company treats as a by-product. Total cash costs on a co-product basis are: 2004 – gold $202 per ounce, silver $3.36 per ounce (2003 – gold $175 per ounce, silver $2.37 per ounce). 3. Represents total cash production costs per US GAAP divided by ounces sold. 4. Represents total cash production costs per Gold Institute Production Cost Standard divided by ounces sold. 68 BARRICK Annual Report 2004 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)2 Total cash costs per ounce sold – per Gold Institute Production Cost Standard (dollars)3 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)2 Total cash costs per ounce sold – per Gold Institute Production Cost Standard (dollars)3 Pierina Total South America Plutonic Darlot 2004 2003 2004 2003 2004 2003 2004 2003 $72.2 $78.9 $ 72.2 $78.9 $ 69.2 $62.6 $ 30.0 $ 25.4 (3.5) (3.2) (3.5) (3.2) (0.1) (0.2) (0.1) (0.1) $68.7 649 $75.7 911 $ 68.7 649 $75.7 911 $ 69.1 310 $62.4 324 $ 29.9 $ 25.3 154 142 $ 111 $ 87 $ 111 $ 87 $ 223 $ 193 $ 211 $ 165 $ 106 $ 83 $ 106 $ 83 $ 223 $ 193 $ 210 $ 164 Lawlers Kalgoorlie Bulyanhulu Total Australia/Africa 2004 2003 2004 2003 2004 2003 2004 2003 $28.3 $23.8 $108.5 $88.1 $103.2 $77.1 $339.2 $277.0 (0.1) (0.1) (1.5) (1.5) (7.5) (4.1) (9.3) (6.0) $28.2 115 $23.7 95 $107.0 463 $86.6 415 $ 95.7 339 $73.0 297 $329.9 1,369 $271.0 1,285 $ 247 $ 250 $ 234 $ 212 $ 304 $ 260 $ 248 $ 216 $ 246 $ 249 $ 231 $ 209 $ 283 $ 246 $ 241 $ 210 1. Represents cost of sales and other operating costs (excluding amortization and accretion expense and reclamation costs for non-operating mines). 2. Represents total cash production costs per US GAAP divided by ounces sold. 3. Represents total cash production costs per Gold Institute Production Cost Standard divided by ounces sold. 69 BARRICK Annual Report 2004 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, plant and equipment not at operating mine sites Amortization expense for per ounce calculation Ounces sold (thousands) Amortization per ounce (dollars) 2004 $ 452 (27) $ 425 4,936 $ 86 2003 $ 522 (25) $ 497 5,554 $ 90 2002 $ 519 (26) $ 493 5,805 $ 85 70 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Cautionary Statement on Forward-Looking Information “expect”, “believe”, Certain information contained or incorporated by reference in this Annual Report 2004, including any information as to our future financial or operating performance, constitutes “forward-looking state- ments”. All statements, other than statements of historical fact, are forward-looking statements. The “anticipate”, words “contemplate”, “target”, “plan”, “intends”, “continue”, “budget”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: fluctua- tions in the currency markets (such as the Canadian and Australian dollars versus the U.S. dollar); fluctuations in the spot and forward price of gold or certain other commodities (such as silver, copper, diesel fuel and electricity); changes in U.S. dollar interest rates or gold lease rates that could impact the mark to market value of outstanding derivative instruments and ongoing payments/receipts under interest rate swaps and variable rate debt obligations; risks arising from holding derivative instruments (such as credit risk, market liquidity risk and mark to market risk); changes in national and local gov- ernment legislation, taxation, controls, regulations and political or economic developments in Canada, the United States, Australia, Chile, Peru, Argentina, Tanzania, Russia or Barbados or other countries in which we do or may carry on business in the future; business opportunities that may be presented to, or pursued by, us; our ability to successfully integrate acquisitions; operating or technical difficulties in connection with mining or development activities; the speculative nature of gold exploration and development, including the risks of obtaining necessary licenses and permits; diminishing quan- tities or grades of reserves; adverse changes in our credit rating; and contests over title to properties, particularly title to undeveloped properties. In addition, there are risks and hazards associated with the business of gold exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected forma- tions, pressures, cave-ins, flooding and gold bullion losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this Annual Report 2004 are qualified by these cautionary statements. Specific reference is made to Barrick’s most recent Form 40-F/Annual Information Form on file with the US Securities and Exchange Commission and Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. 71 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS Glossary of Technical Terms AUTOCLAVE: Oxidation process in which high temperatures and pressures are applied to convert refractory sulphide mineralization into amenable oxide ore. BACKFILL: Primarily waste sand or rock used to support the roof or walls after removal of ore from a stope. BY-PRODUCT: A secondary metal or mineral product recovered in the milling process such as copper and silver. CONCENTRATE: A very fine, powder-like product containing the valuable ore mineral from which most of the waste mineral has been eliminated. CONTAINED OUNCES: Represents ounces in the ground before reduction of ounces not able to be recovered by the applicable metallurgical process. CONTANGO: The positive difference between the spot market gold price and the forward market gold price. It is often expressed as an interest rate quoted with reference to the difference between inter-bank deposit rates and gold lease rates. DEVELOPMENT: Work carried out for the purpose of opening up a mineral deposit. In an underground mine this includes shaft sinking, crosscutting, drift- ing and raising. In an open pit mine, development includes the removal of overburden. DILUTION: The effect of waste or low-grade ore which is unavoidably included in the mined ore, lowering the recovered grade. DORÉ: Unrefined gold and silver bullion bars usually consisting of approximately 90 percent precious metals that will be further refined to almost pure metal. EXPLORATION: Prospecting, sampling, mapping, diamond-drilling and other work involved in search- ing for ore. GRADE: The amount of metal in each ton of ore, expressed as troy ounces per ton or grams per tonne for precious metals and as a percentage for most other metals. Cut-off grade: the minimum metal grade at which an orebody can be economically mined (used in the calculation of ore reserves). Mill-head grade: metal content of mined ore going into a mill for processing. Recovered grade: actual metal content of ore deter- mined after processing. Reserve grade: estimated metal content of an ore- body, based on reserve calculations. HEAP LEACHING: A process whereby gold is extracted by “heaping” broken ore on sloping impermeable pads and continually applying to the heaps a weak cyanide solution which dissolves the contained gold. The gold-laden solution is then collected for gold recovery. HEAP LEACH PAD: A large impermeable foun- dation or pad used as a base for ore during heap leaching. LIBOR: The London Inter-Bank Offered Rate for deposits. MILL: A processing facility where ore is finely ground and thereafter undergoes physical or chemical treatment to extract the valuable metals. MINERAL RESERVE: See page 125 – “Gold Mineral Reserves and Mineral Resources.” 72 BARRICK Annual Report 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS MINERAL RESOURCE: See page 125 – “Gold Mineral Reserves and Mineral Resources.” MINING CLAIM: That portion of applicable mineral lands that a party has staked or marked out in accordance with applicable mining laws to acquire the right to explore for and exploit the minerals under the surface. MINING RATE: Tons of ore mined per day or even specified time period. MINING SEQUENCE: Sequence by which ore is extracted from the mine is based on the mine plan. OPEN PIT: A mine where the minerals are mined entirely from the surface. ORE: Rock, generally containing metallic or non- metallic minerals, which can be mined and processed at a profit. OREBODY: A sufficiently large amount of ore that can be mined economically. OUNCES: Troy ounces of a ﬁneness of 999.9 parts per 1,000 parts. RECLAMATION: The process by which lands disturbed as a result of mining activity are modi- fied to support beneficial land use. Reclamation activity may include the removal of buildings, equipment, machinery and other physical remnants of mining, closure of tailings storage facilities, leach pads and other mine features, and contouring, covering and re-vegetation of waste rock and other disturbed areas. RECLAMATION AND CLOSURE COSTS: The cost of reclamation plus other costs, including without limitation certain personnel costs, insurance, prop- erty holding costs such as taxes, rental and claim fees, and community programs associated with closing an operating mine. RECOVERY RATE: A term used in process metallurgy to indicate the proportion of valuable material physically recovered in the processing of ore. It is generally stated as a percentage of the material recovered compared to the total material originally present. REFINING: The final stage of metal production in which impurities are removed from the molten metal. ROASTING: The treatment of ore by heat and air, or oxygen enriched air, in order to remove sulphur, carbon, antimony or arsenic. STRIPPING: Removal of overburden or waste rock overlying an ore body in preparation for mining by open pit methods. Expressed as the total number of tons mined or to be mined for each ounce of gold. TAILINGS: The material that remains after all economically and technically recoverable precious metals have been removed from the ore during processing. 73 BARRICK Annual Report 2004 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 Executive Vice President and Chief Financial Officer Toronto, Canada March 15, 2005 74 BARRICK Annual Report 2004 Auditors’ Report To the Shareholders of Barrick Gold Corporation We have audited the consolidated balance sheets of Barrick Gold Corporation as at December 31, 2004 and 2003 and the consolidated statements of income, cash flows, shareholders’ equity and comprehensive income for each of the years in the three-year period ended December 31, 2004. 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 Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (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 examining, 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 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, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004 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, and during 2002 the Company changed its policy on deferred stripping costs. On March 15, 2005 we reported separately to the shareholders of Barrick Gold Corporation on the financial statements for the same periods, prepared in accordance with Canadian generally accepted accounting principles. Chartered Accountants Toronto, Canada March 15, 2005 75 BARRICK Annual Report 2004 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) 2004 2003 2002 Gold sales (notes 3 and 4) $ 1,932 $ 2,035 $ 1,967 Costs and expenses Cost of sales1 (note 5) Amortization (note 3) Administration Exploration, development and business development Other (income) expense (note 6) Interest income Interest expense (note 16b) Income before income taxes and other items Income tax recovery (expense) (note 7) Income before cumulative effect of changes in accounting principles Cumulative effect of changes in accounting principles (note 2b) 1,071 452 71 141 158 1,893 25 (19) 45 203 248 – 1,072 522 73 137 (4) 1,800 31 (44) 222 (5) 217 (17) 1,070 519 50 104 16 1,759 26 (57) 177 16 193 – Net income for the year $ 248 $ 200 $ 193 Earnings per share data (note 8) Income before cumulative effect of changes in accounting principles Basic Diluted Net income Basic Diluted 1. Exclusive of amortization (note 5). $ 0.47 $ 0.46 $ 0.47 $ 0.46 $ 0.40 $ 0.40 $ 0.37 $ 0.37 $ 0.36 $ 0.36 $ 0.36 $ 0.36 The accompanying notes are an integral part of these consolidated financial statements. 76 BARRICK Annual Report 2004 FINANCIAL STATEMENTS Consolidated Statements of Cash Flow Barrick Gold Corporation For the years ended December 31 (in millions of United States dollars) Operating Activities Net income Amortization Deferred income taxes (note 18) Inmet litigation settlement (note 6) Gains on sale of long-lived assets (note 6) Other items (note 9) 2004 2003 2002 $ 248 452 (225) – (34) 65 $ 200 522 (49) (86) (34) (34) $ 193 519 (75) – (4) (45) Net cash provided by operating activities 506 519 588 Investing Activities Property, plant and equipment Capital expenditures (note 3) Sales proceeds Investments (note 10) Purchases Sales proceeds Proceeds on maturity of term deposits Net cash used in investing activities Financing Activities Capital stock Proceeds from shares issued on exercise of stock options Repurchased for cash (note 19a) Long-term debt (note 16b) Proceeds Repayments Dividends (note 19a) Other items Net cash provided by (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 16a) (824) 43 (47) 9 – (819) 49 (95) 974 (41) (118) (28) 741 – 428 970 (322) 40 (60) 8 – (334) 29 (154) – (23) (118) – (266) 7 (81) 1,044 (228) 8 – 3 159 (58) 83 – – (25) (119) – (61) 1 469 574 Cash and equivalents at end of year (note 16a) $ 1,398 $ 970 $ 1,044 The accompanying notes are an integral part of these consolidated financial statements. 77 BARRICK Annual Report 2004 FINANCIAL STATEMENTS Consolidated Balance Sheets Barrick Gold Corporation At December 31 (in millions of United States dollars) Assets Current assets Cash and equivalents (note 16a) Accounts receivable (note 11) Inventories (note 11) Other current assets (note 11) Investments (note 10) Property, plant and equipment (note 12) Capitalized mining costs (note 13) Other assets (note 14) 2004 2003 $ 1,398 58 215 286 1,957 134 3,391 226 566 $ 970 56 164 178 1,368 130 3,128 235 497 Total assets $ 6,274 $ 5,358 Liabilities and Shareholders’ Equity Current liabilities Accounts payable Other current liabilities (note 15) Long-term debt (note 16b) Other long-term obligations (note 17) Deferred income tax liabilities (note 18) Total liabilities Shareholders’ equity Capital stock (note 19) Deficit Accumulated other comprehensive income (note 20) Total shareholders’ equity Contingencies and commitments (notes 12d, 16 and 23) $ 335 83 $ 245 119 418 1,655 499 139 2,711 4,129 (624) 58 3,563 364 719 464 317 1,864 4,115 (694) 73 3,494 Total liabilities and shareholders’ equity $ 6,274 $ 5,358 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 78 BARRICK Annual Report 2004 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 on exercise of stock options (note 21a) Repurchased (note 19a) At December 31 Common shares At January 1 Issued on exercise of stock options (note 21a) Repurchased (note 19a) At December 31 Deﬁcit At January 1 Net income Adjustment on repurchase of common shares (note 19a) Dividends (note 19a) At December 31 2004 2003 2002 535 3 (4) 534 542 2 (9) 535 536 6 – 542 $ 4,115 49 (35) $ 4,148 34 (67) $ 4,062 86 – $ 4,129 $ 4,115 $ 4,148 $ (694) 248 (60) (118) $ (689) 200 (87) (118) $ (763) 193 – (119) $ (624) $ (694) $ (689) Accumulated other comprehensive income (loss) (note 20) $ 58 $ 73 $ (125) Total shareholders’ equity at December 31 $ 3,563 $ 3,494 $ 3,334 Consolidated Statements of Comprehensive Income Net income Other comprehensive income (loss), net of tax (note 20) Comprehensive income 2004 2003 2002 $ $ 248 (15) 233 $ $ 200 198 398 $ $ 193 (18) 175 The accompanying notes are an integral part of these consolidated financial statements. 79 BARRICK Annual Report 2004 Notes to Consolidated Financial Statements Barrick Gold Corporation. Tabular dollar amounts in millions of United States dollars, unless otherwise shown. References to C$, A$ and € are to Canadian dollars, Australian dollars and Euros, respectively. 1. Nature of Operations A VIE is defined as an entity that by design either lacks enough equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties; has equity owners who are unable to make decisions about the entity; or has equity owners that do not have the obligation to absorb the entity’s expected losses or the right to receive Barrick Gold Corporation (“Barrick” or the the entity’s expected residual returns. VIEs can arise “Company”) engages in the production and sale of gold from a variety of entities or legal structures. from underground and open-pit mines, including related activities such as exploration and mine develop- ment. Our operations are mainly located in North America, South America, Australia and Africa. 2. Signiﬁcant Accounting Policies a) Basis of presentation These financial statements are prepared under United States generally accepted accounting principles (“US GAAP”). We also include financial statements prepared under Canadian GAAP in our Proxy Statement that we file with various Canadian regulatory authorities. To ensure comparability of financial information, certain prior-year amounts have been reclassified to conform with the current year presentation. Consolidation policy These financial statements reflect consolidation of the accounts of Barrick and other entities in which we have a controlling financial interest. The usual condition for a controlling financial interest is owner- ship of a majority of the voting interests of an entity. However, a controlling financial interest may also exist in entities through arrangements that do not involve voting interests, where the entities are variable interest entities (VIEs) under the principles of FIN 46R. Inter- company balances and transactions are eliminated on consolidation. FIN 46R requires a variable interest holder (i.e. a coun- terparty to a VIE) to consolidate the VIE if that party will absorb a majority of the expected losses of the VIE, receive a majority of the residual returns of the VIE, or both. This party is considered the primary beneficiary of the entity. The determination of whether a variable interest holder meets the criteria to be considered the primary beneficiary of a VIE requires an evaluation of all transactions by the entity. The foundation for this evaluation is a calculation prescribed by FIN 46R. We hold our interests in the Round Mountain, Hemlo, Marigold and Kalgoorlie mines through unincorporated joint ventures. Under long-standing practice for extrac- tive industries, we use the proportionate consolidation method to account for our interests in these unincorpo- rated joint ventures. Our 70% interest in the Tulawaka development project is held through an unincorporated joint venture. In years prior to 2004 we used the proportionate consolidation method to account for our interest. In 2004, we entered into an agreement to finance the other joint venture partner’s share of mine construction costs, which caused us to reconsider whether this joint venture is a VIE. We concluded that the joint venture is in fact a VIE, and that Barrick is the primary beneficiary. From June 2004 onwards, we consolidated this joint venture using the principles of FIN 46R. The creditors of this VIE have no recourse to the general credit of Barrick. 80 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Foreign currency translation In 2003, various changes in economic facts and circum- stances led us to conclude that the functional currency of our Argentinean operations is the United States dollar rather than the Argentinean Peso. These changes included the completion of the Veladero mine feasibility study, the expected denomination of selling prices for future gold production and the occurrence of higher amounts of US dollar expenditures. Following this change the functional currency of all our operations is the US dollar. We re-measure non-US dollar balances 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. > the useful lives of long-lived assets and the measure- ment of amortization recorded in earnings; and > the fair value of asset retirement obligations. We regularly review estimates and assumptions that affect our financial statements; however, actual outcomes could differ from estimates and assumptions. b) Accounting changes Effect of accounting changes on earnings Earnings increase (decrease) For the years ended December 31 2004 2003 2002 Changes in accounting policies Cumulative effect Adoption of FAS 1431 (note 17a) Amortization of underground development costs2 (note 12a) $ – $ 4 $ – – – – (21) (17) – – – (4) Gains and losses arising from re-measurement of for- eign currency balances and transactions are recorded in earnings. Pro forma effect (excluding tax effects) Adoption of FAS 1433 Use of estimates The preparation of these financial statements requires us to make estimates and assumptions. The most signifi- cant estimates and assumptions are quantities of proven and probable gold reserves; expected value of mineral resources not considered proven and probable reserves; expected future costs and expenses to produce proven and probable reserves; expected future commodity prices and foreign currency exchange rates; and expected costs to meet asset retirement obligations. Critical estimates and assumptions include: > decisions as to whether mine development costs should be capitalized or expensed; > assessments of whether groups of long-lived assets are impaired and the fair value of those groups of assets that are the basis for measuring impairment charges; > assessments of our ability to realize the benefits of deferred income tax assets; Total $ – $(17) $ (4) 1. On adoption of FAS 143 in first quarter 2003 (see note 17a), we recorded on our balance sheet an increase in property, plant and equipment of $39 million; an increase in other long- term obligations of $32 million; and an increase in deferred income tax liabilities of $3 million; as well as a $4 million credit in earnings for the cumulative effect of this change. 2. On January 1, 2003, we changed our accounting policy for amortization of underground mine development costs to exclude estimates of future underground development costs (see note 12a). On adoption of this change, we decreased property, plant and equipment by $19 million, 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. 3. FAS 143 was followed in the preparation of financial results for 2004 and 2003. For 2002, because prior years were not restated, the amount disclosed is the pro forma effect of following FAS 143. 81 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Emerging Issues Task Force (“EITF”) Issue No. 04-2: Whether Mineral Rights are Tangible or Intangible Assets (EITF 04-2) EITF 04-2 was issued in 2004 and concludes that impairment and requires certain disclosures about impairment losses included in other comprehensive income that have not been recorded in earnings. The measurement requirements of EITF 03-1 were effective mineral rights, which are defined as the legal right to for the fiscal quarter ended September 30, 2004, but the explore, extract and retain at least a portion of the disclosure requirements are not effective until fiscal 2005. benefits from mineral deposits, are tangible assets. EITF 04-2 was effective in third quarter 2004, and had no impact on the classification of such assets in our financial statements. EITF Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry (EITF 04-6) In the mining industry, companies may be required to EITF Issue No. 04-3, Mining Assets: Impairment and Business Combinations (EITF 04-3) EITF 04-3 was issued in 2004 and establishes guidance remove overburden and other mine waste materials to access mineral deposits. The costs of removing over- burden and waste materials are often referred to as for the inclusion of the expected value of mineralization “stripping costs.” During the development of a mine not considered proven and probable reserves when (before production begins), it is generally accepted in allocating the purchase price in a business combination practice that stripping costs are capitalized as part of and also when testing a mining asset for impairment. the depreciable cost of building, developing, and con- The principles of EITF 04-3 are required to be adopted structing the mine. Those capitalized costs are typically prospectively and were effective in second quarter 2004. amortized over the productive life of the mine using the c) Accounting developments EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1) EITF 03-1 was issued in 2004 and establishes guidance to be used in determining when an investment is consid- ered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. Under the application of our previous accounting policy for impairment of investments, an impairment on a specific investment was recorded in earnings on determination that the impairment was other than temporary or after an investment had been impaired for six months, whichever is the earlier. Under EITF 03-1, there is no requirement to automatically record an impairment loss in earnings after a six-month period; instead the recognition of impairment losses in earnings is based on the assessment of whether the loss is other than temporary. The adoption of the measurement requirements of EITF 03-1 in third quarter 2004 had no effect on impairment charges recorded in earnings. EITF 03-1 also provides the guidance on accounting sub- sequent to the recognition of an other-than-temporary units-of-production method. A mining company may continue to remove overburden and waste materials, and therefore incur stripping costs, during the produc- tion phase of the mine. Questions have been raised about the appropriate accounting for stripping costs incurred during the production phase, and diversity in practice exists. In response to these questions, the EITF has undertaken a project to develop an Abstract to address the questions and clarify the appropriate accounting treatment for stripping costs under US GAAP. The EITF is in the process of deliberating these ques- tions and upon completion of their deliberations they are expected to issue EITF 04-6, which will represent an authorative US GAAP pronouncement for stripping costs. Our accounting policy for stripping costs is disclosed in note 13. EITF 04-6 may require us to change our accounting policy for stripping costs in future periods. FAS 123R, Accounting for Stock-Based Compensation (FAS 123R) In December 2004, the FASB issued FAS 123R. FAS 123R is applicable to transactions in which an entity exchanges its equity instruments for goods and services. 82 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS It focuses primarily on transactions in which an entity exchange has commercial substance if, as a result of the obtains employee services in share-based payment trans- exchange, the future cash flows of an entity are expected actions. FAS 123R requires that the fair value of such to change significantly. equity instruments is recorded as an expense as services are performed. Prior to FAS 123R, only certain pro forma disclosures of accounting for these transactions at fair value were required. FAS 123R will be effective for our third quarter 2005 financial statements, and permits varying transition methods including: retroac- tive adjustment of prior periods as far back as 1995 to give effect to the fair value based method of accounting for awards granted in those prior periods; retrospective application to all interim periods in 2005; or prospective application to future periods beginning in third quarter 2005. We are presently evaluating the effect of the varying methods of adopting FAS 123R. We expect to adopt FAS 123R using the modified prospective method effective July 1, 2005. Under this method we will begin recording stock option expense based on a similar method to the one used for pro forma purposes that is disclosed in note 21, starting in the third quarter of 2005. FAS 151, Inventory Costs (FAS 151) FAS 151 was issued in November 2004 as an amendment Under FAS 153, a non-monetary exchange is measured based on the fair values of the assets exchanged. If fair value is not determinable, the exchange lacks commer- cial substance or the exchange is to facilitate sales to customers, a non-monetary exchange is measured based on the recorded amount of the non-monetary asset relinquished. FAS 153 will be effective for non-monetary exchanges that occur in fiscal periods beginning after June 15, 2005. d) Other signiﬁcant accounting policies Segment information Revenue and gold sales contracts Cost of sales Other (income) expense Income tax (recovery) expense Earnings per share Supplemental cash flow information to ARB No. 43. FAS 151 specifies the general principles Investments applicable to the pricing and allocation of certain costs to inventory. Under FAS 151, abnormal amounts of idle facility expense, freight, handling costs and wasted materials are recognized as current period charges rather than capitalized to inventory. FAS 151 also requires that the allocation of fixed production over- head to the cost of inventory be based on the normal capacity of production facilities. FAS 151 will be effective for inventory costs incurred beginning in our 2006 fiscal year. We are presently evaluating the impact of FAS 151 on our financial statements. FAS 153, Exchanges of Non-Monetary Assets (FAS 153) FAS 153 was issued in December 2004 as an amendment Accounts receivable, inventories and other current assets Property, plant and equipment Capitalized mining costs Other assets Other current liabilities Financial instruments Other long-term obligations Deferred income taxes Capital stock Other comprehensive income (loss) Stock-based compensation Post-retirement benefits Contingencies, litigation and claims Joint ventures to APB Opinion No. 29. FAS 153 provides guidance on Differences from Canadian GAAP the measurement of exchanges of non-monetary assets, with exceptions for exchanges that do not have com- mercial substance. Under FAS 153, a non-monetary 83 BARRICK Annual Report 2004 Note 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page p. 84 p. 86 p. 88 p. 89 p. 90 p. 92 p. 92 p. 93 p. 94 p. 95 p. 97 p. 97 p. 97 p. 97 p. 107 p. 107 p. 109 p. 110 p. 111 p. 113 p. 115 p. 117 p. 117 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Segment Information Our operations are managed on a regional basis. Our three regional business units are North America, Australia/Africa and South America. Financial infor- mation for each of our operating mines, development projects and our exploration group is reviewed regularly by our chief operating decision maker. Segment income for operating segments comprises seg- ment revenues less segment operating costs and segment amortization in the format that internal management reporting is presented to the chief operating decision maker. For internal management reporting purposes, we measure segment revenues and income using the average consolidated realized gold selling price for each period. Segment operating costs represent our internal presenta- tion of costs incurred to produce gold at each operating mine, and exclude the following costs that we do not allocate to operating segments: accretion expense; environmental remediation costs at closed mines; regional business unit overhead; amortization of corpo- rate assets; business development costs; administration costs; other income/expense; and the costs of financing their activities. Segment operating costs for development projects and the exploration group represent expensed exploration, mine development and mine start-up costs. Income statement information For the years ended December 31 2004 2003 2002 2004 2003 2002 2004 2003 2002 Gold sales Segment operating costs Segment income (loss) Goldstrike Round Mountain Eskay Creek Hemlo Other operating segments $ 745 $ 813 $ 678 132 121 97 177 148 112 93 42 139 130 98 50 North America 1,140 1,230 1,205 $ 475 $ 531 $ 436 73 14 64 96 83 9 57 21 66 18 60 29 $121 48 52 24 11 $122 53 65 27 7 $ 95 38 59 23 56 645 69 107 1 96 – 60 333 69 5 4 12 3 93 96 704 683 256 274 271 62 87 – 73 2 53 57 82 – 78 3 45 42 56 (1) 5 – 27 48 46 – (1) (2) 26 37 23 – 16 (3) 33 277 265 129 117 106 76 18 – 29 – 123 67 72 20 – 29 5 126 42 75 (5) (4) (12) (3) 51 (96) 90 (18) – (29) – 43 (67) 70 (20) – (29) 2 23 (42) 122 183 – 135 – 101 541 251 – – – – 251 – 120 153 – 109 – 91 473 332 – – – – 332 – 105 124 – 134 – 89 452 303 – – – 7 310 – $1,932 $2,035 $1,967 $1,167 $1,171 $1,116 $340 $367 $358 84 BARRICK Annual Report 2004 Plutonic Kalgoorlie Cowal Bulyanhulu Tulawaka Other operating segments Australia/Africa Pierina Veladero Pascua-Lama Lagunas Norte Other operating segments South America Exploration group Segment total NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Geographic information For the years ended December 31 2004 2003 2004 2003 2002 Assets Gold sales United States Canada North America Australia Tanzania Australia/Africa Peru Argentina Chile South America Other Reconciliation of segment income For the years ended December 31 Segment income Accretion expense at producing mines Environmental remediation costs Other expenses at producing mines Amortization of corporate assets Business development costs Administration Interest income Interest expense Other income (expense) Income before income taxes and other items $ 1,976 492 $ 1,835 480 $ 911 229 $ 970 260 $ 906 299 2,468 2,315 1,140 1,230 1,205 838 774 552 707 1,612 1,259 811 645 120 757 219 90 1,576 1,066 618 718 406 135 541 251 – – 251 – 364 109 473 332 – – 332 – 318 134 452 303 – – 303 7 $ 6,274 $ 5,358 $ 1,932 $ 2,035 $ 1,967 2004 $ 340 (11) – (16) (27) (18) (71) 25 (19) (158) $ 45 2003 $ 367 (10) – (11) (25) (17) (73) 31 (44) 4 $ 222 2002 $ 358 – (34) (14) (26) (10) (50) 26 (57) (16) $ 177 85 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asset information Segment assets Amortization Segment capital expenditures For the years ended December 31 2004 2003 2004 2003 2002 2004 2003 2002 Goldstrike Round Mountain Eskay Creek Hemlo Other operating segments $ 1,290 $ 1,372 75 203 65 29 67 91 63 28 $ 149 17 51 12 10 $ 160 20 47 11 14 $ 147 21 48 10 25 North America 1,539 1,744 239 252 251 Plutonic Kalgoorlie Cowal Bulyanhulu Tulawaka Other operating segments 92 277 130 566 70 89 84 250 49 539 22 84 Australia/Africa 1,224 1,028 Pierina Veladero Pascua-Lama Lagunas Norte South America Segment total Cash and equivalents Other items not allocated to segments 269 456 273 220 1,218 3,981 1,398 895 434 88 236 9 767 3,539 970 849 11 20 – 34 – 14 79 107 – – – 107 425 – 27 10 20 – 37 – 12 79 166 – – – 166 497 – 25 11 19 – 40 – 11 81 161 – – – 161 493 – 26 $ 72 5 7 8 12 104 15 10 73 46 48 12 204 8 284 35 182 509 817 – 7 $ 51 6 5 10 8 $ 46 8 8 6 19 80 44 14 24 36 1 21 87 20 14 13 56 – 14 140 117 17 68 9 4 98 318 – 4 5 – 11 5 21 225 – 3 Enterprise total $ 6,274 $ 5,358 $ 452 $ 522 $ 519 $ 824 $ 322 $ 228 4. Revenue and Gold Sales Contracts For the years ended December 31 Gold bullion sales Gold sales contracts Spot market sales Concentrate sales 2004 2003 2002 $ 709 $ 1,504 $ 1,401 460 1,111 426 1,820 112 1,930 105 1,861 106 $ 1,932 $ 2,035 $ 1,967 We record revenue when the following conditions are met: persuasive evidence of an arrangement exists; delivery has occurred under the terms of the arrangement; the price is fixed or determinable; and collectability is reasonably assured. Bullion sales We record revenue from gold and silver bullion sales at the time of delivery and transfer of title to the gold or silver to counterparties. Incidental revenues from the sale of by-products such as silver are classified within cost of sales. 86 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2004, we had fixed-price gold sales that fixed selling prices are set. The mark-to-market on contracts with various counterparties for a total of the fixed-price gold sales contracts (at December 31, 13.5 million ounces of future gold production and 2004) was negative $966 million for the Pascua-Lama floating-price forward gold sales contracts for 0.5 million Gold Sales Contracts and negative $949 million for the ounces. In 2004, we allocated 6.5 million ounces of Corporate Gold Sales Contracts. fixed-price gold sales contracts specifically to Pascua- Lama. The allocation of these contracts will help reduce gold price risk at Pascua-Lama and will help secure financing for its construction. In addition to the gold sales contracts allocated to Pascua-Lama, we have 7.0 million ounces of corporate gold sales contracts that we intend to settle through delivery of future gold production from our operating mines and development projects, excluding Pascua-Lama. The terms of the contracts are governed by master trading agreements (MTAs) that we have in place with the counterparties to the contracts. The contracts have final delivery dates primarily over the next 10 years, but we have the right to settle these contracts at any time over this period. Contract prices are established at inception through to The difference between the forward price of gold and the current market price, referred to as contango, can be expressed as a percentage that is closely correlated to the difference between US dollar interest rates and gold lease rates. Historically short-term gold lease rates have been lower than longer-term rates. We use gold lease rate swaps to achieve a more economically optimal term structure for gold lease rates implicit in contango. Under the swaps we receive a fixed gold lease rate, and pay a floating gold lease rate, on a notional 2.1 million ounces of gold spread from 2005 to 2013. The swaps are associated with fixed-price gold sales contracts with expected delivery dates beyond 2006. Lease rate swaps are classified as non-hedge derivatives (note 16c). an interim date. If we do not deliver at this interim date, Floating spot price sales contracts were previously a new interim date is set. The price for the new interim fixed-price forward sales contracts for which, in accor- date is determined in accordance with the MTAs which dance with the terms of our MTAs, we have elected to have contractually agreed price adjustment mechanisms receive floating spot gold and silver prices, adjusted by based on the market gold price. The MTAs have both the difference between the spot price and the contract fixed and floating price mechanisms. The fixed-price price at the time of such election. Floating prices mechanism represents the market price at the start date were elected for these contracts so that we could (or previous interim date) of the contract plus a premium economically regain spot gold price leverage under based on the difference between the forward price of the terms of delivery into these contracts. Furthermore, gold and the current market price. If at an interim date floating price mechanisms were elected for these con- we opt for a floating price, the floating price represents tracts at a time when the then current market price the spot market price at the time of delivery of gold plus was higher than the fixed price in the contract. The or minus the difference between the previously fixed mark-to-market on these contracts (at December 31, price and the market gold price at that interim date. The 2004) was negative $25 million, which equates to final realized selling price under a contract primarily an average reduction to the future spot sales price of depends upon the timing of the actual future delivery approximately $52 per ounce, when we deliver gold date, the market price of gold at the start of the contract at spot prices against these contracts. and the actual amount of the premium of the forward price of gold over the spot price of gold for the periods At December 31, 2004, one counterparty made up 11% of the ounces committed under gold bullion sales contracts. 87 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentrate sales Our Eskay Creek and Bulyanhulu mines produce gold in concentrate form. Our Pascua-Lama mine will also produce gold in concentrate form. Under the terms of our concentrate sales contracts with independent smelting companies, gold sales prices are set on a specified future date after shipment based on market prices. We record revenues under these contracts at the time of shipment, which is when title passes to the smelting companies, using forward market gold prices on the expected date that final sales prices will be set. Variations between the price recorded at the shipment date and the actual final price set under the smelting contracts are caused by changes in market gold prices, and result in an embedded derivative in the accounts receivable. The embedded derivative is is classified in the income statement under “amortization”. Some companies present this amount under “cost of sales”. The amount presented in amortization rather than cost of sales is $425 million in 2004; $497 million in 2003 and $493 million in 2002. 2. We use silver sales contracts to sell a portion of silver produced as a by-product. Silver sales contracts have similar delivery terms and pricing mechanisms as gold sales contracts. At December 31, 2004, we had fixed-price commitments to deliver 12.4 million ounces of silver at an average price of $5.50 per ounce and floating spot price sales contracts for 12 million ounces over periods primarily of up to 10 years. 3. Cost of goods sold includes environmental remediation costs of $34 million in 2002. 4. Includes the reversal of $15 million of accrued costs on resolution of the Peruvian tax assessment (see note 7). Royalties Certain of our properties are subject to royalty arrange- recorded at fair value each period until final settlement ments based on mineral production at the properties. occurs, with changes in fair value classified as a compo- The most significant royalties are at the Goldstrike and 2004 2003 2002 percentage multiplied by the value of gold production nent of revenue. Impact of derivative embedded in concentrate sales receivables For the years ended December 31 Gains included in revenue $ – $ – $ 1 5. Cost of Sales For the years ended December 31 Cost of goods sold1,3 By-product revenues2 Royalty expense Mining taxes Other expenses at producing mines4 2004 2003 2002 $ 1,136 $ 1,110 $ 1,133 (119) 37 5 (146) 53 12 (114) 50 15 Bulyanhulu mines and the Pascua-Lama and Veladero projects. The primary type of royalty is a net smelter return (NSR) royalty. Under this type of royalty we pay the holder an amount calculated as the royalty 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 16 11 14 at Veladero is subject to a 3.75% NSR on extraction of $ 1,071 $ 1,072 $ 1,070 all gold, silver and other ores. 1. The presentation of cost of goods sold includes accretion expense at producing mines of $11 million (2003 – $10 million; 2002 – $nil). The cost of inventory sold in the period reflects the components described in note 11, except that for presentation purposes the component of inventory cost relating to amortization of property, plant and equipment Royalty expense is recorded at the time of sale of gold production, measured using the applicable royalty per- centage for NSR royalties or estimates of NPI amounts. 88 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Other (Income) Expense For the years ended December 31 Non-hedge derivative 2004 2003 2002 (gains) losses (note 16c) $ (5) $(71) $ 6 circumstances, costs to acquire and install plant and equipment are capitalized during the production phase of a mine if the costs are expected to mitigate risk or prevent future environmental contamination from normal operations. Gains realized on sale of assets Environmental remediation costs2 Impairment of long-lived assets Eskay Creek Peruvian exploration properties Other Impairment charges on investments (note 10) World Gold Council fees Litigation costs Currency translation (gains) losses Pension expense (note 22b) Other items1 (34) (34) (4) an asset, a loss accrual is recorded if the loss is probable When a contingent loss arises from the improper use of 43 58 67 14 5 9 – 1 – – 55 – – 5 11 10 16 (2) 4 2 – – – 11 – 12 – (1) 2 (10) and reasonably estimable. Amounts recorded are measured on an undiscounted basis, and adjusted as further information develops or if circumstances change. Recoveries of environmental remediation costs from other parties are recorded as assets when receipt is deemed probable. Impairment of long-lived assets Eskay Creek The asset group that comprises the Eskay Creek mine was tested for impairment effective December 31, 2004. The principal factors that caused us to test this asset group for impairment included: downward revisions $ 158 $ (4) $ 16 to proven and probable reserves; the impact of the 1. In 2004, includes the reversal of $6 million of accrued costs on resolution of the Peruvian tax assessment (see note 7) and $4 million in severance costs related to the sale of the Holt McDermott mine. 2. Includes costs at development projects and closed mines. Gains realized on sale of assets In 2004 we sold various assets, including the Holt- McDermott mine in Canada and certain land positions around our inactive mine sites in the United States. These land positions were fully amortized in prior years and therefore any proceeds generate gains on sale, before selling costs and taxes. Environmental remediation costs at closed mines During the production phases of a mine, we incur and expense the cost of various activities connected with environmental aspects of normal operations, including compliance with and monitoring of environmental regulations; disposal of hazardous waste produced from normal operations; and operation of equipment designed to reduce or eliminate environmental effects. In limited continued strengthening of the C$ against the US$ and upward revisions to expected asset retirement costs in the fourth quarter of 2004. An impairment charge of $58 million was recorded, which represents the amount by which the carrying amount of the asset group exceeds its estimated fair value. Fair value was estimated using the method described in note 12c. Peruvian exploration properties At the end of 2004, upon completion of the exploration program for the year, we assessed the results and updated our future plans for various exploration properties in Peru that were originally acquired through the Arequipa acquisition in 1996. We concluded that the results and future potential did not merit any further invest- ment for these properties. The assets were tested for impairment, and an impairment charge of $67 million was recorded that reflects the amounts by which their carrying amounts exceed their estimated fair values. The fair value of this group of assets was judged to be minimal due to the unfavorable results of exploration work in the properties. 89 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Litigation costs In November 2003, we paid Inmet C$111 million assets; $16 million in Australia realized in 2003 due to an increase in taxable income from higher gold prices; (US$86 million), in full settlement of the Inmet and $15 million in Argentina after the approval to begin litigation. The settlement resulted in an expense of construction of our new Veladero mine and classification US$14 million in fourth quarter 2003, combined with of mineralization as a proven and probable reserve. post-judgment interest of $2 million in the first nine months of 2003. 7. Income Tax (Recovery) Expense For the years ended December 31 Current Canada International Deferred Canada International Income tax expense before elements below1 Release of beginning of year 2004 2003 2002 $ 19 24 $ 43 $ 40 14 $ 54 $ (26) 7 $(32) 45 $ (19) $ 13 $ 44 15 $ 59 $(45) (8) $(53) $ 24 $ 67 $ 6 valuation allowances (5) (62) – Outcome of tax uncertainties Change in tax status in Australia (141) (81) – – (22) – Total (recovery) expense $(203) $ 5 $(16) 1. All amounts are deferred tax items except for a $21 million portion of the $141 million recovery on resolution of the Peruvian tax assessment in 2004, which is a current tax item. Release of beginning of year valuation allowances In 2004, we released valuation allowances totaling Outcome of tax uncertainties Peruvian tax assessment On September 30, 2004, the Tax Court of Peru issued a decision in our favor in the matter of our appeal of a 2002 income tax assessment of $32 million, excluding interest and penalties. The Peruvian tax agency, SUNAT, had until mid-January 2005 to appeal the decision. The 2002 income tax assessment related to a tax audit of our Pierina Mine for the 1999 and 2000 fiscal years. The assessment mainly related to the validity of a reval- uation of the Pierina mining concession, which affects its tax basis. Under the valuation proposed by SUNAT, the tax basis of the Pierina mining concession would have changed from what we previously assumed with a resulting increase in current and deferred income taxes. The full life of mine effect on our current and deferred income tax liabilities, totaling $141 million, was recorded at December 31, 2002, as were other related costs of about $21 million for periods through 2003. In January 2005, we received confirmation in writing that there would be no appeal of the September 30, 2004 Tax Court of Peru decision. The confirmation concluded the administrative and judicial appeals process with resolution in Barrick’s favor. As a result, we recorded a $141 million reduction in current and deferred income tax liabilities and a $21 million reduction in other accrued costs in 2004; $15 million of which is classified in “other expenses at producing mines” within cost of sales and $6 million of which is classified in other $5 million in Australia following the consolidated tax (income) expense. return election described above. 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 Other uncertainties In 2002, we recorded a credit of $22 million reflecting the net impact of tax planning completed in the period and the outcome of certain tax uncertainties. 90 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in tax status in Australia A new tax law has been enacted in Australia that allows In 2004, we filed an election to use US dollars as the functional currency for Australian tax calculations and wholly owned groups of companies resident in Australia tax returns, whereas previously Australian dollars were to elect to be treated as a single entity and to file consol- used. Prior to this election, the favorable impact of idated tax returns. This new regime is elective and the changes in the tax basis of non-monetary assets caused election is irrevocable. Under certain circumstances, the by changes in the US$:A$ exchange rate were not rules governing the election allow for a choice to reset recorded, as their realization was not certain. The elec- the tax cost basis of certain assets within a consolidated tion in 2004 created certainty about the realization of group. This election will be effective for us for the 2004 these favorable tax temporary differences and resulted fiscal year. This election results in an estimated upward in our recognition of these as deferred tax assets revaluation of the tax basis of our assets in Australia, by amounting to $48 million. The impact of the change $110 million, with a corresponding $33 million adjust- in tax status was to increase the amount of deductible ment to deferred taxes. temporary differences relating to non-monetary assets by $160 million. Reconciliation to Canadian federal rate For the years ended December 31 At 38% statutory federal rate Increase (decrease) due to: Allowances and special tax deductions1 Impact of foreign tax rates2 Expenses not tax-deductible Release of beginning of year valuation allowances Recognition of deferred tax assets3 Valuation allowances set up against current year tax losses Outcome of tax uncertainties Withholding taxes on intercompany interest Mining taxes Other items 2004 $ 17 (34) (5) 10 (5) (81) 29 (141) 1 5 1 2003 $ 84 2002 $ 67 (17) (42) 11 (62) – 23 – 1 8 (1) (12) (67) 9 – – 3 (22) 11 3 (8) Income tax expense (recovery) $(203) $ 5 $(16) 1. We are able to claim certain allowances and tax deductions unique to extractive industries that result in a lower effective tax rate. 2. We operate in multiple foreign tax jurisdictions that have different tax rates than the Canadian federal rate. 3. In 2004, we recognized a $81 million deferred tax asset in Australia due to a change in tax status. Income tax returns Our income tax returns for the major jurisdictions repatriate accumulated earnings from controlled foreign corporations. The repatriation incentive is only avail- where we operate have been fully examined through the able for 2004 or 2005. We are currently evaluating the following years: Canada – 2000, United States – 2001, application of the repatriation incentive; however, we and Peru – 2000. American Jobs Creation Act of 2004 The American Jobs Creation Act of 2004 (“the Act”) was signed into law on October 22, 2004. The Act creates an elective incentive for U.S. multinationals to cannot complete our analysis until additional legislation and/or IRS guidance is provided to clarify key elements of the legislation. 91 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Earnings per Share For the years ended December 31 ($ millions, except shares in millions and per share amounts in dollars) 2004 2003 2002 Income available to common stockholders Basic Effect of dilutive stock options Diluted Weighted average shares outstanding Basic Effect of dilutive stock options Diluted Earnings per share Basic Diluted 9. Supplemental Cash Flow Information For the years ended December 31 Income statement items: Currency translation losses (Gains) losses on investments (note 10) Accounting changes (note 2b) Accretion expense (note 17a) Non-hedge derivative (gains) losses (note 16c) Inmet litigation Current income tax expense (note 7) Impairment charges on long-lived assets (note 6) Revisions to expected cost of AROs at closed mines (note 17a) Amortization of debt issue costs Losses on write-down of inventory to market value (note 11) Changes in: Accounts receivable Inventories Accounts payable Capitalized mining costs Other assets and liabilities Cash payments: Merger and related costs Asset retirement obligations Current income taxes Other items Other net operating activities Interest paid, net of amounts capitalized $ 248 – $ 248 533 1 534 $0.47 $0.46 $ 200 – $ 200 539 – 539 $0.37 $0.37 $ 193 – $ 193 541 – 541 $0.36 $0.36 2004 2003 2002 $ 1 (1) – 18 (5) – 22 139 22 3 9 (2) (51) 4 9 (25) – (33) (45) – $ 65 $ 19 $ 5 7 17 17 (71) 16 54 5 10 1 3 3 (1) 4 37 6 – (40) (111) 4 $(34) $ 44 $ – 3 – – 6 – 59 11 – 1 6 (12) 26 (25) 29 (12) (50) (70) (52) 35 $(45) $ 57 92 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Investments Available-for-sale securities At December 31 Benefit plans:1 Fixed-income securities Equity securities Strategic investments: Equity securities2 Total 2004 2003 Fair value Gains in OCI Fair value Gains in OCI $ 11 19 104 $ 134 $ – 10 – $ 10 $ 6 26 98 $ 130 $ – 8 30 $ 38 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 with a fair value of $75 million at December 31, 2004. Available-for-sale securities are recorded at fair value We have also formed a strategic partnership with with unrealized gains and losses recorded in OCI. Realized gains and losses are recorded in earnings when investments mature or on sale, calculated using the average cost of securities sold. We recognize in earnings any unrealized declines in fair value judged to be other Highland under which: > We have the right to participate on an exclusive basis for up to 50% on any acquisition made by Highland in Russia; and a similar right extends to Highland for any acquisition made by us in certain regions in Russia, excluding Irkutsk. than temporary (2004 – $5 million; 2003 – $11 million; > We have a right of first refusal with respect to 2002 – $nil). Total proceeds from the sale of invest- ments were $9 million in 2004 (2003 – $8 million; 2002 – $3 million). third-party investment in Highland’s Mayskoye property in the Chutotka region, Russia, and plan to pursue discussions with Highland on establishing a joint venture at Mayskoye. Gains (losses) on investments recorded in earnings For the years ended December 31 Realized on sale Gains Losses Impairment charges 2004 2003 2002 $ 6 – (5) $ 1 $ 5 (1) (11) $ – (3) – $ (7) $ (3) Investment in Highland Gold Mining PLC (“Highland”) In 2004, we acquired a further 9.3 million common shares of Highland for $40 million in cash. Combined with the purchase of 11.1 million common shares for $46 million in October 2003, we held a 14% interest in Highland common shares at December 31, 2004. Investment in Celtic Resources Holdings PLC (“Celtic”) On December 2, 2004, Barrick and Celtic entered into a subscription agreement under which we agreed to sub- scribe for 3,688,191 units of Celtic for $7.562 per unit. Each unit consists of one ordinary share of Celtic and one-half of one share purchase warrant. Each whole warrant entitles us to acquire one ordinary share of Celtic for $7.562, expiring on December 31, 2005. In the event that Celtic does not acquire 100% of the license to the Nezhdaninskoye deposit before June 1, 2005, the number of warrants will automatically increase by 50%. Completion of the subscription occurred on January 5, 2005 upon which we held a 9% interest in Celtic’s out- standing ordinary shares. 93 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In connection with the completion of the subscription, Barrick and Celtic entered into the following agreements: > We have the pre-emptive right to subscribe for up to $75 million of Celtic shares at $7.562 per share. > Nezhdaninskoye Right of First Refusal. Celtic has granted us the right of first refusal on any proposed sale of its direct or indirect interest in Nezhdaninskoye. > Nezhdaninskoye Purchase Option. Celtic has granted us the right to indirectly purchase 51% of its interest in Nezhdaninskoye for $195 million, exercisable for a period of six months starting if and when Celtic indirectly acquires 100% of Nezhdaninskoye. > Kazakhstan Participation. Celtic has granted to us the right to acquire 50% of any interest in any mineral property in Kazakhstan that Celtic acquires. We have 12 months to elect to participate in any such acquisitions by Celtic. To participate, we must pay Celtic 50% of the cost to Celtic of its interest in the mineral property. 11. Accounts Receivable, Inventories and Other Current Assets Inventories Material extracted from our mines is classified as either ore or waste. Ore represents material that can be mined, processed into a saleable form and sold at a profit. Ore, which represents material included in proven and probable reserves, is recorded as an asset that is classified within inventory at the point it is extracted from the mine. Ore is accumulated in stockpiles that are sub- sequently processed into gold in a saleable form under a mine plan that takes into consideration optimal scheduling of production of our reserves, present plant capacity, and the market price of gold. We record gold in process and ore in stockpiles at cost, less provisions required to reduce inventory to market value. Costs capitalized to inventory include direct and indirect materials and consumables; direct labor; repairs and maintenance; utilities; amortization of property, plant and equipment; amortization of capitalized mining costs; and local mine administrative expenses. Costs are removed from inventory and recorded in cost of sales based on the average cost per ounce of gold in 2004 2003 inventory. Average cost is calculated based on the cost of inventory at the beginning of a period, plus the cost of inventory produced in a period. At December 31 Accounts receivable Amounts due from concentrate sales Other Inventories Gold in process and ore in stockpiles Mine operating supplies Non-current ore in stockpiles1 Other current assets Derivative assets (note 16c) Taxes recoverable Prepaid expenses 1. Ore that we do not expect to process in the next 12 months is classified in other assets (note 14). $ 29 29 $ 58 $ 26 30 $ 56 $ 198 82 $ 163 58 280 (65) 221 (57) $ 215 $ 164 $ 165 104 17 $ 286 $ 154 9 15 $ 178 Signiﬁcant ore in stockpiles At December 31 Goldstrike Ore that requires roasting Ore that requires autoclaving Kalgoorlie 2004 2003 $ 23 17 46 $ 22 19 32 At Goldstrike, we expect to fully process the autoclave stockpile by 2009 and the roaster stockpile by 2016. At Kalgoorlie, we expect to process the stockpile by 2017. Mine operating supplies are recorded at purchase cost, less provisions to reduce slow-moving and obsolete supplies to market value. Cost of sales includes losses recorded to reduce inventory cost to market value as follows: 2004 – $9 million; 2003 – $3 million; 2002 – $6 million. 94 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Property, Plant and Equipment costs that meet the definition of an asset at Lagunas Norte prospectively for future periods. The cost of At December 31 2004 2003 start-up activities at new mines such as recruiting and Acquired mineral properties and capitalized mine development costs Buildings, plant and equipment Accumulated amortization $ 4,489 $ 4,242 2,831 3,289 7,778 (4,387) 7,073 (3,945) $ 3,391 $ 3,128 training is expensed as incurred. At December 31, 2004 the following assets were in an exploration, development or construction stage and amortization of the capitalized costs had not yet begun. Carrying amount at December 31, 2004 Targeted timing of production start-up a) Acquired mineral properties and capitalized mine development costs Exploration and development stage properties We capitalize the cost of acquisition of land and mineral rights. The cost is allocated between proven and probable reserves and mineralization not considered Development stage projects Veladero Lagunas Norte Tulawaka Cowal Pascua-Lama Buzwagi proven and probable reserves at the date of acquisition, Nevada Power Plant based on relative fair values. If we later establish that Total some mineralization meets the definition of proven $ 362 196 70 128 230 102 18 $ 1,106 2005 2005 2005 2006 2009 – 2005 and probable gold reserves, we classify a portion of Interest cost is considered an element of the historical the capitalized acquisition cost as relating to reserves. cost of an asset when a period of time is necessary to After acquisition, various factors can affect the recover- ability of the capitalized cost of land and mineral rights, particularly the results of exploration drilling. The length of time between the acquisition of land and mineral rights and when we undertake exploration work varies based on the prioritization of our exploration projects and the size of our exploration budget. If we conclude that the carrying amount of land and mineral rights is impaired, we reduce this carrying amount to estimated fair value through an impairment charge. We capitalize costs incurred at development projects that meet the definition of an asset after mineralization is classified as proven and probable gold reserves (as defined by United States reporting standards). Before classifying mineralization as proven and probable gold reserves, costs incurred at development projects are con- sidered exploration costs, and are expensed as incurred. prepare it for its intended use. We capitalize interest costs to assets under development or construction while activities are in progress. We stop capitalizing interest costs when construction of an asset is sub- stantially complete and it is ready for its intended use. We measure the amount capitalized based on cumula- tive capitalized costs, exclusive of the impact, if any, of impairment charges on the carrying amount of an asset. Producing mines We start amortizing capitalized mineral property acqui- sition and mine development costs when production begins. Amortization is capitalized as a component of the cost of inventory. Amortization is calculated using the “units-of-production” method, where the numerator is the number of ounces produced and the denominator is the estimated recoverable ounces of gold contained in proven and probable reserves. Effective May 1, 2004, we determined that mineraliza- During production at underground mines, we incur tion at Lagunas Norte met the definition of proven and development costs to build new shafts, drifts and ramps probable reserves for United States reporting purposes. that will enable us to physically access ore underground. Following this determination, we began capitalizing 95 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The time over which we will continue to incur these costs depends on the mine life, and in some cases could be up to 25 years. These underground development costs are capitalized as incurred. In years prior to 2003 we amortized the aggregate total of historically capitalized costs, and estimated costs that will be incurred to enable access to the ore body over the remaining mine life, using the units-of-production method. In 2003, we changed the method of amortizing these costs to better attribute these costs to ounces of gold produced, as well as to remove the uncertainty inherent in using estimates of future underground development costs in the mea- surement of amortization. Under our revised method of measuring amortization for underground development costs, the cost incurred to access specific ore blocks or areas of the mine, which only provides an economic benefit over the period of mining that ore block or area, is attributed to earnings using the units-of-production method where the denominator is estimated recoverable ounces of gold contained in proven and probable reserves within that ore block or area. If capitalized costs provide an eco- nomic benefit over the entire mine life, the costs are attributed to earnings using the units-of-production method, where the denominator is the estimated recov- erable ounces of gold contained in total accessible proven and probable reserves. b) Buildings, plant and equipment We record buildings, plant and equipment at cost. We capitalize costs that extend the productive capacity or useful economic life of an asset. Repairs and main- tenance expenditures are expensed as incurred. We amortize the cost less estimated residual value, using the straight-line method over the estimated useful economic life of the asset. The longest estimated useful economic life for buildings and equipment at ore processing facili- ties is 25 years and for mining equipment is 15 years. c) Impairment evaluations – operating mines and development projects We review and test the carrying amounts of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. We group assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For operating mines and development projects, all assets are included in one group. If there are indications that an impairment may have occurred, we prepare estimates of expected future cash flows for each group of assets. Expected future cash flows are based on a probability-weighted approach applied to potential outcomes. Estimates of expected future cash flow reflect: > Estimated sales proceeds from the production and sale of recoverable ounces of gold contained in proven and probable reserves; > Expected future commodity prices and currency exchange rates (considering historical and current prices, price trends and related factors). In impair- ment assessments conducted in 2004 we used an expected future market gold price of $400 per ounce, and an expected future market A$:US$ exchange rate of $0.70 and C$:US$ exchange rate of $0.82; > Expected future operating costs and capital expenditures to produce proven and probable gold reserves based on mine plans that assume current plant capacity, but exclude the impact of inflation; > Expected cash flows associated with value beyond proven and probable reserves, which includes the expected cash outflows required to develop and extract the value beyond proven and probable reserves; and > Environmental remediation costs excluded from the measurement of asset retirement obligations. We record a reduction of a group of assets to fair value as a charge to earnings if expected future cash flows are less than the carrying amount. We estimate fair value by discounting the expected future cash flows using a dis- count factor that reflects the risk-free rate of interest for a term consistent with the period of expected cash flows. d) Capital commitments At December 31, 2004, we had capital commitments of $322 million for 2005/2006 in connection with con- struction at our development projects and of a power plant in Nevada for the Goldstrike mine. 96 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Capitalized Mining Costs We capitalize and amortize certain costs relating to the removal of waste rock at open-pit mines, commonly referred to as “stripping costs”. We include in inventory, amortization of amounts capitalized based on a “strip- ping 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 and amortizing these costs, some mining companies Debt issue costs Additions to debt issue costs in 2004 principally relate to new debt financings put in place during the year. Amortization of debt issue costs is calculated on a straight-line basis or using the interest method over the term of each debt obligation, and classified as a component of interest cost. 15. Other Current Liabilities capitalize them to inventory as incurred, which may At December 31 2004 2003 result in the reporting of greater volatility in period-to- Asset retirement period results. If we followed a policy of capitalizing obligations (note 17a) $ 33 $ 36 these costs to inventory as incurred, rather than using Current part of long-term debt (note 16b) Derivative liabilities (note 16c) Post-retirement benefits (note 22) Deferred revenue Other 31 11 2 5 1 41 3 5 17 17 $ 83 $ 119 16. Financial Instruments Financial instruments include cash; evidence of owner- ship in an entity; or a contract that imposes an obligation on one party and conveys a right to a second entity to deliver/receive cash or another financial instrument. Information on certain types of financial instruments is included in these financial statements as follows: accounts receivable – note 11; investments – note 10; restricted stock units – note 21. a) Cash and equivalents Cash and equivalents include cash, term deposits and treasury bills with original maturities of less than 90 days. our present policy, our reported cost of sales would have been $9 million lower in 2004 (2003 – $37 million lower, 2002 – $29 million lower). Stripping ratios1 For the years ended December 31 Mine life (years)2 2004 2003 2002 Goldstrike Open Pit 14 4 Pierina 109:1 60:1 112:1 48:1 112:1 48:1 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. 2. Costs capitalized will be fully amortized by the end of the mine lives. The carrying amount of capitalized mining costs is grouped with property, plant and equipment for impairment evaluation purposes. 14. Other Assets At December 31 2004 2003 Derivative assets (note 16c) Ore in stockpiles (note 11) Taxes recoverable Deferred income tax assets (note 18) Debt issue costs Deferred stock-based compensation (note 21b) Other $ 257 65 50 97 38 $ 256 57 52 59 11 5 54 6 56 $ 566 $ 497 97 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS b) Long-term debt 7 1⁄2% debentures2 5 4⁄5% notes3 4 7⁄8% notes4 Veladero financing5 Bulyanhulu financing6 Variable-rate bonds7 Capital leases Construction debt under build to suit lease8 Other interest Less: current part/ interest capitalized For the years ended December 31 At December 31 2004 2003 2002 2004 2003 Interest cost Effective rate1 Interest cost Effective rate1 Interest cost Effective rate1 $ 495 397 348 198 150 63 5 30 – $ 501 – – – 174 80 5 – – 1,686 760 $ 31 3 2 4 14 1 – – 5 60 6.1% 6.0% 5.0% 7.5% 8.0% 1.2% 7.8% – – 6.1% (31) (41) $ 1,655 $ 719 (41) $ 19 6.1% – – – 7.7% 1.1% 8.2% – – 6.3% $ 31 – – – 15 1 – – 2 49 (5) $ 44 5.7% – – – 7.2% 1.4% 7.9% – – 6.8% $ 38 – – – 15 1 1 – 4 59 (2) $ 57 1. The effective rate includes the stated interest rate under the debt agreement, amortization of debt issue costs, and the impact of interest rate contracts designated in a hedging relationship with long-term debt. 2. On April 22, 1997, we issued $500 million of debentures that mature on May 1, 2007. 3. On November 12, 2004, we issued $400 million of debentures that mature on November 15, 2034. The debentures were issued at a $3 million discount. 4. On November 12, 2004, we issued $350 million of debentures that mature on November 15, 2014. The debentures were issued at a $2 million discount. 5. One of our wholly owned subsidiaries, Minera Argentina Gold S.A. in Argentina has a variable-rate limited recourse amortizing loan facility for $250 million. At December 31, 2004, a total of $198 million had been drawn down under this facility. We have guaranteed the loan until completion occurs, after which it will become non-recourse. The loan is insured for political risks by branches of the Canadian and German governments. 6. One of our wholly owned subsidiaries, Kahama Mining Corporation Ltd. in Tanzania, has a variable-rate non-recourse amortizing loan for $150 million. The loan is insured for political risks equally by branches of the Canadian government and the World Bank. 7. Certain of our wholly owned subsidiaries have issued variable-rate, tax-exempt bonds of $25 million (due 2029) and $38 million (due 2032) for a total of $63 million. 8. One of our wholly owned subsidiaries, Minera Barrick Misquichilca, has entered into a $56 million build to suit lease facility to finance the construction of the leach pad and process facilities at the Lagunas Norte project. The five year lease term begins on October 1, 2005. Amounts reimbursed for construction costs at December 31, 2004 have been presented as “construction debt” until the lease term begins. Obligations under the lease will be repayable in 20 equal quarterly installments over the term of the lease. We also have a credit and guarantee agreement with a group of banks (the “Lenders”), which requires the Lenders to make available to us a credit facility of up to $1 billion or the equivalent amount in Canadian currency. The credit facility, which is unsecured, matures in April 2008 and has an interest rate of LIBOR plus 0.27% to 0.35% when used, and an annual fee of 0.08%. We have not drawn any amounts under the credit facility. 98 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Scheduled debt repayments1 7 1⁄2% debentures 5 4⁄5% notes 4 7⁄8% notes Veladero financing Bulyanhulu financing Variable-rate bonds 1. Excludes capital leases and build to suit lease facility. Minimum payments under capital leases1 Years ending December 31 2005 2006 2007 2008 2009 Capital lease obligations 1. Includes the $56 million build to suit lease facility. 2005 2006 2007 2008 $ – – – – 31 – $ 31 $ – – – 24 34 – $ 58 $ 500 – – 46 34 – $ 580 $ – – – 38 34 – $ 72 2009 and thereafter $ – 400 350 90 17 63 $ 920 $ 12 15 12 11 11 $ 61 c) Use of derivative instruments (“derivatives”) in risk management In the normal course of business, our assets, liabilities and forecasted transactions are impacted by various market risks including: Item > Cost of sales Impacted by • Consumption of oil and propane • Local currency denominated expenditures > Administration costs in local currencies > Capital expenditures in local currencies > Interest earned on cash > Interest payments on variable-rate debt > Fair value of fixed-rate debt > Prices of oil and propane > Currency exchange rates – US dollar versus A$ and C$ > Currency exchange rates – US dollar versus A$ and C$ > Currency exchange rates – US dollar versus A$, C$ and € > US dollar interest rates > US dollar interest rates > US dollar interest rates Under our risk management policy we seek to mitigate The primary objective of the hedging elements of the impact of these market risks to control costs and our derivative positions is that changes in the values enable us to plan our business with greater certainty. of hedged items are offset by changes in the values of The timeframe and manner in which we manage these derivatives. Most of the derivatives we use meet the risks varies for each item based upon our assessment of FAS 133 hedge effectiveness criteria and are designated the risk and available alternatives for mitigating risk. in a hedge accounting relationship. Some of the For these particular risks, we believe that derivatives are derivative positions are effective in achieving our risk an effective means of managing risk. management objectives but they do not meet the strict FAS 133 hedge effectiveness criteria, and they are classified as “non-hedge derivatives”. 99 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our use of derivatives is based on established practices use regression analysis to assess prospective effective- and parameters, which are subject to the oversight ness, we consider regression outputs for the coefficient of the Finance Committee of the Board of Directors. of determination (R-squared), the slope coefficient and A Compliance Function independent of the Corporate the t-statistic to assess whether a hedge is expected to Treasury Group monitors derivative transactions be highly effective. Each period, using a dollar offset and has responsibility for recording and accounting approach, we retrospectively assess whether hedging for derivatives. Accounting policy for derivatives We record derivatives on the balance sheet at fair value except for gold and silver sales contracts, which are excluded from the scope of FAS 133, because the obli- gations will be met by physical delivery of our gold and silver production and they meet the other requirements set out in paragraph 10(b) of FAS 133. In addition, our past sales practices, productive capacity and delivery intentions are consistent with the definition of a normal sales contract. Accordingly, we have elected to designate instruments have been highly effective in offsetting changes in the fair value of hedged items and we mea- sure the amount of any hedge ineffectiveness. We also assess each period whether hedging instruments are expected to be highly effective in the future. If a hedging instrument is not expected to be highly effective, we stop hedge accounting prospectively. In this case accumu- lated gains or losses remain in other comprehensive income (“OCI”) until the hedged item affects earnings. We also stop hedge accounting prospectively if: > a derivative is settled; > it is no longer highly probable that a forecasted our gold and silver sales contracts as “normal sales transaction will occur; or contracts” with the result that the principles of FAS 133 > we de-designate a hedging relationship. are not applied to them. Instead we apply revenue recognition accounting principles as described in note 4. If we conclude that it is probable that a forecasted transaction will not occur in the originally specified On the date we enter into a derivative that is accounted time frame, or within a further two-month period, for under FAS 133, we designate it as either a hedging gains and losses accumulated in OCI are immediately instrument or a non-hedge derivative. A hedging instru- transferred to earnings. In all situations when hedge ment is designated in either: > a fair value hedge relationship with a recognized asset or liability; or > a cash flow hedge relationship with either a forecasted transaction or the variable future cash flows arising from a recognized asset or liability. At the inception of a hedge, we formally document all relationships between hedging instruments and hedged items, including the related risk-management strategy. This documentation includes linking all hedging instru- ments to either specific assets and liabilities, specific forecasted transactions or variable future cash flows. It also includes the method of assessing retrospective and prospective hedge effectiveness. In cases where we accounting stops, a derivative is classified as a non-hedge derivative prospectively. Cash flows from derivative transactions are included under operating activities, except for derivatives designated as a cash flow hedge of forecasted capital expenditures, which are included under investing activities. Changes in the fair value of derivatives each period are recorded as follows: > Fair value hedges: recorded in earnings as well as changes in fair value of the hedged item. > Cash flow hedges: recorded in OCI until earnings are affected by the hedged item, except for any hedge ineffectiveness which is recorded in earnings immediately. > Non-hedge derivatives: recorded in earnings. 100 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of derivatives at December 31, 20041 Notional amount by term to maturity Accounting classification by notional amount Fair value Within 1 year 2 to 5 years Over 5 years Total Cash flow Fair value hedge hedge Non- hedge $ 75 – $ 75 $ 725 150 $ 575 $ – 125 $ 800 275 $(125) $ 525 $ 300 150 $ 150 $ 500 – $ 500 $ – 125 $ (5) (24) $(125) $ (29) C$ 350 C$ 600 C$ – C$ 950 C$ 935 C$ – C$ 15 $ 99 A$ 844 A$1,291 – € 26 € A$ – A$ 2,135 26 € – € A$ 2,125 26 € A$ – € – A$ 10 € – $ 198 $ 1 US dollar interest rate contracts Receive-fixed swaps (millions) Pay-fixed swaps (millions) Net notional position Currency contracts C$:US$ contracts (C$ millions) A$:US$ contracts (A$ millions) €:US$ contracts (€ millions) Commodity contracts Fuel (WTI) (thousands of barrels) 738 1,618 Propane contracts (millions of gallons) 11 18 – – 2,356 1,946 29 29 – – 410 $ 7 – $ (3) 1. Excludes normal sales contracts. US dollar interest rate contracts Cash ﬂow hedges – cash balances the new method, prospective and retrospective hedge effectiveness is assessed using the change in variable Receive-fixed swaps have been designated against the cash flows method. This involves a comparison of the first $300 million of our cash balances as a hedge floating-rate leg of the swap to the variable-rate cash of the variability of forecasted interest receipts on the flows from interest receipts on cash. balances caused by changes in Libor. Each period the effective portion of changes in the Prior to December 2004, prospective and retrospective fair value of the swaps, which relates to future interest hedge effectiveness was assessed using the hypothetical receipts, is recorded in OCI. Also, as interest is received derivative method under FAS 133. The prospective test and recorded in earnings, an amount equal to the dif- involves comparing the effect of a theoretical shift in the ference between the fixed-rate interest earned on the forward interest rate curve on the fair value of both the swaps and the variable-rate interest earned on cash is actual and hypothetical derivative. The retrospective recorded in earnings as a component of interest income. test involves comparing the effect of actual changes in interest rates in each period on the fair value of both the actual and hypothetical derivative using a dollar offset approach. In December 2004, we de-designated these swaps and immediately re-designated them in a new hedging relationship in order to adopt a new method of assessing prospective and retrospective effectiveness. At the time of the redesignation these swaps had a fair value near zero. From December 2004 onwards, under Cash ﬂow hedges – Bulyanhulu ﬁnancing Pay-fixed swaps totaling $150 million have been desig- nated against the Bulyanhulu financing, as a hedge of the variability in forecasted interest payments caused by changes in Libor. We have concluded that the hedges are 100% effective under FAS 133, because the conditions of FAS 133 for the assumption of no hedge ineffective- ness have been met. Changes in fair value of the swaps, which relate to future interest payments, are recorded 101 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in OCI. Also, as interest payments on the financing are hedges are 100% effective under FAS 133 because the recorded in earnings, an amount equal to the difference critical terms (including: notional amount and maturity between the fixed-rate interest paid on the swap and the date) of the hedged items and currency contracts are the variable-rate interest paid on the financing is recorded same. For € 26 million, and the remaining C$205 million in earnings as a component of interest costs. and A$454 million portions, prospective and retrospec- Fair value hedges Receive-fixed swaps totaling $500 million have been designated against the 7 1⁄2% debentures as a hedge of the variability in the fair value of the debentures caused by changes in Libor. We have concluded that the hedges are 100% effective under FAS 133, because the critical terms (including: notional amount, maturity date, inter- est payment and underlying interest rate – i.e. Libor) of the swaps and the debentures are the same. Changes in fair value of the swaps, together with an equal corre- sponding change in fair value of the debentures, caused by changes in Libor, are recorded in earnings each period. Also, as interest payments on the debentures are recorded in earnings, an amount equal to the difference between the fixed-rate interest received under the swap less the variable-rate interest paid under the swap is recorded in earnings as a component of interest costs. Non-hedge contracts tive hedge effectiveness is assessed using the hypothetical derivative method under FAS 133. The prospective test involves comparing the effect of a theoretical shift in forward exchange rates on the fair value of both the actual and hypothetical derivative. The retrospective test involves comparing the effect of historic changes in exchange rates each period on the fair value of both the actual and hypothetical derivative using a dollar offset approach. The effective portion of changes in fair value of the currency contracts is recorded in OCI until the forecasted expenditure impacts earnings. For expenditures capitalized to the cost of inventory, this is upon sale of inventory, and for capital expendi- tures, this is when amortization of the capital assets is recorded in earnings. If it is probable that a hedged item will no longer occur, the accumulated gains or losses in OCI for the associated currency contract are reclassified to earnings immedi- We use gold lease rate swaps as described in note 4. The ately. The identification of which currency contracts valuation of gold lease rate swaps is impacted by market are associated with these hedged items uses a last-in, US dollar interest rates. Our non-hedge pay-fixed swap first-out (“LIFO”) approach, based on the order in position mitigates the impact of changes in US dollar which currency contracts were originally designated interest rates on the valuation of gold lease rate swaps. in a hedging relationship. Currency contracts Cash flow hedges Commodity contracts Cash flow hedges Currency contracts totaling C$935 million, A$2,125 Commodity contracts totaling 1,946 thousand barrels million and € 26 million have been designated against of diesel fuel and 29 million gallons of propane have forecasted local currency denominated expenditures been designated against forecasted purchases of the as a hedge of the variability of the US dollar amount commodities for expected consumption at our mining of those expenditures caused by changes in currency operations. The contracts act as a hedge of the impact exchange rates. Hedged items are identified as the first of variability in market prices on the cost of future stated quantity of dollars of forecasted expenditures in a commodity purchases. Hedged items are identified as future month. For a C$730 million and A$1,671 million the first stated quantity in millions of barrels/gallons portion of the contracts, we have concluded that the of forecasted purchases in a future month. Prospective 102 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and retrospective hedge effectiveness is assessed using Derivative assets and liabilities the hypothetical derivative method under FAS 133. The prospective test is based on regression analysis of the month-on-month change in fair value of both the actual derivative and a hypothetical derivative caused by actual historic changes in commodity prices over the last three years. The retrospective test involves comparing the effect of historic changes in commodity prices each period on the fair value of both the actual and hypo- thetical derivative using a dollar offset approach. The effective portion of changes in fair value of the com- modity contracts is recorded in OCI until the forecasted transaction impacts earnings. The cost of commodity consumption is capitalized to the cost of inventory, and therefore this is upon the sale of inventory. If it is probable that a hedged item will no longer occur, the accumulated gains or losses in OCI for the associated commodity contract are reclassified to earnings immediately. The identification of which commodity contracts are associated with these hedged items uses a LIFO approach, based on the order in which commodity contracts were originally designated in a hedging relationship. Non-hedge contracts Non-hedge fuel contracts are used to mitigate the risk of oil price changes on consumption at the Pierina, Eskay Creek and Lagunas Norte mines. On completion of regression analysis, we concluded that the contracts do not meet the “highly effective” criterion in FAS 133 due to currency and basis differences between contract prices and the prices charged to the mines by oil suppliers. Despite not qualifying as an accounting hedge, the contracts protect the Company to a significant extent from the effects of oil price changes. At January 1 Derivatives settled Change in fair value of: Non-hedge derivatives Cash flow hedges Effective portion Ineffective portion Fair value hedges At December 31 Classification: Other current assets Other assets Other current liabilities Other long-term obligations 2004 2003 $ 337 (120) $ 29 (91) 3 52 147 – (8) 348 1 (2) $ 3591 $ 337 1 $ 165 257 (11) (52) $ 154 256 (3) (70) $ 359 $ 337 1. Derivative assets and liabilities are presented net and related amounts due to/from counterparties if the conditions of FIN No. 39, Offsetting of Amounts Related to Certain Contracts, are met. Amounts receivable from counterparties netted against derivative liabilities totaled $16 million at December 31, 2004. Non-hedge derivative gains (losses)1 For the years ended December 31 Non-hedge derivatives Commodity contracts Currency contracts Interest rate contracts Hedge ineffectiveness Ongoing hedge inefficiency Due to changes in timing of hedged items 2004 2003 2002 $ (9) (4) 16 3 – 2 $ 5 $ 3 17 32 52 1 18 $ 71 $ (2) 8 (12) (6) – – $ (6) 1. Non-hedge derivative gains (losses) are classified as a component of other (income) expense. 103 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash Flow Hedge Gains (losses) in OCI Commodity price hedges Currency hedges Interest rate hedges Gold/ Silver Fuel Oper- Admin- istration ating costs costs Capital expen- Cash ditures balances Long- term debt Total $ 25 $ – $ – $ – $ – $ – $ – $ 25 At December 31, 2001 Effective portion of change in fair value of hedging instruments (4) Transfers to earnings: On recording hedged items in earnings At December 31, 2002 Effective portion of change in fair value of hedging instruments Transfers to earnings: On recording hedged items in earnings Hedge ineffectiveness due to changes in timing of hedged items At December 31, 2003 Effective portion of change in fair value of hedging instruments Transfers to earnings: On recording hedged items in earnings Hedge ineffectiveness due to changes in timing of hedged items (12) 9 4 (13) – – – – – At December 31, 2004 $ – – – – 33 (7) 26 – – – – – – 37 (17) 49 (11) 26 5 (12) (25) 49 (1) 251 32 54 9 (1) 348 – – (1) – 219 7 117 (58) (7) – (18) – 25 19 (18)1 36 19 – 17 5 (4) (96) (11) (5) (19) – $ 2 – – (2)1 $ 240 $ 33 $ 48 – $ 3 5 – (8) (91) (18) 288 (20) 147 3 – (132) (2) $(25) $ 3012 Hedge gains/losses classified within Portion of hedge gain (loss) Gold Cost of sales sales Cost of Admin- Amorti- zation istration sales Interest income Interest cost expected to affect 2005 earnings2 $ – $ 3 $ 110 $ 18 $ 2 $ 7 $ (4) $ 136 1. On determining that certain forecasted capital expenditures were no longer likely to occur within two months of the originally specified time frame. 2. Based on the fair value of hedge contracts at December 31, 2004. 104 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS d) Fair Value of Financial Instruments Fair value is the value at which a financial instrument prices, where available. If market quotes are not avail- able, fair value is based on internally developed models could be closed out or sold in a transaction with a will- that use market-based or independent information as ing and knowledgeable counterparty over a period of inputs. These models could produce a fair value that time consistent with our risk management or invest- may not be reflective of future fair value. ment strategy. Fair value is based on quoted market Fair value information At December 31 Financial assets Cash and equivalents1 Accounts receivable1 Investments2 Derivative assets3 Financial liabilities Accounts payable1 Long-term debt4 Derivative liabilities3 Restricted stock units5 2004 2003 Carrying amount Estimated fair value Carrying amount Estimated fair value $ 1,398 58 134 422 $ 2,012 $ 335 1,686 63 6 $ 2,090 $ 1,398 58 134 422 $ 2,012 $ 335 1,731 63 6 $ 2,135 $ 970 56 130 410 $ 1,566 $ 245 760 73 10 $ 1,088 $ 970 56 130 410 $ 1,566 $ 245 841 73 10 $ 1,169 1. Recorded at cost. Fair value approximates the carrying amounts due to the short-term nature and generally negligible credit losses. 2. Recorded at fair value. Quoted market prices, 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. Recorded at fair value using liquid market pricing based on exchange traded prices, broker-dealer quotations or related input factors which assume all counterparties have the same credit rating. 4. Long-term debt is generally recorded at cost except for obligations that are designated in a fair value hedge relationship, which are recorded at fair value in periods where a hedge relationship exists. The fair value of long-term debt is based on current market interest rates, adjusted for our credit quality. 5. Recorded at fair value based on the period end market stock price. e) Credit risk Credit risk is the risk that a third party might fail to ful- For derivatives, when the fair value is positive, this cre- ates credit risk. When the fair value of a derivative is fill its performance obligations under the terms of a negative, we assume no credit risk. In cases where we financial instrument. For cash and equivalents and have a legally enforceable master netting agreement accounts receivable, credit risk represents the carrying with a counterparty, credit risk exposure represents the amount on the balance sheet. net amount of the positive and negative fair values for 105 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS similar types of derivatives. For a net negative amount, > entering into derivatives with high credit-quality we regard credit risk as being zero. A net positive amount for a counterparty is a reasonable measure of credit risk when there is a legally enforceable master netting agreement. We mitigate credit risk by: counterparties; > limiting the amount of exposure to each counter- party; and > monitoring the financial condition of counterparties. Credit quality of ﬁnancial assets At December 31, 2004 Cash and equivalents Derivatives1 Accounts receivable Number of counterparties2 Largest counterparty (%) Concentrations of credit risk At December 31, 2004 Cash and equivalents Derivatives1 Accounts receivable AA– or higher A– or higher B to BBB S&P credit rating $ 744 303 – $ 1,047 14 31.5 $ 654 71 – $ 725 5 35.1 $ – – 58 $ 58 – – United States Canada Other international $ 1,172 145 7 $ 1,324 $ 69 193 22 $ 284 $ 157 36 29 $ 222 Total $ 1,398 374 58 $ 1,830 Total $ 1,398 374 58 $ 1,830 1. The amounts presented reflect the net credit exposure after considering the effect of master netting agreements. 2. For cash and equivalents and derivatives combined. f ) Risks relating to the use of derivatives By using derivatives, in addition to credit risk, we our derivatives. Our counterparties cannot require settlement solely because of an adverse change in the are affected by market risk and market liquidity risk. fair value of a derivative. Market risk is the risk that the fair value of a derivative might be adversely affected by a change in commodity prices, interest rates, gold lease rates, or currency exchange rates, and that this in turn affects our finan- cial 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 Market liquidity risk is the risk that a derivative cannot be eliminated quickly, by either liquidating it or by establishing an offsetting position. Under the terms of our trading agreements, counterparties cannot require us to immediately settle outstanding derivatives, except upon the occurrence of customary events of default such as covenant breaches, including financial covenants, insolvency or bankruptcy. We generally mitigate market liquidity risk by spreading out the maturity of our deriv- atives over time. 106 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. Other Long-Term Obligations reflects the risk-free rate of interest. We prepare esti- mates of timing and amount of expected cash flows At December 31 2004 2003 when an ARO is incurred, which are updated to reflect Asset retirement obligations Pension benefits (note 22) Post-retirement benefits (note 22) Derivative liabilities (note 16c) Restricted stock units (note 21b) Other $ 334 49 26 52 6 32 $ 499 $ 282 48 26 70 10 28 $ 464 a) Asset retirement obligations (AROs) 2004 2003 At January 1 AROs incurred in the period Impact of revisions to expected cash flows $ 318 14 $ 334 – Adjustments to carrying amount of assets Charged to earnings Settlements Cash payments Settlement gains Accretion At December 31 Current part 32 22 (33) (4) 18 367 (33) – 10 (40) (3) 17 318 (36) $ 334 $ 282 In 2003 we adopted FAS 143 and changed our account- ing policy for reclamation and closure costs. Previously we accrued estimated reclamation and closure costs over the life of our mines using the units-of-production method based on the estimated recoverable ounces of gold in proven and probable reserves. AROs arise from the acquisition, development, construc- tion and normal operation of mining property, plant and equipment, due to government controls and regulations that protect the environment on the closure and recla- mation of mining properties. Under FAS 143 we record the fair value of an ARO when it is incurred. At operat- ing mines the effect is recorded as an adjustment to the corresponding asset carrying amount. At closed mines, the adjustment is charged directly to earnings. The fair value of AROs are measured by discounting the expected cash flows using a discount factor that changes in facts and circumstances, or if we are required to submit updated mine closure plans to regulatory authorities. The principal factors that can cause expected cash flows to change are: the construction of new pro- cessing facilities; changes in the quantities of material in reserves and a corresponding change in the life of mine plan; changing ore characteristics can impact required environmental protection measures and related costs; changes in water quality that impact the extent of water treatment required; and changes in laws and regulations governing the protection of the environment. In general, as the end of the mine life becomes nearer, the reliability of expected cash flows increases. AROs are adjusted to reflect the passage of time (accretion) calculated by applying the discount factor implicit in the initial fair value measurement to the beginning of period carrying amount of the AROs. Accretion is recorded in earnings as an operating expense. Upon settlement of an ARO we record a gain or loss if the actual cost differs from the carrying amount of the ARO. Settlement gains are classified in other (income) expense. Other environmental remediation costs that are not AROs as defined by FAS 143 are expensed as incurred (see note 6). The major parts of the carrying amount of AROs at the end of 2004 relate to: tailing and heap leach pad closure/rehabilitation – $69 million; demolition of buildings/mine facilities – $29 million; ongoing water treatment – $93 million; ongoing care and maintenance – $89 million; and other activities – $87 million. 18. Deferred Income Taxes Recognition and measurement We record deferred income tax assets and liabilities where temporary differences exist between the carrying amounts of assets and liabilities in our balance sheet and their tax bases. The measurement and recognition of deferred income tax assets and liabilities takes into 107 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS account: enacted rates that will apply when temporary Expiry dates of tax losses and AMT credits differences reverse; interpretations of relevant tax legis- lation; tax planning strategies; estimates of the tax bases of assets and liabilities; and the deductibility of expenditures for income tax purposes. We recognize the effect of changes in our assessment of these estimates and factors when they occur. Changes in deferred income tax assets, liabilities and valuation allowances are allocated between net income and other comprehen- sive income based on the source of the change. Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries, which are considered to be reinvested indefinitely outside Canada. The determination of the unrecorded deferred income tax liability is not considered practicable. Sources of deferred income tax assets and liabilities 2004 20031 $ 295 48 $ 388 52 121 3 106 158 18 9 758 (578) 180 (127) (95) 120 3 85 129 21 40 838 (554) 284 (443) (99) At December 31 Deferred tax assets Tax loss carry forwards Capital tax loss carry forwards Alternative minimum tax (“AMT”) credits Foreign tax credits Asset retirement obligations Property, plant and equipment Post-retirement benefit obligations Other Gross deferred tax assets Valuation allowances Net deferred tax assets Deferred tax liabilities Property, plant and equipment Derivatives Classification: Non-current assets (note 14) Non-current liabilities ’05 ’06 ’07 ’08 ’09+ No expiry date Total Tax losses1 Chile Tanzania U.S. Other $ – $ – – – 23 – – 28 $ – $ – $ – – 6 – – 14 – $670 $ 670 152 – 224 224 204 109 152 – 24 $28 $23 $6 $14 $333 $846 $1,250 AMT credits2 – – – – – $121 $ 121 1. Represents the gross amount of tax loss carry forwards translated at closing exchange rates at December 31, 2004. 2. Represents the amounts deductible against future taxes payable in years when taxes payable exceeds “minimum tax” as defined by United States tax legislation. Valuation allowances We consider the need to record a valuation allowance against deferred tax assets on a country-by-country basis, taking into account the effects of local tax law. A valuation allowance is not recorded when we conclude that sufficient positive evidence exists to demonstrate that it is more likely than not that a deferred tax asset will be realized. The main factors considered are: > historic and expected future levels of future taxable income; > opportunities to implement tax plans that affect whether tax assets can be realized; and > the nature, amount and expected timing of reversal of taxable temporary differences. Levels of future taxable income are mainly affected by: market gold and silver prices; forecasted future costs and expenses to produce gold reserves; quantities of $ (42) $(258) proven and probable gold reserves; market interest rates $ 97 (139) $ 59 (317) $ (42) $(258) and foreign currency exchange rates. If these factors or other circumstances change, we record an adjustment to the valuation allowances to reflect our latest assessment of the amount of deferred tax assets that will more likely 1. 2003 deferred tax asset balances for property, plant and equipment and other have been restated with a corresponding restatement of valuation allowances. than not be realized. A valuation allowance of $34 million has been set up against certain deferred tax assets in Argentina. Historically, we have had no income generating 108 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS operations in Argentina, but following the production start-up at Veladero in 2005, various factors will affect future levels of taxable income in Argentina, including the volume of gold produced and sold, gold selling prices 19. Capital Stock a) Common shares Our authorized capital stock includes an unlimited and costs incurred to produce gold. It is reasonably pos- number of common shares (issued 533,575,185 shares); sible that an adjustment will be made to this valuation 9,764,929 First preferred shares, Series A (issued nil); allowance in the near term. A valuation allowance of 9,047,619 Series B (issued nil); 1 Series C special voting $189 million has been set up against certain deferred share (issued 1); and 14,726,854 Second preferred shares tax assets in the United States. A majority of this valua- Series A (issued nil). tion allowance relates to AMT credits which have an unlimited carry forward period. Increasing levels of future taxable income due to gold selling prices and other factors and circumstances may result in an adjustment to this valuation allowance. Source of changes in deferred tax balances For the years ended December 31 Temporary differences Property, plant and equipment Asset retirement obligations Tax loss carry forwards Derivatives Other Adjustment to deferred tax balances due to change in tax status1 Release of beginning of year 2004 2003 2002 $ (86) (21) 93 (4) (5) $ 26 (2) (10) 82 4 $ (23) $ 100 $(30) 4 (22) 13 (5) $(40) (81) – – valuation allowances (5) Outcome of tax uncertainties (120) (62) – – (22) $(229) $ 38 $(62) Intraperiod allocation to: Income before income taxes Cumulative $(225) $ (49) $(75) accounting changes OCI Balance sheet reclassifications – (4) 13 5 82 23 – 17 (17) During 2004, we repurchased 4.47 million common shares (2003: 8.75 million) for $95 million (2003: $154 million), at an average cost of $21.20 per share (2003: $17.56). This resulted in a reduction of common share capital by $35 million (2003: $67 million) and a $60 million charge (being the difference between the repurchase cost and the average historic book value of shares repurchased) to retained earnings (2003: $87 million). In 2004, we declared and paid dividends in US dollars totaling $0.22 per share (2003 – $0.22 per share, 2002 – $0.22 per share). b) Exchangeable Shares In connection with a 1998 acquisition, Barrick Gold Inc. (“BGI”), issued 11.1 million BGI exchangeable shares, which are each exchangeable for 0.53 of a Barrick common share at any time at the option of the holder, and have essentially the same voting, dividend (payable in Canadian dollars), and other rights as 0.53 of a Barrick common share. BGI is a subsidiary that holds our interest in the Hemlo and Eskay Creek Mines. At December 31, 2004, 1.4 million (2003 – 1.5 million) BGI exchangeable shares were outstanding, which are equivalent to 0.7 million Barrick common shares (2003 – 0.8 million common shares). The equivalent common share amounts are reflected in the number of common $(216) $ 61 $(75) shares outstanding. 1. Relates to change in tax status in Australia (note 7). 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 109 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Barrick common share. While there are exchangeable At December 31 2004 2003 shares outstanding, we are required to present summary consolidated financial information relating to BGI. Summarized ﬁnancial information for BGI Assets Current assets Non-current assets For the years ended December 31 Total revenues 2004 2003 2002 and other income Less: costs and expenses $ 216 287 $ 226 238 $ 203 191 Income (loss) before taxes $ (71) $ (12) $ 12 Net loss $ (41) $ (31) $ (1) Liabilities and shareholders’ equity Other current liabilities Intercompany notes payable Other long-term liabilities Deferred income taxes Shareholders’ equity $ 67 119 $ 186 $ 81 236 $ 317 24 395 36 20 (289) 20 545 9 67 (324) $ 186 $ 317 20. Other Comprehensive Income (Loss) (“OCI”) Accumulated OCI at January 1 Cash flow hedge gains, net of tax of $99, $17, $nil Investments, net of tax of $nil, $nil, $nil Currency translation adjustments, net of tax of $nil, $nil, $nil Additional pension liability, net of tax of $nil, $nil, $nil OCI for the year: Changes in fair value of cash flow hedges Changes in fair value of investments Currency translation adjustments Adjustments to pension liability Less: reclassification adjustments for gains/losses recorded in earnings Transfers of cash flow hedge gains to earnings: On recording hedged items in earnings Hedge ineffectiveness due to changes in timing of hedged items Investments: (Gains) losses realized on sale Other than temporary impairment charges OCI, before tax Income tax recovery (expense) related to OCI 2004 2003 2002 $ 189 38 (147) (7) $ 73 147 (27) 1 (5) (132) (2) (6) 5 (19) 4 $ 32 (6) (144) (7) $(125) 348 37 (3) – (91) (18) (4) 11 280 (82) $ 25 (4) (123) (5) $(107) 49 (5) (21) (2) (25) – 3 – (1) (17) Other comprehensive income (loss), net of tax $ (15) $ 198 $ (18) Accumulated OCI at December 31 Cash flow hedge gains, net of tax of $95, $99, $17 Investments, net of tax of $nil, $nil, $nil Currency translation adjustments, net of tax of $nil, $nil, $nil Additional pension liability, net of tax of $nil, $nil, $nil 206 10 (146) (12) 189 38 (147) (7) 32 (6) (144) (7) $ 58 $ 73 $(125) 110 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Stock-Based Compensation a) Stock options Employee stock option activity (number of shares in millions)2 2004 2003 2002 Shares Average price Shares Average price Shares Average price 22 1 (2) (2) 19 2 5 (1) – 6 $ 28 $ 25 $ 28 $ 24 $ 15 – 19 5 (1) (1) 22 3 – (1) – 2 $ 29 $ 24 $ 28 – $ 13 – 19 6 (4) (2) 19 6 – (2) (1) 3 $ 25 $ 25 $ 34 $ 12 $ 25 C$ options At January 1 Granted Exercised1 Cancelled/expired At December 31 US$ options At January 1 Granted Exercised1 Cancelled/expired At December 31 1. The exercise price of the options is the closing share price on the day before the grant date. They vest evenly over four years, beginning in the year after granting, and are exercisable over 7–10 years. At December 31, 2004, 13 million (2003 – 1 million, 2002 – 5 million) common shares, in addition to those currently outstanding, were available for granting options. 2. We are also obliged to issue about 0.3 million common shares (2003 – 0.5 million common shares) in connection with out- standing stock options assumed as part of a business combination in 1999. These options have an average exercise price of C$20 (2003 – C$20) and an average remaining term of one year. Stock options outstanding (number of shares in millions) Range of exercise prices C$ options $ 22 – $ 31 $ 32 – $ 43 US$ options $ 9 – $ 18 $ 22 – $ 37 Outstanding Average price Average life (years) Shares Exercisable Shares Average price 17 2 19 1 5 6 $ 27 $ 39 $ 12 $ 24 7 2 6 5 6 6 10 2 12 – 1 1 $ 26 $ 39 – $ 30 We record compensation cost for stock options based Historically, the exercise price for stock options has on the excess of the market price of the stock at the equaled the market price of stock at the grant date, grant date of an award over the exercise price. resulting in no compensation cost. 111 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Option information For the years ended December 31 (per share and option amounts in dollars) 2004 2003 2002 $ 6.87 $ 8.50 $ 6.40 6 6 5 30% 40% 40% 1.0% 1.0% 1.4% 3.8% 4.5% 5.0% Fair value per option Valuation assumptions: Expected term (years) Volatility Dividend yield Risk-free interest rate Pro forma effects Net income, as reported Stock-option expense third anniversary of the grant date. Additional RSUs are credited to reflect dividends paid on Barrick common shares. RSUs are recorded at fair value on the grant date, with a corresponding amount recorded as deferred compensation that is amortized on a straight-line basis over the vesting period. Changes in the fair value of the RSUs are recorded, with a corresponding adjustment to deferred compensation. Compensation expense for 2004 was $4 million (2003 – $4 million). At December 31, 2004, the weighted average remaining contractual life $ 248 (29) $ 200 (24) $ 193 (21) of RSUs was 2 years. Pro forma net income $ 219 $ 176 $ 172 Net income per share: As reported – Basic As reported – Diluted Pro forma1 1. Basic and diluted. $ 0.47 $ 0.46 $ 0.37 $ 0.37 $ 0.36 $ 0.36 $ 0.41 $ 0.33 $ 0.32 b) Restricted Stock Units (RSUs) and Deferred Share Units (DSUs) Under our RSU Plan, selected employees are granted RSUs, where each RSU has a value equal to one Barrick common share. RSUs vest and will be settled on the Under our DSU plan, Directors receive 50% of their basic annual retainer in the form of DSUs, with the option to elect to receive 100% of such retainer in DSUs. Each DSU has the same value as one Barrick common share. DSUs must be retained until the Director leaves the Board, at which time the cash value of the DSUs will be paid out. Additional DSUs are credited to reflect dividends paid on Barrick common shares. DSUs are recorded at fair value on the grant date and are adjusted for changes in fair value. Director’s fee expense for DSUs for 2004 was $0.6 million (2003: $0.2 million). DSU and RSU activity At December 31, 2001 Canceled Dividends At December 31, 2002 Canceled Granted Dividends At December 31, 2003 Canceled Settled Granted Dividends At December 31, 2004 DSUs (in thousands) Fair value per unit (in dollars) RSUs (in thousands) Fair value per unit (in dollars) – – – – – 8 – 8 – – 23 – 31 $ – – – $ – – 21 – $ 23 – – 22 – $ 24 515 (30) 4 489 (171) 130 4 452 (58) (293) 131 3 235 $ 16 20 17 $ 15 17 22 20 $ 23 23 25 24 20 $ 24 112 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pension expense For the years ended December 31 Return on plan assets Service cost Interest cost Actuarial gains (losses) Gain (loss) on curtailment/settlement 2004 2003 2002 $ (11) – 12 1 $ (11) – 14 – $ (17) 3 16 (1) (2) $ – 1 1 $ 4 $ 2 c) Pension plan 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 2004 2003 $ 166 14 6 (16) $ 170 19 8 (31) Balance at December 31 $ 170 $ 166 At December 31 2004 2003 Target Actual Actual Actual Composition of plan assets: Equity securities 50% 46% $ 78 92 Debt securities 50% 54% 100% 100% $ 170 $ 66 100 $ 166 22. Post-Retirement Beneﬁts a) Deﬁned contribution pension plans Certain employees take part in defined contribution employee benefit plans. We also have a retirement plan for certain officers of the Company, under which we contribute 15% of the officer’s annual salary and bonus. Our share of contributions to these plans, which is expensed in the year it is earned by the employee, was $19 million in 2004, $16 million in 2003 and $13 mil- lion in 2002. b) Deﬁned beneﬁt pension plans We have one qualified defined benefit pension plan that covers certain of our United States employees and provides benefits based on employees’ years of service. Our policy is to fund the amounts necessary on an actuarial basis to provide enough assets to meet the benefits payable to plan members under the Employee Retirement Income Security Act of 1974. Independent trustees administer assets of the plans, which are invested mainly in fixed-income and equity securities. On December 31, 2004, the qualified defined benefit plan was amended to freeze benefit accruals for all employees, resulting in a curtailment gain of $2 million. As well as the qualified plan, we have nonqualified defined benefit pension plans covering certain employees and former directors of the Company. An irrevocable trust (“rabbi trust”) was set up to fund these plans. The fair value of assets held in this trust was $31 million in 2004 (2003 – $32 million), and is recorded in our consolidated balance sheet under Investments. Actuarial gains and losses arise when the actual return on plan assets differs from the expected return on plan assets for a period, or when the expected and actuarial accrued benefit obligations differ at the end of the year. We amortize actuarial gains and losses over the average remaining life expectancy of plan participants, in excess of a 10% corridor. 113 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Projected beneﬁt obligation (PBO) For the years ended December 31 Balance at January 1 Interest cost Actuarial losses Benefits paid Curtailments/settlements Balance at December 31 Funded status1 Unrecognized actuarial losses 2004 2003 $ 221 12 3 (16) (2) $ 227 14 11 (31) – $ 218 $ 221 $ (48) 11 $ (55) 11 Net benefit liability recorded $ (37) $ (44) ABO2,3 $ 217 $ 217 1. Represents the fair value of plan assets less projected benefit obligations. Plan assets exclude investments held in a rabbi trust that are recorded separately on our balance sheet under Investments (fair value $31 million at December 31, 2004). In the year ending December 31, 2005, we do not expect to make any further contributions. 2. For 2004 we used a measurement date of December 31, 2004 to calculate accumulated benefit obligations. 3. Represents the ABO for all plans. The ABO for plans where the PBO exceeds the fair value of plan assets was $49 million (2003: $217 million). Investment strategy We employ a total return investment approach, whereby a mix of equities and fixed-income investments is used to maximize the long-term return of plan assets. Risk is diversified through a blend of equity and fixed-income investments, and also across geography and market capitalization in US large cap stocks, US small cap stocks, and international securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews. Expected future beneﬁt payments For the years ending December 31 2005 2006 2007 2008 2009 2010 – 2014 $ 16 15 16 16 16 $ 89 Total recorded beneﬁt liability At December 31 Current Non-current Benefit plan liability Additional minimum liability (note 20) 2004 2003 $ – 37 $ 37 12 $ 49 $ 3 41 $ 44 7 $ 51 d) Actuarial assumptions For the years ended December 31 Discount rate1 Benefit obligation Pension cost Return on plan assets1 Wage increases 2004 2003 2002 5.50% 6.25% 6.50% 6.25% 6.50% 6.75% 7.00% 7.00% 8.50% 5.00% 5.00% 5.00% 1. Effect of a one-percent change: Discount rate: $22 million change in ABO and change in pension cost; Return on plan assets: $2 million change in pension cost. e) Other post-retirement beneﬁts We provide post-retirement medical, dental, and life insurance benefits to certain employees. We use the corridor approach in the accounting for post-retirement benefits. Actuarial gains and losses resulting from vari- ances between actual results and economic estimates or actuarial assumptions are deferred and amortized over Rate of return on plan assets In estimating the long-term rate of return for plan assets, the average remaining life expectancy of participants when the net gains or losses exceed 10% of the accumu- historical markets are studied and long-term historical lated post-retirement benefit obligation. In 2004, we returns on equities and fixed-income investments reflect recorded a benefit expense of $2 million (2003 – $nil, the widely accepted capital market principle that assets 2002 – $nil). with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are finalized. 114 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other post-retirement beneﬁts expense Expected future beneﬁt payments For the years ending December 31 2004 2003 2002 $ 2 – – $ 2 $ 1 – (1) $ – $ 2 (1) (1) $ – 2005 2006 2007 2008 2009 2010 – 2014 $ 2 2 2 2 2 $ 9 2004 2003 23. Contingencies, $ – 2 (2) $ – $ – 2 (2) $ – Litigation and Claims Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result 2004 2003 in such proceedings, the Company and its legal counsel For the years ended December 31 Interest cost Prior service cost Curtailments/settlements Fair value of plan assets For the years ended December 31 Balance at January 1 Contributions Benefits paid Balance at December 31 Accumulated post-retirement beneﬁt obligation (APBO) For the years ended December 31 Balance at January 1 Interest cost Actuarial losses Benefits paid Balance at December 31 Funded status Unrecognized actuarial losses $ 24 2 5 (2) $ 29 (29) 1 $ 28 1 (3) (2) $ 24 (24) (4) Net benefit liability recorded $(28) $(28) We have assumed a health care cost trend of 10% in 2004, decreasing ratability to 5% in 2009 and thereafter. The assumed health care cost trend had a minimal effect on the amounts reported. A one percentage point change in the assumed health care cost trend rate at December 31, 2004 would have 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 2004. evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency suggests that a loss is probable, and the amount can be reliably estimated, then a loss is recorded. When a contingent loss is not probable but is reasonably possible, or is probable but the amount of loss cannot be reliably estimated, then details of the contingent loss are disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case we disclose the nature of the guarantee. Legal fees incurred in connection with pending legal proceedings are expensed as incurred. Bre-X Minerals In 1998, we were added as a defendant in a class action lawsuit initiated against Bre-X Minerals Ltd., and certain 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 115 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS misleading and omitted to state material facts relating to in part and denying in part Barrick’s motions to dismiss the preliminary due diligence investigation undertaken this action. Discovery has commenced in the case and by us in late 1996. a trial date has been tentatively set for July 2005. We On March 31, 2003, the Court denied all of the Plain- tiffs’ motions to certify the case as a class action. The Plaintiffs have not filed an interlocutory appeal of the intend to defend the action vigorously. McKenzie complaint On September 21, 2004, a putative class action com- Court’s decision denying class certification to the Fifth plaint was filed in the U.S. District Court for the Eastern Circuit Court of Appeals. On June 2, 2003, the Plain- District of Louisiana against Barrick and J.P. Morgan. tiffs submitted a proposed Trial and Case Management The plaintiffs, Dr. Gregg McKenzie and others are Plan, suggesting that the Plan would cure the defects in alleged purchasers of gold and gold derivatives. The the Plaintiffs’ motions to certify the class. The Court complaint alleges violations of the U.S. anti-trust laws has taken no action with respect to the proposed Trial and also of the Commodity Exchange Act, based and Case Management Plan. The Plaintiffs’ case against upon the same conduct as alleged in the Blanchard the Defendants may now proceed in due course, but not complaint. The complaint seeks damages and an on behalf of a class of Plaintiffs but only with respect to injunction terminating certain of our trading agree- the specific claims of the Plaintiffs named in the lawsuit. ments with J.P. Morgan. On December 17, 2004, a Having failed to certify the case as a class action, we second and substantially identical complaint was filed believe that the likelihood of any of the named Defen- in the same court against the same defendants. Barrick dants succeeding against Barrick with respect to their has not yet been served with this second complaint. claims for securities fraud is remote. The amount of Barrick intends to defend both actions vigorously. potential loss, if any, which we may incur arising out of the Plaintiffs’ claims is not determinable. Blanchard complaint On January 7, 2003, we were served with a Complaint Wagner complaint On June 12, 2003, a complaint was filed against Barrick and several of its current or former officers in the U.S. District Court for the Southern District of New York. for Injunctive Relief by Blanchard and Company, Inc. The complaint is on behalf of Barrick shareholders who (“Blanchard”), and Herbert Davies (“Davies”). The purchased Barrick shares between February 14, 2002 complaint, which is pending in the U.S. District Court and September 26, 2002. It alleges that Barrick and for the Eastern District of Louisiana, also names J.P. the individual defendants violated U.S. securities laws Morgan Chase & Company (“J.P. Morgan”) as a defen- by making false and misleading statements concerning dant, along with an unspecified number of additional Barrick’s projected operating results and earnings in defendants to be named later. The complaint, which has 2002. The complaint seeks an unspecified amount of been amended several times, alleges that we and bullion damages. Other parties on behalf of the same proposed banks with whom we entered into spot deferred gold class of Barrick shareholders filed several other com- sales contracts have manipulated the price of gold, plaints, making the same basic allegations against in violation of U.S. anti-trust laws and the Louisiana the same defendants. In September 2003, the cases Unfair Trade Practices and Consumer Protection Law. were consolidated into a single action in the Southern Blanchard and Davies both allege that they have been District of New York. The plaintiffs filed a Consolidated injured as a seller of gold due to reduced interest in and/or Amended Complaint on November 5, 2003. On gold as an investment. The complaint seeks damages January 14, 2004 Barrick filed a motion to dismiss the and an injunction terminating certain of our trading complaint. On September 29, 2004, the Court issued agreements with J.P. Morgan and other bullion banks. an order granting in part and denying in part Barrick’s In September 2003 the Court issued an Order granting motion to dismiss the action. The Court granted the 116 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS plaintiffs leave to file a Second Amended Complaint, which was filed on October 20, 2004. The plaintiffs filed a Third Amended Complaint on January 6, 2005. We intend to defend the action vigorously. Wilcox complaint On September 8, 2004, two of our U.S. subsidiaries, Homestake Mining Company of California (“Home- stake California”) and Homestake Mining Company (“Homestake”) were served with a First Amended Complaint by persons alleging to be current or former residents of a rural area near the former Grants Uranium Mill. The Complaint, which was filed in the U.S. District Court for the District of New Mexico, identifies 26 plaintiffs. Homestake and Homestake California, along with an unspecified number of unidentified defen- dants, are named as defendants. The plaintiffs allege that they have suffered a variety of physical, emotional and financial injuries as a result of exposure to radio- active and other hazardous substances. The Complaint seeks an unspecified amount of damages. A motion to dismiss the claim was filed with the Court, but the Court has not yet ruled on the motion. We intend to defend the action vigorously. 24. Joint Ventures Our major interests in joint ventures are a 50% interest in the Kalgoorlie Mine in Australia; a 50% interest in the Round Mountain Mine in the United States; and a 50% interest in the Hemlo Mine in Canada. Summary ﬁnancial information (100%) Income statement and cash ﬂow information Balance sheet information At December 31 Assets Inventories Property, plant and equipment Other assets Liabilities Current liabilities Long-term obligations 2004 2003 $ 102 506 93 $ 701 $ 87 110 $ 197 $ 99 543 64 $ 706 $ 77 104 $ 181 25. Differences from Canadian Generally Accepted Accounting Principles These consolidated financial statements have been pre- pared in accordance with US GAAP. A reconciliation of our income statement and balance sheet between US GAAP and Canadian GAAP is presented below together with a description of the significant measure- ment differences affecting these financial statements. a) Business combinations The acquisitions of Sutton Resources Ltd. (“Sutton”) and Homestake Mining Company (“Homestake”), which were accounted for using the pooling-of-interests method under US GAAP, were accounted for as a purchase 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, cash flow For the years ended December 31 Revenues Costs and expenses Net income Operating activities1 Investing activities1 Financing activities1 1. Net cash inflow (outflow). 2004 2003 2002 and balance sheets of the merged entities adjusted to $ 889 663 $ 226 $ 291 $ (46) – $ $ 775 638 $ 137 $ 127 $ (60) – $ $ 650 582 $ 68 $ 175 $ (54) – $ 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 117 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS one of the combining companies could be identified as GAAP, exploration and development expenditures an acquirer. In situations where voting shares were incurred on properties where mineralization has not issued or exchanged to effect the combination, factors been classified as a proven and probable reserve under relating to control over the resultant combined company SEC rules are expensed as incurred. Accordingly, cer- were considered. Under these previous rules, due to the tain expenditures are capitalized for Canadian GAAP fact that the Barrick shareholders (as a group) held purposes but expensed under US GAAP. 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 Canadian GAAP compared with US GAAP. These differences arise because their fair values at the date of acquisition differed from historic cost, which is the basis of accounting under the pooling-of-interests method under US GAAP. The assets and liabilities most significantly affected are: property, plant and equipment, inventories, and goodwill. b) Exploration and development expenditures For Canadian GAAP purposes, we capitalize mine development costs on our properties after proven and probable reserves have been found as well as on some properties where we have found non-reserve material that does not meet all the criteria required for classifica- tion as proven or probable reserves. The determination as to whether the existence of non-reserve material should result in the capitalization of mine development costs is based on various factors, including: the exis- tence and nature of known mineralization; the location of the property (for example, whether the pres- ence of existing mines and ore bodies in the immediate vicinity increases the likelihood of development of a mine 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 mineralization is expected to be commercially recoverable. Under US 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 proven and probable mineral reserves and non-reserve material (when sufficient objective evi- dence exists to support a conclusion that it is probable the non-reserve material will be produced). For US GAAP purposes, amortization is calculated for histori- cal capitalized costs incurred to access specific ore blocks or areas using only proven and probable reserves within the specific block or area; infrastructure and other common costs which have a useful life over the entire mine are amortized over total accessible proven and probable reserves of the mine. These different meth- ods result in a different rate of amortization for Canadian GAAP compared to US GAAP. In addition, a difference in the amount of amortization expense results where differences exist in the carrying amounts of property, plant and equipment between US GAAP and Canadian GAAP, due to the historic effects of the application of GAAP to these items (for example, arising from differences in business combinations accounting, capitalization of exploration expenditures, and accounting for asset retirement obligations). d) Goodwill Under Canadian GAAP, on the acquisition of Home- stake, 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 in the reporting unit. Under Canadian GAAP, we test goodwill for impair- ment annually in the fourth quarter of our fiscal year, however, if there is indication of an impairment in goodwill during the year, we will do an assessment at that time. This impairment assessment involves estimat- 118 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ing the fair value of each reporting unit that includes ing costs were included in impairment evaluations, but goodwill. We compare this fair value to the total carry- where an asset was impaired, the asset was reduced ing amount of the reporting unit (including goodwill). to its net recoverable amount, calculated as the esti- If the fair value exceeds this carrying amount, we con- mated future undiscounted net cash flow expected to sider that goodwill is not impaired. If the fair value is be generated by the asset. Under US GAAP, if assets less than this carrying amount, then we estimate the fair are impaired, a reduction in the carrying amount to values of all identifiable assets and liabilities in the estimated fair value is required. Fair value is estimated reporting unit, and compare this net fair value of assets by discounting the expected future net cash flows using less liabilities to the estimated fair value of the entire a discount factor. The adoption of CICA 3063 under reporting unit. The difference represents the fair value Canadian GAAP on January 1, 2004 conformed the of goodwill, and if necessary, we reduce the carrying measurement of impairment with US GAAP prospec- amount of goodwill to this fair value. tively for future periods. e) Future income taxes Under US GAAP, acquisitions occurring prior to g) Investments Under US GAAP available for sale securities are January 1, 2000 have been accounted for by grossing up recorded at fair value, with unrealized gains or losses assets and deferred tax liabilities for the underlying tax included in other comprehensive income. Under effect of treating the purchase consideration allocated Canadian GAAP, the concept of comprehensive income to assets acquired that is not tax deductible as a does not exist and these investments are recorded temporary taxable difference. Under the transition pro- at cost. visions of CICA 3465, that was adopted effective January 1, 2000, the recorded amounts of assets acquired were not restated to reflect differences in their carrying amounts at acquisition 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. h) Derivatives Under Canadian GAAP, derivatives that qualify for hedge accounting treatment are recognized 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 derivatives are recognized on the balance sheet at fair value with a corresponding charge Where assets and liabilities are recorded at different or credit 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 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. f) Impairment evaluations for long-lived assets Under US GAAP, financing costs are excluded from the i) Minimum pension liability Under US GAAP, if the accumulated pension plan bene- fit 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 evaluation of long-lived assets for impairment purposes. a minimum liability and does not have the concept of Under Canadian GAAP, in years 2003 and prior, financ- comprehensive income. 119 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS j) Asset retirement obligations Under US GAAP, FAS 143 was adopted effective m) Stock-based compensation Under US GAAP, through the end of 2004 we continued January 1, 2003 relating to asset retirement obligations. to account for stock-based compensation using the Under Canadian GAAP, a similar standard was effective intrinsic value method under APB 25. Under Canadian for our 2004 fiscal year, CICA 3110 – Asset Retirement GAAP, effective January 1, 2004, CICA 3870, Stock- Obligations. CICA 3110 required retroactive restatement Based Compensation and Other Stock-Based Payments of financial statements for prior periods, and accord- became effective, and required us to record a compen- ingly comparative information for Canadian GAAP sation expense in our income statement based on the now reflects the requirements of CICA 3110. Both of fair value of options granted. We elected to adopt CICA these standards are established for the recognition and 3870 retroactively with restatement of prior periods to measurement of liabilities for legal obligations include an expense of the type that was previously associated with the retirement of a long-lived asset that included under the pro forma note disclosure. The result from its acquisition, construction, development cumulative amount of compensation expense under or normal operation. Under US GAAP, the effect of Canadian GAAP was recorded within contributed sur- the adoption of FAS 143 was recorded in the income plus in the balance sheet. The adoption of FAS 123R statement for the three months ended March 31, 2003. under US GAAP in 2005 will conform the accounting Under Canadian GAAP, the cumulative effect was treatment with Canadian GAAP for future stock option recorded as an adjustment to the opening retained grants, but some differences will remain between US earnings for the earliest period presented. Due to and Canadian GAAP for stock option grants in 2004 the difference in timing of adoption of FAS 143 and and prior years due to the differing transition rules CICA 3110, the amount of amortization and accretion under CICA 3870 and FAS 123R. recorded differ under US and Canadian GAAP. k) Foreign currency Under US GAAP, translation adjustments that arise on the translation of financial statements of entities whose functional currency is not the US dollar are reported as a component of comprehensive income. Under Canadian GAAP, the concept of comprehensive income does not exist and these translation adjustments are reported as a separate component of shareholders’ equity, called “cumulative translation adjustments”. l) Revenue Under Canadian GAAP purchase accounting rules, Homestake gold sales contracts existing at the date of acquisition 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 accounting practices. 120 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS n) Consolidated Balance Sheets For the years ended December 31 2004 2003 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 a h, l g and equipment a, b, c, f, j Capitalized mining costs, net Goodwill Other assets a, d a, e, h, l $ 1,398 58 215 286 1,957 134 3,391 226 – 566 $ – $ 1,398 – 58 217 2 181 (105) (103) (10) 1,854 124 1,138 – 868 (333) 4,529 226 868 233 $ 970 56 164 178 1,368 130 3,128 235 – 497 $ – $ 970 56 – 167 3 66 (112) (109) (38) 1,259 92 1,331 – 1,081 (284) 4,459 235 1,081 213 Total assets $ 6,274 $ 1,560 $ 7,834 $ 5,358 $ 1,981 $ 7,339 Liabilities and Shareholders’ Equity Accounts payable Other current liabilities h, j h Long-term debt Other long-term obligations h, i, j Deferred/Future income tax liabilities e Total liabilities a a Capital stock Retained earnings (deficit) Accumulated other comprehensive income (loss) Contributed surplus Cumulative translation adjustments g, h, i, k m k $ 335 83 $ – $ 335 72 (11) $ 245 119 $ – $ 245 133 14 418 1,655 499 139 2,711 4,129 (624) 58 – – (11) 5 (28) (34) (68) 859 819 (58) 31 (23) 407 1,660 471 105 2,643 4,988 195 – 31 (23) 364 719 464 317 1,864 4,115 (694) 73 – – 14 (1) (30) 59 378 718 434 376 42 1,906 861 1,162 4,976 468 (73) 13 (24) – 13 (24) Total shareholders’ equity 3,563 1,628 5,191 3,494 1,939 5,433 Total liabilities and shareholders’ equity $ 6,274 $ 1,560 $ 7,834 $ 5,358 $ 1,981 $ 7,339 1. Effective January 1, 2004, we adopted CICA 3870 and CICA 3110 and changed our accounting policies for stock options and asset retirement obligations. These pronouncements were adopted retroactively with restatement of prior periods. 121 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS o) Reconciliation of shareholders’ equity At December 31, 2004 Capital stock Retained earnings (deficit) Other comprehensive income Cumulative translation adjustments Notes $ 4,129 $(624) $ 58 $ – Balance per US GAAP Adjustments (net of tax effects): Valuation of equity issued in business combinations1 Cumulative effect of differences in accounting policies Amortization of property, plant and equipment Exploration and development costs Provisions for mining assets in 2000 and 1997 2 Investments Derivatives accounted for as cash flow hedges Non-hedge derivative adjustments Minimum pension liability Asset retirement obligations Interest capitalization Stock-based compensation expense Classification of exchangeable shares 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 property, plant and equipment Deferred revenue Gains on asset sales Merger related costs Impairment of long-lived assets Homestake inventory Impairment of goodwill Effect of different book values of capital stock on common share repurchases Deferred income taxes Effect of difference in timing of adoption of CICA 3465 versus FAS 109 Effect on deferred tax assets and liabilities of temporary differences for US GAAP and Canadian GAAP purposes Tax valuation allowances Reclassification of translation adjustments c b g h i j p2 m a a c l a p7, p8 a d e e p3 k (293) (11) (1) 1,185 183 159 683 – – (25) – (5) 8 (35) 1 – 749 (111) (23) (40) 19 (107) (23) (232) (21) 21 (284) 16 (135) – (10) (206) 12 122 1 24 $ – (24) $(23) Balance per Canadian GAAP $ 4,988 $ 195 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. 122 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS p) 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 Asset retirement obligations Cumulative effect of accounting changes under US GAAP Gains on asset sales1 Interest capitalized2 Release of deferred income tax valuation allowances3 Future income tax expense4 Deferred revenue Non-hedge derivative adjustments5 Homestake inventory6 Impairment of goodwill7 Impairment of long-lived assets8 Stock-based compensation expense9 Other items Net income (loss) – Canadian GAAP Net income (loss) per share (dollars) Basic and fully diluted c b j c, j a a, e e l a d 2004 $ 248 (16) 25 1 – (32) 4 (29) 60 – – (1) (184) (160) (21) 3 $ (102) 2003 $ 200 4 53 10 17 (10) 9 (87) 10 (29) – (2) (48) – (12) 2 $ 117 2002 $ 193 28 52 (9) – – – (19) 15 (20) (26) (21) – – (2) 11 $ 202 $(0.19) $ 0.22 $ 0.37 1. The gains on sale under Canadian GAAP are 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 Lagunas Norte and Veladero projects met the criteria for interest capitalization earlier than under US GAAP. 3. In 2004, a release of valuation allowance of $29 million was recorded as a reduction of goodwill under Canadian GAAP, but this amount was recorded in earnings under US GAAP. In 2003, 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 in 2003 relates to a release of valuation allowances under US GAAP totaling $118 million that has been recorded as a reduction of goodwill and other intangible assets 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 differences under Canadian GAAP caused by other adjustments that were made to reconcile US GAAP net income to Canadian GAAP net income. The adjustment also reflects other differences in accounting for income taxes as described in note 25e. 5. Certain derivatives 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. In 2004, an impairment charge of $184 million (2003 – $48 million) was recorded against goodwill that arose in the Homestake merger under Canadian GAAP. 8. Various exploration properties in Peru were written down by $67 million under US GAAP in 2004 on completion of an impair- ment test. The carrying amount of these properties was $nil under Canadian GAAP due to historic differences in the purchase accounting treatment between US and Canadian GAAP when the properties were originally acquired in 1996. Under Canadian GAAP, impairment charges totaling $227 million were recorded against the carrying amount of the Cowal development project and various Australian exploration-stage properties acquired in the Homestake merger whose carrying amounts are higher than US GAAP because they were recorded at fair value at the date of acquistition. 9. Under Canadian GAAP a new accounting standard was adopted in 2004 that requires the expensing of stock options. The new Canadian GAAP accounting standard was adopted retroactively with restatement of prior periods. Under US GAAP, the adoption of FAS 123R in 2005 will conform the accounting treatment of stock options, although due to differing transitional rules under US GAAP some differences from Canadian GAAP will remain. 123 BARRICK Annual Report 2004 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS q) Consolidated statements of cash ﬂow under Canadian GAAP Exploration and development expenditures that were capitalized under Canadian GAAP, but expensed under US GAAP, were $25 million in 2004 (2003 – $53 million; 2002 – $52 million). This represents the differences in cash flows from operating and investing activities between US GAAP and Canadian GAAP. For the years ended December 31 2004 2003 2002 Activities: Operating Investing Financing Effect of foreign exchange rate changes on cash Cash and equivalents at beginning of period $ 535 (848) 741 – 970 $ 581 (396) (266) 7 1,044 $ 651 (121) (61) 1 574 Cash and equivalents at end of period $ 1,398 $ 970 $ 1,044 124 BARRICK Annual Report 2004 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 127 and 128. 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. 125 BARRICK Annual Report 2004 MINERAL RESERVES AND MINERAL RESOURCES Summary Gold Mineral Reserves and Mineral Resources For the years ended December 31 Based on attributable ounces North America Goldstrike Open Pit Goldstrike Underground Goldstrike Property Total Round Mountain (50%) East Archimedes Hemlo (50%) Eskay Creek Marigold (33%) Holt-McDermott South America Pascua-Lama Veladero Lagunas Norte Pierina Australia/Africa Kalgoorlie (50%) Plutonic Cowal Lawlers Darlot Bulyanhulu Tulawaka (70%) Buzwagi Other Total 2004 2003 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) (proven and probable) (mineral resource) (proven and probable) (mineral resource) 123,334 22,318 7,575 6,268 130,909 28,586 86,983 45,364 17,093 3,049 13,946 5,251 485 476 32,244 17,768 – – 360,759 43,468 396,517 21,804 229,449 16,153 65,026 15,363 87,894 12,798 18,291 13,203 63,600 47,534 3,222 4,824 7,142 3,984 23,913 4,253 1,077 584 – 27,127 287 4,702 0.131 16,188 1,107 0.050 0.392 2,970 2,373 0.379 0.146 19,158 3,480 0.122 1,538 0.018 666 0.015 1,011 0.059 187 0.061 1,260 0.090 594 0.113 513 1.058 256 0.538 744 0.023 387 0.022 – – – – 0.049 17,615 0.064 2,797 0.032 12,849 449 0.021 9,123 0.040 395 0.024 2,508 0.039 341 0.022 5,181 0.059 866 0.068 2,512 0.137 2,085 0.158 2,495 0.039 1,596 0.034 405 0.126 765 0.159 1,048 0.147 0.119 473 0.443 10,596 2,321 0.546 382 0.355 40 0.068 – – 2,016 0.074 0.411 0.158 118 744 109,742 37,403 9,177 5,841 118,919 43,244 89,852 37,770 – 15,632 17,557 3,017 927 422 31,089 13,334 340 452 296,411 115,845 317,187 67,715 159,250 25,751 61,393 25,421 97,047 44,584 20,635 13,395 63,600 47,534 3,234 8,777 7,627 4,194 27,882 4,300 1,093 680 – – – 4,722 0.143 15,685 2,264 0.061 0.377 3,460 2,489 0.426 0.161 19,145 4,753 0.110 1,583 0.018 645 0.017 – – 786 0.050 1,744 0.099 271 0.090 941 1.015 121 0.287 737 0.024 268 0.020 55 0.162 88 0.195 0.057 16,862 0.030 3,487 0.035 11,115 1,540 0.023 7,155 0.045 1,735 0.067 2,768 0.045 419 0.016 5,894 0.061 2,580 0.058 2,646 0.128 1,967 0.147 2,495 0.039 1,596 0.034 402 0.124 1,136 0.129 1,135 0.149 0.130 546 0.391 10,907 1,894 0.440 368 0.337 45 0.066 – – – – – 0.170 – 812 (proven and probable) 1,538,837 316,291 (mineral resource) 0.058 89,056 0.065 20,458 1,314,043 476,839 0.065 85,952 0.052 24,689 126 BARRICK Annual Report 2004 MINERAL RESERVES AND MINERAL RESOURCES Gold Mineral Reserves1 As at December 31, 2004 Based on attributable ounces North America Goldstrike Open Pit Goldstrike Underground Goldstrike Property Total Round Mountain (50%) East Archimedes Hemlo (50%) Eskay Creek Marigold (33%) South America Pascua-Lama Veladero Lagunas Norte Pierina Australia/Africa Kalgoorlie (50%) Plutonic Cowal Lawlers Darlot Bulyanhulu Tulawaka (70%) Other Total Proven Probable Total Tons Grade Ounces (000s) (000s) (oz/ton) Tons Grade Ounces (000s) (000s) (oz/ton) Tons Grade Ounces (000s) (000s) (oz/ton) 66,943 2,871 69,814 50,123 7,363 8,611 233 17,777 35,124 21,306 4,644 26,234 48,079 358 5,191 1,082 2,798 1,915 22 0.121 0.494 0.136 0.017 0.061 0.103 1.124 0.024 0.058 0.038 0.044 0.055 0.055 0.025 0.046 0.124 0.120 0.401 0.273 8,077 1,419 9,496 831 446 885 262 421 2,035 799 206 1,446 2,621 9 238 134 337 767 6 56,391 4,704 61,095 36,860 9,730 5,335 252 14,467 0.144 0.330 0.158 0.019 0.058 0.070 0.996 0.022 8,111 1,551 9,662 707 565 375 251 323 123,334 7,575 130,909 86,983 17,093 13,946 485 32,244 0.131 16,188 0.392 2,970 0.146 19,158 1,538 0.018 1,011 0.059 1,260 0.090 513 1.058 744 0.023 325,635 375,211 224,805 38,792 0.048 15,580 0.032 12,050 8,917 0.040 1,062 0.027 360,759 396,517 229,449 65,026 0.049 17,615 0.032 12,849 9,123 0.040 2,508 0.039 39,815 17,933 58,409 2,140 4,344 21,998 1,055 0.064 0.140 0.039 0.127 0.164 0.447 0.356 2,560 2,503 2,257 271 711 9,829 376 87,894 18,291 63,600 3,222 7,142 23,913 1,077 5,181 0.059 2,512 0.137 2,495 0.039 405 0.126 1,048 0.147 0.443 10,596 382 0.355 – – – 287 0.411 118 287 0.411 118 300,674 0.070 20,939 1,238,163 0.055 68,117 1,538,837 0.058 89,056 1. Mineral reserves (“reserves”) have been calculated as at December 31, 2004 in accordance with National Instrument 43-101, as required by Canadian securities regulatory authorities and, for the United States, in accordance with Industry Guide 7 (under the Securities Exchange Act of 1934) as interpreted by the Staff of the U.S. Securities and Exchange Commission. Calculations have been prepared by employees of Barrick under the supervision of René L. Marion, P.Eng., Vice-President, Technical Services of Barrick. Except as noted below, reserves have been calculated using an assumed gold price of US$375 per ounce, a silver price of US$5.50 per ounce and an exchange rate of $1.45 C$/US$. Reserves at the Australian properties assumed a gold price of A$560 per ounce. Reserves at the Hemlo property assumed a gold price of US$350 per ounce and an exchange rate of $1.35 C$/US$. Reserves at Round Mountain are based on pit designs consistent with a gold price of US$375 per ounce. Reserves at the Marigold property assumed a gold price of US$350 per ounce. Reserve calculations incorporate current and/or expected mine plans and cost levels at each property. Cost estimates at each Australian property assumed an exchange rate of $0.70 US$/A$. 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 methods used in calculating Barrick’s reserves and resources, see Barrick’s most recent Annual Information Form/Form 40-F on file with Canadian provincial securities regulatory authorities and the U.S. Securities and Exchange Commission. 127 BARRICK Annual Report 2004 MINERAL RESERVES AND MINERAL RESOURCES Gold Mineral Resources1 As at December 31, 2004 Measured (M) Indicated (I) (M) + (I) Inferred Based on attributable ounces North America Goldstrike Open Pit Goldstrike Tons Grade Ounces (000s) (000s) (oz/ton) Tons Grade Ounces Ounces (000s) (000s) (oz/ton) (000s) Tons Grade Ounces (000s) (000s) (oz/ton) 12,119 0.054 651 10,199 0.045 456 1,107 722 0.073 53 Underground 2,114 0.361 764 4,154 0.387 1,609 2,373 6,899 0.346 2,388 Goldstrike Property Total 14,233 Round Mountain (50%) 21,734 979 East Archimedes 1,800 Hemlo (50%) 156 Eskay Creek 7,500 Marigold (33%) South America Pascua-Lama Veladero Lagunas Norte Pierina Australia/Africa Kalgoorlie (50%) Plutonic Cowal Lawlers Darlot Bulyanhulu Tulawaka (70%) Buzwagi Other Total 0.099 0.013 0.063 0.091 0.558 0.021 0.058 0.020 0.025 0.030 0.066 0.221 0.038 0.098 0.148 – – 0.072 1,415 272 62 163 87 154 333 22 7 128 258 77 98 24 161 – – 5 14,353 23,630 2,070 3,451 320 10,268 37,744 20,712 15,876 11,058 8,891 12,854 44,940 4,580 2,895 4,253 584 27,058 0.144 0.017 0.060 0.125 0.528 0.023 0.065 0.021 0.024 0.019 0.068 0.156 0.033 0.162 0.108 0.546 0.068 0.074 2,065 394 125 431 169 233 2,464 427 388 213 608 2,008 1,498 741 312 2,321 40 2,011 3,480 7,621 666 43,171 – 187 4,233 594 256 280 387 61,477 2,797 36,728 449 63,110 9,718 395 101 341 866 588 2,085 10,349 1,596 31,053 1,114 127 4,303 161 804 765 473 2,321 40 2,016 0.320 0.013 – 0.144 0.496 0.014 0.044 0.017 0.022 0.010 0.056 0.192 0.033 0.139 0.213 0.587 0.075 0.056 2,441 562 – 608 139 859 1,613 1,045 215 1 33 1,988 1,011 155 27 2,526 12 45 5,724 1,092 277 4,305 3,907 349 2,594 244 1,089 – – 69 – – – 4,702 0.158 744 744 4,802 0.139 669 66,052 0.049 3,266 250,239 0.069 17,192 20,458 279,740 0.050 13,949 1. Resources which are not reserves do not have demonstrated economic viability. 128 BARRICK Annual Report 2004 MINERAL RESERVES AND MINERAL RESOURCES Contained Silver Within Reported Gold Reserves1 For the year ended December 31, 2004 Assumed Metal Prices Gold ($US/oz) $375 Silver ($US/oz) $5.50 Copper ($US/lb) $0.90 Africa Bulyanhulu North America Eskay Creek South America Proven Probable Total Tons (000s) Grade (oz/ton) Ounces (000s) Tons (000s) Grade (oz/ton) Ounces (000s) Tons (000s) Grade (oz/ton) Ounces Recovery (000s) % Process 1,915 0.30 566 21,998 0.35 7,668 23,913 0.34 8,234 65.0% 189 67.93 12,838 295 34.72 10,241 484 47.68 23,079 91.4% Lagunas Norte Pascua-Lama Pierina Veladero 4,644 35,124 26,234 21,306 0.11 1.93 0.24 0.54 514 67,693 6,223 11,538 224,805 325,635 38,792 375,211 22,704 0.10 1.77 575,492 0.16 6,335 0.50 188,785 229,449 360,759 65,026 396,517 23,218 0.10 1.78 643,185 0.19 12,558 0.51 200,323 22.3% 77.8% 32.7% 6.8% Total 89,412 1.11 99,372 986,736 0.82 811,225 1,076,148 0.85 910,597 60.4% 1. Silver is accounted for as a by-product credit against reported or projected gold production costs. Contained Silver Within Reported Gold Resources For the year ended December 31, 2004 Measured (M) Indicated (I) Total (M) + (I) Tons (000s) Grade (oz/ton) Ounces (000s) Tons (000s) Grade (oz/ton) Ounces (000s) Tons (000s) Grade (oz/ton) Ounces (000s) Africa Bulyanhulu North America Eskay Creek South America Lagunas Norte Pascua-Lama Pierina Veladero – – – 4,253 0.342 1,454 4,253 0.342 1,454 156 22.346 3,486 320 17.641 5,645 476 19.183 9,131 277 5,724 4,305 1,092 0.155 1.548 0.206 0.392 43 8,862 886 428 15,876 37,744 11,058 20,712 0.124 1.498 0.019 0.364 1,971 56,543 213 7,531 16,153 43,468 15,363 21,804 0.125 1.505 0.072 0.365 2,014 65,405 1,099 7,959 Total 11,554 1.186 13,705 89,963 0.815 73,357 101,517 0.858 87,062 129 BARRICK Annual Report 2004 Supplemental Information 5-Year Historical Review 1 (US GAAP basis, unless otherwise indicated) 2004 2003 2002 2001 2000 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) $ 1,932 248 506 824 $ 0.46 0.22 0.95 6.67 $ 1,398 6,274 1,539 1,655 3,563 4,958 $ 212 $ 391 $ 409 $ 2,035 200 519 322 $ 0.37 0.22 0.97 6.53 $ 970 5,358 1,004 719 3,494 5,510 $ 189 $ 366 $ 363 $ 1,967 193 588 228 $ 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 89,056 85,952 86,927 82,272 79,300 5% 534 (6%) 535 (7%) 542 1% 536 2% 536 1. Information for all years has been derived from audited financial statements, except as indicated. 2. Long-term debt excludes current portion of $31 million in 2004, $41 million in 2003, $20 million in 2002, $9 million in 2001 and $3 million in 2000. 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. 130 BARRICK Annual Report 2004 Corporate Governance and Committees of the Board Corporate Governance Over the past several years, there has been an increased focus on corporate governance in both the United States and Canada. Among other regulatory initiatives, the New York Stock Exchange added corporate governance standards to its listing rules. Although, as a regulatory matter, the vast majority of the NYSE corporate gover- nance standards are not directly applicable to Barrick as a Canadian company, Barrick has implemented a number of structures and procedures to comply with the NYSE standards. There are no significant differences between Barrick’s corporate governance practices and the NYSE standards applicable to U.S. companies. 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 and to set forth a common set of expectations as to 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, S.J. Shapiro) 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 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 con- trols 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 Com- pensation 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. administering Barrick’s share compensation plans. The Committee is responsible for reviewing and recommending director and senior management compensation and for succession planning with respect to senior executives. Executive Committee (G.C. Wilkins, A.A. MacNaughton, B. Mulroney, P. Munk) Exercises all the powers of the Board (except those powers specifically reserved by law to the Board of Directors) in the management and direction of business during intervals between meetings of the Board of Directors. Environmental, Occupational, Health and Safety Committee (P.A. Crossgrove, 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. 131 BARRICK Annual Report 2004 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. Stephen J. Shapiro Houston, Texas Executive Vice President and Chief Financial Ofﬁcer, Burlington Resources, Inc. Mr. Shapiro became a Director of Barrick in September 2004. 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 Company’s 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. 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. Gustavo Cisneros Caracas, Venezuela Chairman and Chief Executive Ofﬁcer, Cisneros Group of Companies Mr. Cisneros became a Director of Barrick in September 2003. 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. Board of Directors 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. 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. 132 BARRICK Annual Report 2004 Senior Ofﬁcers and International Advisory Board Senior Ofﬁcers Peter Munk Chairman Gregory C. Wilkins President and Chief Executive Officer Tye W. Burt Vice Chairman and Executive Director, Corporate Development 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 Jamie C. Sokalsky Excutive Vice President and Chief Financial Officer Gordon F. Fife Senior Vice President, Organizational Effectiveness 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. 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 133 BARRICK Annual Report 2004 Shareholder Information Shares traded on ﬁve major international stock exchanges > New York > Toronto > Paris > Swiss > London Ticker Symbol ABX (New York, Toronto, Paris, Swiss) BGD (London) Number of Registered Shareholders 17,598 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 2004 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, 2004 Weighted average 2004 Basic Fully diluted 533* 534* 533* 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. exchangeable shares. Volume of Shares Traded (millions) TSX NYSE Closing Price of Shares December 31, 2004 TSX NYSE 2004 2003 409 441 495 521 C$29.00 US$24.22 Share Volume (millions) High Low 2004 2003 2004 2003 2004 2003 124 103 84 98 409 147 111 119 118 495 Share Volume (millions) C$31.45 C$26.48 25.43 28.95 30.29 31.82 27.76 30.22 C$25.52 C$20.90 21.34 23.31 24.39 25.06 24.10 25.41 High Low 2004 2003 2004 2003 2004 2003 US$23.89 US$17.43 18.97 21.13 23.15 24.15 21.15 25.52 US$19.15 US$14.11 14.61 16.67 18.35 18.07 18.14 20.17 137 115 75 114 441 143 115 135 128 521 134 BARRICK Annual Report 2004 SHAREHOLDER INFORMATION Dividend Payments In 2004, the Company paid a cash dividend of $0.22 per share – $0.11 on June 15 and $0.11 on December 15. A cash dividend of $0.22 per share was paid in 2003 – $0.11 on June 16 and $0.11 on December 15. 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 within the United States and Canada: 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 Meeting of Shareholders will be held on Thursday, April 28, 2005 at 10:00 a.m. in the John Bassett Theatre, Metro Toronto Convention Centre, Toronto, Ontario. 135 BARRICK Annual Report 2004 Corporate Information 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 Barrick Russia Holdings Inc. Ed Verona Vice President & Chief Representative Moscow Representative Office 4 Romanov Pereulok 125009 Moscow, Russia Telephone: (7-095) 981-3434 Fax: (7-095) 981-3435 Mining Operations North America Operations Gregory Lang Vice President 136 East South Temple Suite 1050 Salt Lake City, Utah U.S.A. 84111-1180 Telephone: (801) 990-3770 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 John Kinyon General Manager Telephone: (604) 515-5227 Fax: (604) 515-5241 Hemlo Operations P.O. Bag 500 Marathon, Ontario Canada P0T 2E0 Vern Baker General Manager Telephone: (807) 238-1100 Fax: (807) 238-1050 South America Operations Chile/Argentina Operations John McDonough Vice President Av. Ricardo Lyon 222 Piso 11. Providencia Santiago, Chile Telephone: (56-2) 340-2022 Fax: (56-2) 233-0188 Argentina Veladero Project Villagra 531 Oeste San Juan, Argentina 5402CPI George Bee General Manager Telephone: 54 (264) 429 8105 Fax: 54 (264) 429 8135 Peru Operations Igor Gonzales Regional Vice President – Peru Victor Andres Belaunde 171 2° Piso San Isidro Lima 27, Peru Telephone: (51-1) 275-0600 Fax: (51-1) 275-0249 Pierina Mine Urb. La Alborada Calle 8 s/n Tarica Huaraz, Peru Darrell Wagner General Manager Telephone: (51-1) 275-0600 Fax: (51-1) 275-3733 Lagunas Norte Project Pasaje Los Delfines 159 3er Piso Urb. Las Gardenias, Surco Lima 33, Peru Augusto Chung General Manager Telephone: (51-44) 88-1100 Fax: (51-44) 23-1992 Australia /Africa Operations John Shipp Vice President 10th Floor 2 Mill Street Perth WA 6000 Australia Telephone: (61-8) 9212-5736 Fax: (61-8) 9322-5700 Australia Operations Kalgoorlie Consolidated Gold Mines (KCGM) Black Street Kalgoorlie WA 6430 Australia Cobb Johnstone General Manager Telephone: (61-8) 9022-1801 Fax: (61-8) 9022-1119 Plutonic Gold Mine PMB 46 Meekatharra WA 6642 Australia Mark Le Messurier Resident Manager Telephone: (61-8) 9981-0100 Fax: (61-8) 9981-0101 Darlot Gold Mine P.O. Box 127 Leonora WA 6438 Australia Richard Hay Resident Manager Telephone: (61-8) 9080-3413 Fax: (61-8) 9080-3440 Cowal Gold Project P.O. Box 210 West Wyalong NSW 2671 Australia Richard Weston General Manager Telephone: (61-2) 6975-4700 Fax: (61-2) 6975-4740 Lawlers Gold Mine PMB 47 Leinster WA 6437 Australia David Collopy General Manager Telephone: (61-8) 9981-0148 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 Grant Pierce Executive General Manager Telephone: (255-22) 260-0604 Fax: (255-22) 260-0210 Tulawaka Mine P.O. Box 1081 Dar es Salaam, Tanzania Dave Anthony General Manager Telephone: (61-8) 9360-4444 Fax: (61-8) 9360-4422 Corporate Data Auditors PricewaterhouseCoopers LLP Toronto, Canada 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 Email: ksipos@barrick.com Mary Ellen Thorburn Director, Investor Relations Telephone: (416) 307-7363 Email: mthorburn@barrick.com Toll-free number within Canada and United States: 1-800-720-7415 Email: investor@barrick.com Web site: www.barrick.com 136 BARRICK Annual Report 2004 Printed in Canada on recycled paper Delivering Growth. Building Mines Barrick’s pipeline of gold development projects is unrivaled in size, quality, and immediacy. Three new mines will be in production in 2005, another in early 2006, with two more to follow in subsequent years. Building Value Barrick is targeting a 12% compound annual growth rate in gold production, 2004-2007 – substantially higher than any of our peers. Reserves have increased to 89 million ounces, and with our aggressive exploration strategy and large world-class gold districts we expect to grow them further. Our new mines are all high-quality assets with conventional open-pit technology and are also geopolitically well-diversiﬁ ed. Their contribution to our bottom line is expected to be immediate, and signiﬁ cant. . 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 5 0 0 2 t h g i r y p o C © Forward-Looking Statements Certain information contained or incorporated by reference in this Annual Report 2004, including any information as to our future financial or operating performance, constitutes “forward-looking statements”. All statements, other than statements of historical fact, are forward-looking statements. The words “believe”, “expect”, “anticipate”, “contemplate”, “target”, “plan”, “intends”, “continue”, “budget”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: fluctuations in the currency markets (such as the Canadian and Australian dollars versus the US dollar); fluctuations in the spot and forward price of gold or certain other commodities (such as silver, copper, diesel fuel and electricity); changes in US dollar interest rates or gold lease rates that could impact the mark-to-market value of outstanding derivative instruments and ongoing payments/ receipts under interest rate swaps and variable rate debt obligations; risks arising from holding derivative instruments (such as credit risk, market liquidity risk and mark-to-market risk); changes in national and local government legislation, taxation, controls, regulations and political or economic developments in Canada, the United States, Australia, Chile, Peru, Argentina, Tanzania, Russia or Barbados or other countries in which we do or may carry on business in the future; business opportunities that may be presented to, or pursued by, us; our ability to successfully integrate acquisitions; operating or technical difficulties in connection with mining or development activities; the speculative nature of gold exploration and development, including the risks of obtaining necessary licenses and permits; diminishing quantities or grades of reserves; adverse changes in our credit rating; and contests over title to properties, particularly title to undeveloped properties. In addition, there are risks and hazards associated with the business of gold exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this Annual Report 2004 are qualified by these cautionary statements. Specific reference is made to Barrick’s most recent Form 40-F/Annual Information Form on file with the US Securities and Exchange Commission and Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. T39748-BAR Cover and Spine.indd 2 T39748-BAR Cover and Spine.indd 2 3/16/05 1:02:01 PM 3/16/05 1:02:01 PM B A R R I C K G O L D C O R P O R A T I O N 2 0 0 4 A n n u a l R e p o r t t r o p e R l a u n n A 4 0 0 2 D L O G K C I R R A B Barrick is one of the world’s largest gold mining companies, with operating and development properties in the US, Canada, Australia, Peru, Chile, Argentina and Tanzania. Our vision is to be the world’s best gold mining company by ﬁ nding, developing and producing quality reserves in a proﬁ table and socially responsible manner. Barrick shares are traded on the Toronto, New York, London and Swiss stock exchanges and the Paris Bourse. What’s next: Growth. Building Mines. Building Value. 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 T39748-BAR Cover and Spine.indd 1 T39748-BAR Cover and Spine.indd 1 3/16/05 1:01:59 PM 3/16/05 1:01:59 PM

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