Barrick Gold Corporation
), the largest gold producer in the world, reported its third
quarter results on October 31. Revenues at $2.98 billion came
in much lower than last year's comparable figure of $3.4 billion.
The company reported a net profit of $172 million, compared to $649
million in Q3 2012.
The production of both copper and gold increased compared to
last year but lower realized prices hurt revenues. The company
was successful in bringing down all-in sustaining cash costs by
focusing on cost reduction, thereby offsetting the negative impact
of lower prices to some extent. The all-in sustaining
cash cost measure includes total cash cost, sustaining capital
expenditures, G&A cost, mine site exploration and evaluation
costs, and environmental rehabilitation costs.
Barrick highlighted its success in lowering production costs
from last year and said that it intends to continue reduction in
the percentage of high cost mines in its portfolio. The big news
was the company's decision to suspend work at the troubled Pascua
Lama mine indefinitely. ((
Barrick Gold Q3 2013 Earnings Conference Call
, Seeking Alpha))
We have a
estimate for Barrick Gold of $15
, which will be revised shortly now that the third quarter earnings
results are out.
See Full Analysis for Barrick Gold Here
Operational Performance In Q3
The production of gold for the quarter was reported at 1.85
million ounces, marginally higher than the previous year's
comparable period figure of 1.78 million ounces. The production of
copper stood at 139 million pounds, higher than the previous year's
112 million pounds. The average realized price for gold in the
quarter was $1,323 per ounce, and that for copper was $3.4 per
pound. These were lower than last year's figures of $1,655 per
ounce of gold and $3.52 per pound of copper.
A noteworthy feature was the reduction in the cost of mining
gold. Barrick's third quarter all-in sustaining costs of $936 per
ounce benefited from the low total cash costs on strong
performances at the Goldstrike, Cortez and Veladero mines. The 2013
cost all-in sustaining cash cost guidance had been reduced from
$1,000-1,100 per ounce to $900-975 per ounce last quarter and
Barrick is on track to meet that target. This is due to expected
savings from labor and energy costs and higher sales volumes. With
the decline in the global resource environment, labor cost
increases are lower as workers are available at lower wages and
attrition is decreasing. The prices of raw materials such as fuel,
field tires and explosive cyanide are beginning to decline.
The costs in the copper business also declined. Barrick
reported cash costs of $1.69 per pound of copper
produced, lower than $2.01 per pound incurred in Q2 2012. At the
end of the second quarter it had reduced the cost guidance for 2013
to $1.9-2.0 per pound from the initial guidance of $2.1-2.3 per
The North America region contributed just over 901,000 ounces of
gold or about half of Barrick's total production this quarter at
all-in sustaining cost of $816 per ounce due to strong performances
at Barrick's two largest mines, Cortez and Goldstrike in Nevada.
South America produced 325,000 ounces of gold at all-in sustaining
cash cost of $831 per ounce. The Australia Pacific segment produced
497,000 ounces of gold at an all-in sustaining cost of $945 per
ounce and the share of African Barrick Gold's production was
122,000 ounces at all-in sustaining cost of about $1,275 per ounce.
Thus, these two regions are a drag on Barrick's company-wide
Cortez, Goldstrike, Veladero, Lagunas Norte and Pueblo Viejo are
Barrick's five core, low-cost assets. Together, they produce nearly
60% of its total gold and are expected to have a combined all-in
sustaining cost of just $700 per ounce in 2013.
Suspension Of Pascua Lama
Barrick has decided to halt all construction activities at the
Pascua Lama project, except those required for environmental
protection and regulatory compliance. This was done in view of a
prolonged slump in gold prices as well as continued uncertainties
and risks associated with the project which has been mired in
legal, regulatory and operational troubles. Also, once the project
resumes, the company intends to take a phased construction approach
to ensure efficient deployment of capital and reduce costs. This
would be best achieved by ramping down activities now and
re-sequencing them later.
Barrick has maintained its 2013 production guidance for gold of
7-7.4 million ounces, but increased guidance for copper to 520-550
million pounds from its initial projection of 480-540 million
While the company maintained its 2013 capital expenditure
guidance at $4.5-5 billion, it reduced its 2014 guidance by $1
billion on account of the Pascua Lama project which has now been
delayed following court orders in Chile. Thus, the planned spending
will take place in future years now and will depend on whether
Barrick still continues with the project.
Barrick expects the first ore for processing from Pascua Lama to
be available in mid-2016. Pascua Lama has proven and
probable reserves of 17.9 million ounces of gold, 676 million
ounces of silver contained within the gold reserves, and a mine
life of 25 years. Once production begins, Barrick expects to
produce 0.80-0.85 million ounces of gold and 35 million ounces of
silver annually. The all-in sustaining cash cost at Pascua Lama is
expected to be $50-200 per ounce. Including the depreciation of
capital expenditure incurred in mine construction, costs are not
expected to exceed $550-700 per ounce.
With Barrick reducing its capital spending target and Pascua
Lama being suspended indefinitely, we think that the company's
growth prospects in the medium term don't look very great.
While it is emphasizing returns over production, prices are
not under Barrick's control, so the best it can do is to optimize
its portfolio to reduce the average cost of production.
Barrick also seems to have realized that its sale of non-core
assets is proving insufficient in reducing the heavy debt burden.
Therefore, it has announced a sale of shares worth $3 billion in
the coming days. The company had a debt burden of approximately
$15.4 billion at the end of the third quarter.
A Company's Products Impact Its Stock at Trefis