Barrick Gold (ABX) Posts Loss in Q2, Narrows Cost Guidance

Zacks

Barrick Gold Corporation’s (ABX) adjusted earnings (excluding one-time items) for the second quarter of 2014 plummeted to 14 cents per share from 66 cents in the year-ago quarter but were in line with the Zacks Consensus Estimate. Lower pricing and volumes for both gold and copper led to the decline in earnings. The results were also affected by an impairment charge of $514 million related to the Jabal Sayid copper project.

On a reported basis, net loss in the second quarter was $269 million or 23 cents per share, much narrower than the net loss of roughly $8.6 billion or $8.55 per share in the prior-year quarter. The results include $24 million gains on sale of assets, $31 million in unrealized foreign currency translation losses and $34 million in gains on non-hedge derivative instruments.

Revenues fell 24% year over year to $2,432 million in the reported quarter and missed the Zacks Consensus Estimate of $2,475 million. Average realized price of gold decreased 8.6% year over year to $1,289 per ounce. All-in costs declined 25.4% to $945 per ounce while all-in sustaining costs fell roughly 4.9% to $865 per ounce in the reported quarter.

Gold production fell to 1.5 million ounces from 1.8 million ounces a year ago. Copper production declined to 67 million pounds from 134 million pounds in the prior-year quarter.

Regional Results

North America: The Goldstrike mine in the North American region produced 214,000 ounces of gold in the quarter, up 14.4% year over year, at an average all-in sustaining cost (AISCF) of $886 per ounce. The Cortez mine produced 217,000 ounces, down 48% year over year. Production at Pueblo Viejo increased 32% to 161,000 ounces. Production at Lagunas Norte mine declined 12.2% and at Veladero it increased 35% year over year.

Australia Pacific: The region produced 268,000 ounces compared with 465,000 ounces in the year-ago quarter. AISC was $856 per ounce, down from $1,016 per ounce in the year-ago quarter.

African Barrick Gold plc. (ABG): Attributable production of African Barrick Gold in the quarter was 114,000 ounces compared with 122,000 ounces in the year-ago quarter. AISC was $1,105 per ounce in the quarter, down 21.3% year over year.

Financial Position

Cash and cash equivalents were $2,549 million as of Jun 30, 2014, up roughly 5.2% from $2,422 million as of Jun 30, 2013. Total debt was roughly $13 billion, down around 10.1% from $14.4 billion a year ago.

Update on Pascua-Lama Mine

During fourth-quarter 2013, Barrick temporarily suspended construction activities at the Pascua-Lama mine, barring the requisite activities for environmental protection and regulatory compliance. The ramp-down was completed on schedule and budget and the mine is now under care and maintenance. The company expects to incur costs of roughly $300 million in 2014 due to the ramp-down as well as for the environmental and social obligations.

The decision to re-start will depend on certain factors like improved project economics, outlook for metal prices, and reduced uncertainty associated with legal and other regulatory requirements.

During the reported quarter, Barrick entered into a Memorandum of Understanding (MoU) with a group of 15 Diaguita indigenous communities and associations in Chile's Huasco province. As part of the MoU, Barrick will make technical and environmental information about the Pascua-Lama project available to the communities and provide financial resources and materials required to support analysis of this information.

Portfolio Optimization

Barrick continues to take initiatives in order to optimize its portfolio and lower costs. The company has divested non-core assets for proceeds in excess of $1.3 billion since 2012, which has mainly been utilized to reduce debt.

Joint Venture

Barrick, on Jul 13, 2014, agreed to form a joint venture with a Saudi Arabian Mining Co. (Ma’aden) in order to operate the Jabal Sayid copper mine in Saudi Arabia. Both Barrick and Ma’aden will own 50% stake in the joint venture. Ma’aden, which is controlled by the state of Saudi, has agreed to buy 50% interest in the project for $210 million (expected to close in the fourth quarter of 2014).

Guidance

For 2014, Barrick reduced its forecast of AISC, which is now expected to be between $900 and $940 per ounce versus earlier expectations of between $920 and $980 an ounce. The company also reduced its 2014 capital expenditure guidance range by $200 million to $2.2-$2.5 billion from $2.4-$2.7 billion.

Barrick, however, maintained its full-year guidance for gold production of 6-6.5 million ounces. Copper guidance also remained unchanged at 410-440 million pounds and C1 cash costs of $1.90-$2.10 per pound.

Five cornerstone mines are expected to contribute about 60% to the total production in 2014 at an average AISC of $750-$800 per ounce.

Currently, Barrick carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the gold mining industry include AngloGold Ashanti Ltd. (AU), Sibanye Gold Limited (SBGL) and NovaGold Resources Inc. (NG). While AngloGold and Sibanye Gold sport a Zacks Rank #1 (Strong Buy), NovaGold holds a Zacks Rank #2 (Buy).
 

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