Barrick Q2 Hurt by Hefty Impairment
Barrick Gold Corporation’s (ABX) adjusted earnings (excluding one-time items) fell to 66 cents per share in the second quarter of 2013 from 82 cents per share in the year-ago quarter but were ahead of the Zacks Consensus Estimate of 56 cents.
On a reported basis, net loss came in at $8.56 billion or $8.55 per share, compared with earnings of $787 million or 79 cents per share. The loss includes a hefty after tax impairment charge of $8.7 billion incurred due to falling gold prices. Lower metal prices weighed on the bottom line.
Revenues fell 1.3% year over year to $3,201 million in the reported quarter but exceeded the Zacks Consensus Estimate of $3,193 million. Average realized price of gold decreased 12.3% year over year to $1,411 per ounce. All-in costs declined 17.6% to $1,276 per ounce while all-in sustaining costs fell 13.4% to $919 per ounce in the reported quarter.
Gold production jumped to 1.81 million ounces in the quarter from 1.74 million ounces a year ago led by strong performances at Cortez, Veladero and Lagunas Norte. Copper production increased to 134 million pounds from 109 million pounds in the prior-year quarter.
Regional Results
North America: The Barrick North American unit produced 0.93 million ounces of gold in the quarter compared with 0.85 million ounces in the prior-year quarter. Average all-in sustaining costs (AISCF) stood at $797 per ounce compared with $894 per ounce in the year-ago quarter. Production increased at the Pueblo Viejo mine as the mine ramped to full capacity in the quarter. Production also increased at the Cortez mine.
South America: Production from South America in the quarter was 0.30 million ounces compared with 0.33 million ounces in the year-ago quarter. AISC of $821 per ounce was better than the company’s expectations.
Australia Pacific: The region produced 0.47 million ounces in the quarter, compared with 0.45 million ounces in the year-ago quarter. AISC was $1,033 per ounce in the quarter.
African Barrick Gold plc. (ABG): Attributable production from African Barrick Gold in the quarter came in at 0.12 million ounces, compared with 0.11 million ounces in the year-ago quarter. AISC was $1,416 per ounce in the quarter.
Financial Position
Cash and cash equivalents stood at $2,422 million as of Jun 30, 2013, compared with $2,330 million as of Jun 30, 2012. Operating cash flow in the reported quarter was $896 million compared with $919 million in the second quarter of 2012.
Barrick termed out $3 billion of debt at attractive interest rates to reduce near-term maturities. The company has only about $1.8 billion of cumulative debt maturing through end-2015.
Project Updates
Barrick said that the Pascua-Lama mine, which is the highest gold mine in the world, will produce an average of 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full five years of operation.
Barrick announced that Copiapo Court of Appeals issued a ruling that the company must build water management system at the Pascua-Lama project before restarting construction activities in Chile. The ruling states that the water management system must comply with the project's environmental permit to the satisfaction of Chile's Superintendence of the Environment (SMA). The ruling relates to a constitutional rights protection action filed in September 2012 on behalf of four indigenous communities.
In May 2013, on the basis of a resolution adopted by SMA, a fine of about $16 million was imposed on Barrick for not meeting the environmental control measures at its Pascua-Lama project. Barrick did not abide by the environmental standards, which eventually led the Chilean government to halt the construction on the Chilean side of the project.
As a result of this, capital expenditures at Pascua-Lama over this period are expected to be reduced by a total of $1.5-$1.8 billion. For the full year, capital expenditures are expected to be reduced by roughly $0.7-$0.8 billion, including $300 million in earlier announced deferrals, to around $1.8-$2 billion.
Dividend
Barrick reduced the quarterly dividend by 75% to 5 cents per share in order to improve liquidity. The dividend is payable on Sep 16, 2013, to shareholders of record at the close of business on Aug 30, 2013.
Divestiture
Subsequent to the reported quarter, Barrick sold Barrick Energy for total consideration of $442 million, including cash of $394 million plus a royalty on certain assets valued at $48 million. The proceeds from the divestiture will be recorded in the third quarter of 2013.
Barrick is also in process to divest certain Australian entities while it continues to actively pursue other portfolio optimization opportunities, including the divestiture of other non-core assets.
Outlook
Barrick maintained its forecast for gold production at 7-7.4 million ounces for 2013. The company reduced its full year all-in sustaining cost guidance to $900-$975 per ounce from the previous guidance of $1,000-$1,100 per ounce.
Barrick raised the low end of its estimate for copper to 500-540 million pounds from 480-540 million pounds previously. C1 cash costs are expected to be in the range of $1.95-$2.15 per pound down from the previous expectation of $2.10-$2.30 per pound.
Barrick reduced 2013 budgeted capital and costs by about $2 billion which has offset the cash flow impact of the drop in gold and copper prices that occurred this year. The company also reduced its corporate office staff by roughly 30% and made other significant job reductions at regional locations to optimize costs.
For 2013, production for the North American region is expected in the range of 3.55–3.70 million ounces at AISC of $750-$800 per ounce, lower than the company’s previous expectation of $820-$870 per ounce.
Production guidance from South America is reaffirmed in the range of 1.25–1.35 million ounces in 2013. AISC is expected to be in the range of $875-$925 per ounce.
Australia Pacific is expected to produce 1.70-1.85 million ounces in 2013. Barrick reduced its AISC expectation to $1,100-$1,200 per ounce from previous range of $1,200-$1,300 per ounce.
Barrick’s share of production at African Barrick Gold is expected to be in the range of 0.40-0.45 million ounces at AISC of $1,550-$1,600 per ounce in 2013.
Another mining company Freeport-McMoRan Copper & Gold Inc. (FCX) recently released its second quarter results. The company reported earnings of 49 cents per share for second-quarter 2013, a decline of 33.8% from the year ago earnings of 74 cents. But it beat the Zacks Consensus Estimate of 41 cents. Profit slid 32% year over year to $482 million, hurt by lower prices.
Currently, Barrick retains a Zacks Rank #3 (Hold).
Other companies in the mining industry with a favorable Zacks Rank are NovaGold Resources Inc. (NG) and Pretium Resources Inc. (PVG). Both carry a Zacks Rank #2 (Buy).
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