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Barrick (ABX) Q2 Earnings in Line, Revenues Beat Estimates - Analyst Blog

Zacks Equity Research

Barrick Gold’s ABX adjusted earnings per share (excluding one-time items) for the second quarter of 2015 plummeted to 5 cents from 14 cents in the year-ago quarter. Lower realized gold and copper prices led to the decline in earnings. Earnings were on par with the Zacks Consensus Estimate.

On a reported basis, loss for the second quarter was of $9 million or a penny per share compared with loss of $269 million or 23 cents per share in the prior-year quarter. The results include $22 million in impairment charges associated with power assets at Pueblo Viejo, $30 million in unrealized foreign currency translation losses, $17 million in costs associated with to the closure of the company’s Perth office and $15 million adjustment reflecting the effect of higher discount rate used to calculate the provision for environmental remediation at closed mines.

Revenues fell around 9.2% year over year to $2,231 million in the reported quarter but surpassed the Zacks Consensus Estimate of $2,213 million. Average realized price of gold decreased 7.7% year over year to $1,190 per ounce. All-in costs increased 0.9% to $954 per ounce, and all-in sustaining costs (AISC) rose roughly 3.4% to $895 per ounce in the reported quarter.
Gold production fell to 1.45 million ounces from 1.49 million ounces a year ago. Copper production rose to 115 million pounds from 67 million pounds in the prior-year quarter.

Barrick’s shares rose 5.2% to close at $6.88 yesterday.

Gold

The Goldstrike mine, in the North American region, produced 206,000 ounces of gold in the quarter, down 3.7% year over year, at an average all-in sustaining cost of $732 per ounce.

The Cortez mine produced 193,000 ounces of gold in the quarter, down 11.1% year over year, at an average all-in sustaining cost of $811 per ounce. The second quarter gained from positive grade reconciliations in the Cortez Hills open pit and improved underground productivity, as well as from some initial treatment of refractory ore through Goldstrike's thiosulfate (TCM) process.

Production at Pueblo Viejo decreased 18.6% to 131,000 ounces.

Production at Lagunas Norte mine rose 34.8% to 155,000 ounces. Production at Veladero decreased 20.1% year over year to 151,000 ounces. The Turquoise Ridge produced 52,000 ounces in the quarter, up 8.3% year over year. The Porgera mine produced 118,000 ounces, down 1.7% year over year.

Copper

Copper production in the first quarter was 115 million pounds, up 71.6% year over year. C1 cash cost was $1.94 per pound in the quarter, down from $2.04 per pound in the year-ago quarter.

Financial Position

Cash and cash equivalents were $2,122 million as of Jun 30, 2015, down roughly 16.8% from $2,549 million as of Jun 30, 2014. Long-term debt was roughly $12.4 billion, down from around $13 billion a year ago.

Debt Reduction

Barrick announced agreements representing $2.45 billion from asset sales, joint ventures and streaming. The company retired about $250 million in debt using cash on hand in the first half of 2015. All these collectively represent 90% of its debt reduction target of $3 billion for 2015.

The transactions announced by the company include sale of 100% of the Cowal mine for $550 million in cash, and divestment of a 50% interest in Barrick (Niugini) Ltd. for $298 million in cash, thus building a long-term strategic partnership with China's Zijin Mining. It also includes the sale of a 50% percent interest in the Zaldívar copper mine for $1.005 billion in cash. The company has also entered into a streaming agreement on a portion of its share of gold and silver production from Pueblo Viejo for $610 million in cash.

Dividend

The board of directors decided to slash the company's quarterly dividend by 60% percent, from 5 cents per share to 2 cents per share. The company is taking this step to increase financial flexibility considering the current difficult market conditions. The dividend will be paid on Sep 15, 2015 to shareholders of record at the close of business on Aug 31, 2015.

The board has also approved a Dividend Reinvestment Plan (the "DRIP"), which the company plans to make available to eligible shareholders for the first time with payment of the aforementioned dividend on Sep 15, 2015 to shareholders of record on Aug 31, 2015.

Guidance

Gold production for 2015 is now expected to be in the range of 6.1—6.4 million ounces at reduced AISC of $840—$880 per ounce, reflecting the divestiture of Cowal and 50% percent of Barrick (Niugini) Ltd. Production will be about 55% weighted to the second half of 2015.

Third quarter all-in sustaining costs are expected to be lower than all-in sustaining costs in the first half of the year, and fourth quarter all-in sustaining costs are expected to be considerably lower than that in the third quarter, driven largely by higher production at Goldstrike, Pueblo Viejo and Cortez in the second half of the year.

The company reiterated its total copper guidance for 2015 at 480—520 million pounds at C1 cash costs of $1.75—$2.00 per pound.

Barrick remains committed to achieve its overall target of $50 million in savings from reduced general and administrative expenditures and overhead costs in 2015, exceeding its original target of $30 million for the year. The company expects to reach $90 million in annualized general and administrative costs savings by 2016.

Total capital expenditures for 2015 are expected to be in the range of $1.6—$1.9 billion, 20% lower from 2014.

The company reduced its expansion capital budget by $50 million to $100-$150 million, owing to efficiencies and reductions at Turquoise Ridge, Cortez and Ruby Hill. Project capital was also reduced by $50 million to $100-$150 million, mainly reflecting reductions at Pascua-Lama and Spring Valley. Exploration budget was reduced by $40 million to $180-$220 million, focusing expenditures on most promising opportunities.

Sustaining capital budget was reduced by $100 million to $1.4—$1.6 billion.

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

Some better-ranked mining companies are Primero Mining Corp. PPP, Silver Standard Resources Inc. SSRI and Avino Silver & Gold Mines Ltd. ASM. All of these stocks carry a Zacks Rank #2 (Buy).

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