Barrick Gold’s 2018 Production Results Bronze at Best

Do you remember what to look for in gold production results? Check out our guide for a refresher on how to assess mining companies’ earnings and guidance.

Key Highlights

  • Barrick Gold (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”ABX.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) recently released its preliminary production results for the fourth quarter 2018 as well as the full year, which were in line with its original guidance. Barrick’s preliminary 2018 gold production of 4.53 million ounces will come in slightly above the lower end of its original forecast of 4.5-5 million ounces. Its 2018 copper production of 383 million pounds is also in line within the original guidance range of 345-410 million pounds.
  • Barrick’s 2018 production has declined as compared to the preceding fiscal year. The company had produced 5.3 million ounces of gold and 413 million pounds of copper in 2017. Barrick had warned investors last year that its annual production would drop for the eighth straight year thanks to lower production from Barrick Nevada, Pueblo Viejo, and Veladero on account of lower grades and planned maintenance.
  • Barrick’s fourth-quarter cash costs per ounce of gold are expected to be in line with the third quarter, which came in at $587 per ounce. However, that would be an increase over the prior-year period’s cash cost of $545 an ounce.
  • Barrick anticipates that its C1 cash cost per pound of copper will increase 1-3% sequentially as compared to the third-quarter levels of $1.94 per pound. For comparison, Barrick’s cash cost per pound of copper stood at $1.72 in the prior-year period.

Gold and Copper Price Trends

  • Barrick reports that its average fourth-quarter market price was $1,226 per ounce of gold, which would be a slight decrease from the prior-year period’s average realized price of $1,258 an ounce.
  • The fourth quarter average market price of copper was $2.80 per pound, which is again below the prior-year period’s average realized copper price of $2.95 a pound.

Our Take

  • Barrick Gold’s top line has shrunk this year and profitability has taken a hit thanks to lower gold and copper prices, weak production, and rising costs. The company has struggled on account of higher input costs and investments in mines to replenish production. In fact, the company was forced to raise its full-year all-in sustaining cost guidance to a range of $765 to $815 an ounce for 2018 a year ago, up from its earlier guidance of $710 to $770 an ounce.
  • Barrick, therefore, is moving further away from its ambition of pushing all-in sustaining costs below the $700 per ounce threshold as it has to take efforts to offset the falling production.
  • Barrick is looking to get its act together with the acquisition of Randgold Resources. The combined company will control five of the 10 lowest-cost gold mines across the globe. The merger is effective Jan. 1, 2019 and Barrick will provide further updates on how it will impact its 2019 production and cost profile when its results are out.
  • Barrick needs the Randgold acquisition to pay off as gold prices have started picking up over the past few months, while the outlook for copper also seems to be improving. In fact, gold recently hit a seven-month high (paywall) and could go higher as the Federal Reserve has indicated that it might not raise interest rates for some time. Copper prices could also increase thanks to higher demand and tight supply, so there’s a probability that the company’s 2019 outlook will be favourable thanks to the Randgold acquisition.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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