Barrick Gold (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”ABX” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) trumped Wall Street’s bottom line expectations for the fourth quarter of fiscal 2018 (ending Dec. 31) even though its revenue fell shy of estimates. The earnings performance from the world’s largest publicly-traded gold producer was aided by its focus on cutting costs, which helped it offset the negative impact from lower gold production and weak gold prices to some extent.
Barrick’s fourth-quarter revenue stood at $1.9 billion, a drop of 14.5% as compared to the prior-year period. As a result, its adjusted net earnings fell to $69 million, or $0.06 per share, from $253 million in the prior-year period. Analysts were expecting Barrick to deliver $0.05 in earnings on revenue of $1.96 billion.
Barrick’s Bottom Line Hurt By Lower Gold Production and Higher Costs
Barrick produced 1.26 million ounces of gold during the fourth quarter at all-in sustaining costs of $788 per ounce. That compares unfavourably to the prior-year period’s production of 1.34 million ounces and all-in sustaining costs of $756 per ounce. Additionally, Barrick’s average realized gold price fell to $1,223 per ounce from $1,280 an ounce last year.
The decline in gold production was offset to some extent by higher copper production. Barrick’s copper production increased to 109 million pounds during the fourth quarter from 99 million pounds last year. However, the all-in sustaining costs of copper increased from $2.51 per pound last year to $2.95 per pound this time. The average realized price of copper was also down 17% year over year to $2.76 per pound.
As such, it isn’t surprising to see why Barrick’s financial performance took a massive haircut as compared to the prior-year period. The company had to contend with lower grade and weaker gold recoveries, as well as an increase in energy prices that pushed up its direct mining costs.
All of these challenges reduced Barrick’s 2018 operating cash flow to $1.76 billion as compared to $2.06 billion last year. Still, the company was able to reduce its debt from $6.4 billion to $5.7 billion in 2018. Looking ahead, things should improve for Barrick this year as it has closed its acquisition of Randgold effective Jan. 1, 2019.
Increasing Gold and Copper Prices Give Stock Favourable Outlook
Barrick expects to produce between 5.1 million and 5.6 million ounces of gold in 2019 as compared to last year’s production of 4.5 million ounces. Additionally, copper production is expected to increase from 383 million pounds to a range of 375 million-430 million pounds.
But at the same time, the company expects all-in sustaining costs of gold to increase to a range of $870-$920 per ounce as compared to $806 per ounce last year. On the other hand, all-in sustaining costs of copper will drop to a mid-point of $2.65 per pound from 2018’s level of $2.82 per pound.
However, the good part for Barrick investors is that they can expect an increase in gold and copper prices this year on account of macroeconomic uncertainties, as well as favourable demand-supply dynamics. According to one estimate, the price of gold is expected to average $1,355 an ounce this year, which represents a 7% increase over Barrick’s 2018 average realized gold price.
Similarly, a continued deficit in the copper market is expected to boost prices to as high as $3.22 per ounce in the next year, according to Societe Generale. So, Barrick Gold investors can expect the company to deliver an improved performance in 2019 as compared to last year.
