Barrick Gold ( ABX: Nasdaq)
By Sterne, Agee & Leach ($11.87, Nov. 3, 2014)
Barrick Gold's third-quarter earnings beat our expectations on
higher-than-expected gold production at the Cortez and Goldstrike
mines and lower than expected costs.
Barrick (ticker: ABX) management lowered all-in sustaining cost
(AISC) guidance by another $20 an ounce. We believe shares may be
range-bound near term, but supported by improving gold prices and
progress on revamping its asset base.
We have raised our 2014 earnings-per-share estimates to 70 cents
from 65 cents but maintained our 2015-2016 EPS estimates for
Barrick. We expect an increase in 2015-2016 earnings on higher gold
prices, higher production at low-cost Cortez mine, reduction of
suspension related expenses, and improvement in tax rate. We
estimate a $50 an ounce or 3% change in gold price would lead to a
26% impact on our 2016 EPS estimate for Barrick.
The five core mines -- Cortez, Goldstrike, Lagunas Norte,
Veladero and Pueblo Viejo -- produced 1.0 million ounces (Moz) or
60% of third-quarter total production at AISC of less than $700 an
ounce (oz). Cortez production improved in the third quarter over
the first-half level, which saw impact from negative grade
reconciliations. Goldstrike operating performance benefited from
higher grades and lower processing costs. Pueblo Viejo was impacted
by planned autoclave shutdowns for maintenance. Lagunas Norte
production increased on higher grades and a faster leach cycle.
Veladero benefited from positive grade reconciliations. Management
continues to expect the five core mines to produce 60% of 2014
estimated total production at AISC of just $730-$780 per oz.
Barrick narrowed 2014 gold production to 6.1-6.4 Moz, but
lowered AISC by another $20 per oz to $880-$920 per oz (in the
second quarter, Barrick had lowered AISC by $20-$40 per oz).
Barrick raised 2014 copper production guidance by 20-30 million
pounds (Mlbs) to 440-460 Mlbs on earlier than expected restart at
Lumwana [Zambia copper mine] in July. Management maintained 2014
capital-expenditure expectation at $2.2 billion-$2.5 billion. July
2014 agreement to form 50/50 joint venture with Saudi Arabian
mining company to operate Jabal Sayid copper project should help
advance production with first production expected in early
2016.
Goldrush is progressing through pre-feasibility study, which is
expected to be completed in mid-2015. At Turquoise Ridge, Barrick
continues to make exploration progress, pre-feasibility on shaft
scenario in early 2015. At Cortez, pre-feasibility to evaluate
deeper mining below current permitted level expected in late
2015.
-- Michael S. Dudas
-- Satyadeep Jain
The companies mentioned in Hot Research are subjects of research
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