Barrick Gold’s Q1 Earnings Will See Falling Volumes

Barrick Gold (NYSE:ABX) is set to announce its first quarter earnings for 2012 on Wednesday. We expect Barrick to report a sequential decline in earnings as lower gold production will more than offset the higher average realized prices of gold. Margins may also shrink compared to the previous quarter as a result of changes in its production mix and higher-cost mine sites contributing a bigger share of total production. Barrick Gold, the largest gold producer in the world, operates mines in North America, South America, Australia and Africa and has mainly gold and copper in its portfolio. In their recent earnings announcements, competitors Newmont Mining (NYSE:NEM) and Freeport McMoran (NYSE:FCX) also announced a decline in earnings mainly due to lower output and higher costs.

We are in the process of revising our price estimate for Barrick Gold to reflect recent developments including the company’s decision to dispose of its stake in Highland Gold.

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Expecting Lower Volumes, Higher Prices

We expect the company’s gold volumes to decline slightly on a quarter-over-quarter basis as an increase in North American production may not be enough to completely offset declines in South America, Africa, and Asia Pacific. However the company’s average realized gold price will likely be higher than the figures seen in both Q4 2011 and Q1 2011. Increasing cash costs as a result of inflationary pressures and changes in production mix are likely to lead to a decline in EBITDA margins.

We will be watching Barrick Gold’s earnings announcement closely for updates on new mining sites including Pueblo Viejo in Dominican Republic, which will bolster gold production over the next couple of years. After selling its stake in Highland Gold, we will look for any indication on the company’s Chilean mine ownership battle with Goldcorp.

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