Barrick Gold’s Q2 Earnings: Low Production And Soaring Costs Could Weigh on Higher Prices

July 25th, 2012 by Trefis Team

Barrick Gold (NYSE:ABX) is set to announce its second quarter earnings on Thursday. We expect the company to report a slow growth in revenues and a decline in earnings on y-o-y basis as lower gold production could offset gains from higher average realized prices of gold. Margins may also shrink compared to the as a result of soaring cash costs, changes in its production mix and higher-cost mine sites contributing a bigger share of total production.

Our price estimate for Barrick Gold is at $53, which is about 55% ahead of the current market price.

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See Full Analysis for Barrick Gold Here

Expecting Lower Volumes, Higher Prices

We expect the company’s gold volumes to decline slightly as an increase in North American production may not be enough to completely offset declines mainly in South America and Africa. However the company’s average realized gold price will likely be higher than the figures seen in Q2 2011. In copper business, a major correction in copper prices will offset gains from higher production. 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.

Expansion Plans to Lend Support in Long Term

Even as production numbers may decline in the immediate term, we believe the company’s aggressive move towards developing its planned projects and new discoveries will be highly beneficial in the long-term. With the Pueblo Viejo project starting up in 2012 and the highly anticipated Pascua Lama expected to start production in 2013, we expect Barrick’s gold output to increase by 5-8% annually over the next five years.

The $400 million Jabal Sayid copper project in Saudi Arabia, with an estimated 1.2 billion pounds of copper, will start production in the second half of 2012. The mine will add approximately 130 million pounds of copper annually. Additionally, Barrick’s continued exploration on its newly discovered potential mining regions, Redhill and Goldrush, could lend further upside to our estimates.  However, rising costs remain a concern for the mining company.

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