Barrick Gold Earnings Preview: Awaiting Bumper Profits on Thursday

Barrick Gold Corporation (NYSE:ABX) will release its third quarter earnings on Thursday. The price of gold in the spot market jumped from $1,500 at the start of the third quarter to $1,900 by the end of September. The sales margins have been at an all time high, and the company is all set to post bumper profits for the Q3. The company’s African arm – Barrick Gold Africa – announced its quarterly earnings last week, posting more than 60 percent increase in the revenues and 156 percent increase in the net profit over the third quarter of 2010. Headquartered in Toronto, Barrick is the world’s largest gold mining company and competes with other mining companies such as Newmont Mining (NYSE:NEM), AngloGold Ashanti Ltd. (NYSE:AU), Goldcorp Inc. (NYSE:GG) and Freeport McMoran Copper(NYSE:FCX).

We have a $53 price estimate for Barrick Gold’s stock, which is roughly 15 percent above the current market price.

See our full analysis for Barrick Gold here.

Riding on high commodity prices

For a mining company, the price at which it sells its produce determines the profit it makes. With an average cost of gold production close to $450 per ounce (total cash cost per ounce), the company enjoys a healthy margin across the production from all its mines.

The past three months have been marked by extreme volatility in the stock markets and uncertainty over the global economic health. During times of economic crisis with uncertainty in the equity markets and many developed economies undertaking policies that will devalue their currencies, global investors will many times invest their money in precious metals like gold to act as a “storage” of value. In the previous quarter, gold price zoomed to an all time high above $1,900 from the $1,500 during the start of Q3. The EBITDA margin for the quarter will well surpass the $2.1 billion figure posted in Q2.

Copper has not seen much movement in the past few months and the overall trend for copper prices has been bearish. However, the company still enjoys EBITDA margins of more than 50 percent in the copper division. The additional copper shipments from the acquisition of Equinox Minerals in July will provide a significant upside to the company’s bottom line.

The company is well on course to achieve its production target of 7.5-8 million ounces of gold in 2011 at a total cash cost per ounce of $450-$480 per ounce. Although the Barrick’s stock has seen some beating in the past month as the gold price came down to $1,650 levels from its peak, we still believe that with the looming uncertainty in markets will support the price of gold as well as the company’s outlook.

See our complete analysis for Barrick Gold here.