Barrick Gold’s Preview: Gold’s Rally Will Make Earnings Sparkle

February 15th, 2012 by Trefis Team

Barrick Gold (NYSE:ABX), the largest gold producer in the world, is set to announce its fourth quarter and full year earnings for 2011 on Thursday morning.  For the year 2011, we are expecting Barrick to produce strong numbers benefiting mainly from the soaring gold prices. However, revenue growth in Q4 may not be as impressive as Q3 of 2011 due to cooling down of gold prices in Q4. Margins may also shrink as compared to Q3 as a result of changes in production mix and higher cost mine sites contributing towards a bigger share of total production. Our price estimate for Barrick Gold stands at $59, implying a premium of about 25% to the current market price.


See Full Analysis for Barrick Gold Here


Limited Growth Outlook and Rising  Costs Remain a Concern

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In its Q3 earnings, Barrick Gold anticipated that in 2012 gold production will be in line with 2011. The company also warned of rising cash costs due to inflationary pressures and changes in the production mix. However, near zero level interest rates may continue to support gold prices. The Federal Reserve recently announced its intention to keep interest rates near zero until 2014. The Fed’s interest rate policy may result in high inflation and Gold is considered to be a safe hedge against inflation.

Gold constitutes nearly 90% of our price estimate for the company. Accordingly any prolonged substantial run up in gold prices could impact our estimate of the company’s value.

Putting Highland Gold stake on block

Barrick Gold plans to to dispose its 20% stake in Russian gold miner Highland Gold citing that their strategies aren’t aligned. This was one of largest investment made by Barrick Gold in Russia, the second largest gold producer after South Africa. [1]

We will be watching earning announcement closely to find a detailed guidance for 2012. We are also looking for updates on its new mining sites, which will bolster gold production in next couple of years.

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Notes:
  1. Highland Gold Press Release, Feb 13 2012 [↩]