Why Barrick’s Gold Production Declined In 2016


Barrick Gold reported its preliminary full year production figures last week, with the company’s 2016 gold production reflecting the rationalization of the company’s mining portfolio undertaken over the past couple of years. [1] The following table illustrates the sharp decline in Barrick’s gold production in 2016, as compared to the previous two years.

Gold Production

Weakening gold prices prompted Barrick to sell some of its high-cost gold mines since mid-2013. The 10% decline in production in 2016 was largely due to the sales of the Bald Mountain, Round Mountain, and Ruby Hill mines in Nevada and the Cowal mine in Australia over the course of 2015 and early 2016. With the sales of these high-cost mines, the company has lowered its mining costs, as reflected in the decline in the company’s all-in sustaining cost metric, which is a comprehensive indicator of all the costs required to sustain a company’s ongoing mining operations.

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A lower-cost portfolio of gold mines will stand the company in good stead going forward, particularly with gold prices expected to be under pressure this year. Strengthening economic conditions and a robust job market are expected to translate into more interest rates hikes by the Fed in 2017, weakening the investment demand for gold. [2] This is reflected in our forecast for Barrick Gold’s average realized prices.

Thus, though Barrick’s gold production is likely to remain well below 2015 levels this year, a lower-cost portfolio of gold mines should stand the company in good stead with gold prices expected to remain subdued.

Have more questions about Barrick Gold? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Barrick Gold

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Notes:

  1. Barrick Achieves 2016 Production Guidance, Barrick Gold News Release []
  2. Fed Raises Rates for First Time in 2016, Anticipates 3 Increases in 2017, Wall Street Journal []