Barrick Gold’s Q1 2017 Earnings Review: Higher Gold And Copper Prices Boost Earnings

April 26th, 2017 by Trefis Team

Barrick Gold released its Q1 2017 earnings result on April 24 and conducted a conference call with analysts the next day. [1] The company reported an improvement in its earnings result driven by higher gold and copper prices but missed consensus estimates as the company reported higher costs.

ABX Q1 2017 Earnings Review

Copper prices surged higher in Q1 due to an improved demand outlook as a result of a fiscal stimulus in China and accelerating U.S. economic growth. In addition, gold prices averaged higher in Q1 2017 as a result of higher safe-haven investment demand for the metal. However, the company’s cost of sales for gold operations rose in Q1, partially offsetting the impact of higher commodity prices on earnings. The increase in costs was driven by higher labor costs at the Veladero mine, higher maintenance costs at the Pueblo Viejo mine, and higher energy costs. [2] Despite the higher costs in Q1, the company has maintained its cost guidance for the year.

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From a strategic perspective, the company management stressed that cost reduction and debt reduction will continue to remain as priorities. [3] Barrick reached an agreement to sell off a 50% stake in the Veladero mine earlier this month, with the proceeds from the completion of the transaction (expected in Q2) earmarked for debt burden. [3] The company aims to lower its total debt to $5 billion by the end of 2018 from around $7.8 billion at the end of Q1 2017. [3] While operating cash flows will partly be deployed towards debt reduction, more stake sales could be in the offing to help the company achieve its debt reduction target. Whereas gold prices are presently at elevated levels as a result of the safe-haven investment demand for the metal, lower debt levels and lower cost operations will allow the company to operate competitively in an environment of lower gold prices.

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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 Gold’s Q1 2017 Earnings Call Trasncript, Seeking Alpha [↩]
  2. Barrick Gold’s Q1 2017 Earnings Release, SEC [↩]
  3. Barrick Gold’s Q1 2017 Earnings Call Transcript, Seeking Alpha [↩] [↩] [↩]