Barrick Gold’s Q2 2017 Earnings Review: Superior Cost Performance Of Mining Operations Drives Earnings Improvement

July 28th, 2017 by Trefis Team

Barrick Gold reported an improvement in its second quarter earnings result, driven by the superior cost performance of its operations in the absence of any significant growth in gold prices.

The company reported a 9% year-over-year decline in the all-in sustaining costs metric, which is a comprehensive measure of all costs required to sustain ongoing mining operations. The decline in costs was driven by a higher share of production from Barrick’s low-cost mining operations in Nevada relative to last year, where the mining of higher grade ores boosted output and lowered unit costs. In addition, Barrick’s technology-driven operational improvements also contributed to the lowering of operational costs.

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Barrick Gold continued to make strides towards its target of lowering outstanding debt from around $ 8 billion at the end of 2016 to $5 billion at the end of 2018. [1] The proceeds from the sales of the company’s interests in the Veladero mine and the Cerro Casale project in Q2 augmented by operating cash flows should allow for the accomplishment of half of the debt reduction target by the end of 2017 itself. [1] Debt management and cost reduction should stand the company in good stead going forward as the upside for gold prices remains limited in the near term. Steady U.S. economic and jobs growth has prompted the Fed to tighten the interest rate regime with rates expected to rise over the course of 2018 and 2019 post a 25 basis point hike over the rest of 2017. [2] This is expected to limit the growth in gold prices over the next couple of years, as illustrated by our forecast for the same.

Thus, Barrick’s debt reduction and cost management efforts will certainly put the company in a good position to weather a period of weak pricing growth.

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 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 Q2 2017 Earnings Release, SEC [↩] [↩]
  2. The Fed’s New Dot Plot, Bloomberg [↩]