Barrick Gold Q3 2017 Earnings Preview: Fall in Shipments Most Likely to Hit Earnings

October 24th, 2017 by Trefis Team

Barrick Gold (NYSE:ABX) will release its Q3 2017 earnings results on October 25 and conduct a conference call with analysts the next day. [1] The company released its Q3 2017 production results ahead of its quarterly earnings in order to make its results more transparent.

The company reported a decline in sales volume by 11% compared to Q3 2016 mainly due to the continued pressure on its Acacia Mines. This pressure is attributable to mainly two factors: one, the imposed export ban by the Tanzanian government in the country in order to encourage construction of local smelters; and two, the recent accusation made by the government regarding the possibility of tax evasion by Acacia in Tanzania. [2] Barrick Gold has greater than 60% ownership in Acacia and the mines contribute approximately 10% of Barrick’s total output, so these curbs have significantly impacted the production results of Barrick.

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In addition to a fall in sales volume, there has also been a decline in average realized prices of gold. This fall in price is in comparison to Q3 2016, when gold prices had hit record highs due to the macroeconomic uncertainty in the wake of the UK’s June EU referendum and global economic weakness. Gold prices have otherwise averaged out at a nominal level owing to the increasing uncertainty pertaining to North Korea’s nuclear agenda.

On the contrary, copper shipments for the company were up by 4%, which would be beneficial for the company as copper is trading at its 3 year high prices. This is due to the environmental curtailments implemented in China which has, in turn, pushed the country’s demand for refined copper. ((China reviewing copper scrap imports; may call halt in 2018: notice, Reuters)) High copper prices along with high shipment volume would be favorable for the company’s third quarter top line.

The company has not revised its full-year gold production estimate of 5.3-5.6 million ounces and aims to meet the balance of approximately 1.5 million ounces of production in Q4 2017. It has recently come into an agreement with the Tanzanian government to end the dispute over the mine’s operations. As per the discussions, the Tanzanian government would take a 16% stake in Acacia’s assets and benefit from 50% share of the mine’s revenue. [3] This agreement would most likely enable Acacia to resume normal production and deliver regular output in Q4 2017.We await to see these developments taking shape, however the disruption in operations of Acacia would have significant negative implications on Barrick’s third quarter results despite the upside in its copper operations.

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. Third Quarter 2017 Results Release on October 25, Barrick Gold News Release [↩]
  2. New Mining Laws Put Pressure on Gold Companies in Tanzania, Investing News [↩]
  3. Acacia jumps after Barrick and Tanzania strike deal to end dispute, Financial Times [↩]