Barrick Gold Earnings Review: Tension in Tanzania Hits Earnings

October 27th, 2017 by Trefis Team

Barrick Gold (NYSE:ABX) reported a net loss of $11 million in its latest quarter earnings release as a result of a fall in production volume and lower realization of average gold prices.

Production and sales volume fell considerably due to the pressure prevailing in the company’s Acacia mines in Tanzania. The imposed export ban by the Tanzanian government in the country, in order to encourage construction of local smelters along with a tax evasion accusation made by the them on Acacia, has significantly impacted the mine’s production and sales volume. Barrick owns greater than a 60% stake in Acacia and its mines accounts for approximately 10% of Barrick’s production volume. These ongoing constraints have thus led to a fall in production for Barrick as well. 

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Barrick has initiated negotiation of its terms with the Tanzanian government and aims to resolve the issue by mid-2018. As per the discussions, the Tanzanian government would take a 16% stake in Acacia’s assets and benefit from a 50% share of the mine’s revenue. In addition to that, Acacia would most likely pay an additional 300 million to the government towards the reservation of outstanding tax disputes. This has majorly impacted Barrick’s third quarter net income as a tax provision of $172 million was reported in its quarterly statements. Adjusted EPS otherwise stands at $0.16/share. [1]

The fall in average realized gold 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 for 2017 owing to the increasing uncertainty pertaining to North Korea’s nuclear agenda.

Barrick has narrowed its production outlook for 2017 by reducing its top range by .1 million ounces owing to the uncertainty prevailing in Tanzania. The expectation currently remains at 5.3 million to 5.5 million ounces. The agreement between Barrick and the Tanzanian government, once finalized, would be sent for approval to Acacia after which we expect to see normal production levels resuming. These final terms of negotiations would have long term impact on Acacia’s operations in Tanzania and we would be keeping a close watch as these developments take shape.

We have a $16 price estimate for Barrick Gold’s stock, which is 14% above the current market price.

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 (ABX) Q3 2017 Results – Earnings Call Transcript, Seeking Alpha [↩]