Here’s How Much the Dispute in Acacia Has Impacted Barrick Gold (Part 2)

November 30th, 2017 by Trefis Team

In the previous article, we had discussed the ongoing negative implication of the developments in Tanzania on Barrick Gold (NYSE:ABX). In this article, we shall be discussing the probable upside/downside to Barrick’s revenue based on how their negotiations with the Tanzanian government progress in 2018.

As depicted in the graph below, Barrick’s stock price has dipped by 28% since the export ban imposed in March 2017. The market value of Barrick has been eroded by approximately $5.4 billion since March. The investors have become extremely apprehensive about the future performance of Barrick which can be seen from the increasing selling pressure experienced for Barrick’s stock.

(Source: NASDAQ)

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Barrick in it’s third quarter earnings announcement had narrowed its gold production outlook for 2017 by reducing its top range by .1 million ounces, owing to the uncertainty prevailing in Tanzania. [1] Expected gold production was revised to 5.3-5.5 million ounces for 2017. If gold production is sustained at 5.3 million ounces in 2017 and Acacia’s differences with the Tanzanian government are resolved by the first half of 2018, we expect Barrick’s shipments to cease its downtrend and resume normal levels of production by H2 2018 as depicted by the chart below. You can view our base case for Barrick’s projected shipment and revenue numbers here and create different scenarios using our interactive platform.

However, if a concrete resolution is not arrived at by the first half of 2018 and the export ban continues, the uncertainty regarding the resolution of the matter would have serious implications on Barrick’s output and revenue. Acacia would have to further cut down its production volume in order to match its shipment numbers and this would lead to a significant fall in Barrick’s revenue.

Thus, given the uncertainty revolving around the final outcome of Barrick’s negotiation with the Tanzanian government, Barrick would face a high degree of volatility in the stock market until a settlement is agreed and signed by all parties. We shall keep a close observation as these developments take shape and see how the final framework of an agreement looks like.

We have a $16 price estimate for Barrick Gold’s stock, which is 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 [↩]