Barrick Gold’s 2017 in Review


The year 2017 witnessed stability in gold prices, after three consecutive years of decline until 2016. However, Barrick Gold (NYSE:ABX) was largely hit by the dispute in its Acacia mines which deterred the company from taking advantage of the elevated gold prices in the second half of the year. The stock price of Barrick has plummeted by 12% since the beginning of the year despite a period of stable gold prices.
                               (Source:NASDAQ)                                                                                     (Source: Kitco Gold Prices)

Uncertainty in Tanzania

Barrick Gold’s African operations are mired in uncertainty amid the Tanzanian government’s ban on the export of unprocessed mineral ores from the country. [1] In addition, the Tanzanian government has alleged that Acacia Mining plc, the Barrick Gold subsidiary which operates the company’s mining interests in the country, has been evading taxes by understating the amount of gold concentrate that it exports. [2]

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Barrick’s shipment volume fell 10% Year-on-Year (Y-o-Y) in its third quarter due to this disruption and the company consequently narrowed its production outlook for 2017 by reducing its top range by 0.1 million ounces. Barrick has initiated its round of negotiation with the Tanzanian government and aims to resolve the issue by mid-2018. However, the company’s shipments are expected to be subdued in the fourth quarter as well.

Company in Line with its Debt Reduction Strategy

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. [3] 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 allowed for the accomplishment of half of the debt reduction target by the end of 2017 itself. [3] The company expects it debt to be reduced by $1.45 billion by the end of 2017. [4]

Debt management stands the company in good stead going forward as the upside for gold prices remains limited in the near term.

The Road Ahead

The company’s cost reduction has not been remarkable in 2017, with the all-in sustaining cost (AISC) expected to subside at a level of $740-$770/oz in comparison to an AISC of $730/ oz in 2016. [5] The company expects its AISC to drop to a level of $700-$790/ oz by 2019 due to its strong project pipelines.

With more rate hikes from the Fed and higher U.S. economic growth expected next year, gold prices are expected to remain subdued in 2018. With lower average gold prices expected in 2018, Barrick Gold’s efforts to lower operating costs and debt throughout the years would continue to remain beneficial for the company in the long term.

We have a $15 price estimate for Barrick Gold’s stock, which is in line with 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 Comments on Potential Impact of Tanzania Concentrate Export Ban, Barrick Gold News Release []
  2. Tanzania says Barrick to pay money owed by Acacia to Gov’t, Mining.com []
  3. Barrick Gold’s Q2 2017 Earnings Release, SEC [] []
  4. Barrick Is ‘Nicely on Track’ to Meet Its Debt Target for 2017, Bloomberg []
  5. Earnings Factsheet, Barrick Gold Quarterly Reports []