What Effect Could Randgold Merger And Nevada JV Have On Barrick Gold’s Q1 2019 Results?

Barrick Gold Corp (NYSE: GOLD) is set to release its Q1 2019 results on May 08, 2019, followed by a conference call with analysts. Though the company’s total revenue has been rising sequentially in the last three quarters of 2018, on a y-o-y basis revenue declined in all the quarters of 2018, mainly driven by lower production on the back of operational disruptions and divestments, coupled with lower price realization following the decline in global gold and copper prices. However, the trend is expected to reverse with revenue projected to increase by 16%-18% (y-o-y) in Q1 2019, primarily due to higher shipments, benefiting from increased production following the merger with Randgold Resources in January 2019, partially offset by gold and copper prices being lower than levels achieved in Q1 2018.

We have summarized the key expectations from the announcement in our interactive dashboard – How is Barrick Gold expected to fare in Q1 2019 and what is the outlook for the full year? In addition, here is more Materials data.

A Quick Look at Barrick’s Revenue Sources

Barrick Gold reported $7.24 billion in total revenue in fiscal 2018. This included 3 revenue streams:

• Gold Revenue: $6.6 billion in 2018 (91% of total revenue). This includes sale of gold from the Nevada region, Africa, and other gold mines such as Porgera, Veladero, and Kalgoorlie.
• Copper Revenue: $0.52 billion in 2018 (7% of total revenue). This includes sale of copper from a wholly-owned copper mine in Zambia and 50% interests in copper mines in Chile and Saudi Arabia.
• Other Revenue: $0.14 billion in 2018 (2% of total revenue). This includes the sale of by-products from company’s gold and copper mines.

Key Factors To Watch For In Q1 2019

Performance of the Gold Segment

• Though gold volume saw some volatility in 2018, it was lower on a y-o-y basis in all the four quarters, due to lower production.
• Lower production reflected the impact of the 50% divestment of the Veladero mine, along with lower throughput at Acacia and Lagunas Norte.
• Shipments are expected to increase in 2019, driven by higher gold production attributable to the company with addition of new mines in Africa, following the Randgold merger.
• After decreasing from its highs in Q1 2018 due to US-China trade tensions and increasing interest rates in the US, gold prices have increased since Dec. 2018, with higher retail and institutional investment in the face of rising global economic uncertainty. However, the price level is still lower than the highs achieved in Q1 2018.

Performance of the Copper Segment

• Though copper volume increased in the last two quarters, shipments were lower (y-o-y) throughout 2018 due to lower production at Lumwana – primarily due to mill shutdowns, crusher availability issues, and lower head grade and recoveries, coupled with lower throughput at Zalvidar.
• We expect copper production to increase in 2019, driven by improving grades and recovery rate.
• From its highs in Q1 2018, copper price per pound has been decreasing in the second half of 2018 due to US-China trade tensions. However, prices have rebounded since the beginning of 2019 with trade talks between US-China progressing and a possibility of a truce in sight. However, the price level is still lower than the levels achieved in Q1 2018.

Profitability

• Net income margin has trended downward due to largely increasing trend in cost per unit for gold and copper sold, along with large impairment charge in Q3 2018.
• Cost of sales per ounce of gold trended upward during most of 2018 due to inventory impairment at Lagunas Norte, exacerbated by the impact of lower grades and recoveries across most operations, coupled with higher direct mining cost due to a rise in energy prices and consumption.
• Cost in the copper segment also largely trended higher, mainly driven by higher maintenance costs due to mill shutdowns and crusher availability issues, higher energy consumption to truck ore to the crusher, and tire costs due to road conditions at Lumwana.
• Higher production, better grades and lower cost of production following a JV with Newmont for the Nevada region (which would help Barrick use Newmont’s superior and low-cost processing plants and infrastructure in Nevada) would likely improve GOLD’s margins in 2019.

Full Year Outlook

• For the full year, we expect revenue to rise by over 15% to $8.36 billion in 2019, on the back of increased shipments and strengthening of gold and copper prices.
• Additionally, Randgold’s high grade ores, lower cost of production, efficient logistics framework and better supply chain, and inventory management, coupled with cost synergies at Nevada is expected to help Barrick Gold improve its profitability, thus reflecting in a sharp increase in net margin to 10% in 2019.

Trefis has a price estimate of $14 per share for Barrick’s stock. Top line expansion, led by inorganic growth, along with improving margins on the back of Nevada synergies, and better cost management at Randgold is expected to boost earnings and enhance shareholder returns, thus supporting stock price growth.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

All Trefis Data

Like our charts? Explore example interactive dashboards and create your own.