Can Barrick Gold Sustain The Momentum Through FY 2019 After A Strong First Quarter?

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Barrick Gold Corp (NYSE: GOLD) released its Q1 2019 results on May 8, 2019, followed by a conference call with analysts. The company reported revenue of $2.1 billion in Q1 2019, marking a growth of 16.9% over the previous-year period. Higher revenue was mainly driven by increased gold shipments and higher price realization for gold and copper, partially offset by lower copper production. Higher shipments were primarily due to the additional production from sites acquired under the merger with Randgold Resources in January 2019. On a Q-o-Q basis, revenue increased by 9.9% over Q4 2018. Adjusted earnings came in at $0.11 per share in Q1 2019, much higher than $0.06 per share in Q4 2018. Higher earnings were a reflection of lower direct mining costs  and the impact of business improvement initiatives at Pueblo Viejo and Veladero.

We have summarized the key announcements in our interactive dashboard – How did Barrick Gold fare in Q1 2019 and what is the full year outlook? 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 the company’s gold and copper mines.

Key Takeaways

Gold Segment

  • Gold revenue increased 16% (y-o-y) in Q1 2019, driven by increased shipments.
  • Gold shipments increased by 27.5% in Q1 2019, benefiting from higher production from additional mines due to the Randgold merger.
  • However, excluding the merger effect, production increased 1% primarily due to higher grades at Goldstrike and Turquoise Ridge, offset by lower grades at Cortez and lower tons mined and processed at Lagunas Norte.
  • 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.

Copper Segment

  • Copper revenues increased sharply by 46.8% (y-o-y) in Q1 2019, driven by higher shipments and improved price realization.
  • Copper shipments increased by 21% (y-o-y) in Q1 2019 due to higher production, better grades and improved recovery rates. However, copper production decreased on a sequential basis primarily due to the production interruptions at Lumwana.
  • From its highs in Q1 2018, copper price per pound decreased 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 the possibility of a truce, which led to better price realization.

Profitability

  • Net income margin came in at 6.7% in Q1 2019, much higher than the loss reported in the previous quarter, but lower than 10.7% in Q1 2018.
  • Cost of sales per ounce of gold increased in Q1 2019 on y-o-y basis, driven by the merger and asset quality and mining cost at the African mines.
  • Cost of sales per pound of copper increased in Q1 2019 on y-o-y basis due to increased shutdowns, high maintenance cost, and higher volume.

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, decreasing cost of production, efficient logistics framework and better supply chain, and inventory management 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.

 

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