Barrick Presses On With Asset Sales in the Face of Gold’s Rallyby
Miner posts best profit in three years after lowering costs
Company initiating sales process for stake in Kalgoorlie mine
Barrick Gold Corp. plans to forge ahead with efforts to divest peripheral assets -- starting with its stake in the Kalgoorlie Super Pit in Australia -- even as surging gold prices spur the highest profit in three years.
In its second-quarter earnings statement Wednesday, the world’s largest gold producer said it made $968 million in debt repayments this year, almost half its target, and will continue pursuing non-core asset sales. Earnings excluding one-time items matched analysts’ estimates, while net income was the highest since the first quarter of 2013. In a mixed bag of results for the sector, Newmont Mining Corp. and Agnico Eagle Mines Ltd. beat estimates while Goldcorp Inc. and Kinross Gold Corp. missed.
Gold producers have been reining in costs and some have been selling holdings after prices dropped for three straight years. Their second-quarter earnings releases show this process hasn’t abated now that gold prices are on the rise. The announcements contrast with copper miner Freeport-McMoRan Inc., which on Tuesday posted a seventh straight quarterly loss and said it no longer needs to sell key assets to contain debt.
“We intend to initiate a process to explore the sale of our 50 percent stake in the KCGM operation in Western Australia,” Barrick said in the statement Wednesday, referring to the Kalgoorlie mine.
The Australian operation is a 3.5-kilometer (2-mile) long pit at a site where metal has been produced continuously since a late 19th-Century gold rush. Barrick’s joint venture partner and the mine’s operator, Newmont has signaled it would be willing to buy Barrick’s 50 percent stake at the right price.
In an interview this month, Barrick President Kelvin Dushnisky said the two sides remain apart on valuation. At the time, he said no active talks were under way and no advisers had been hired. Dushnisky also said said his company could be debt-free within a decade.
In Barrick’s second quarter, sales declined to $2 billion, trailing the $2.1 billion average estimate of eight analysts, from $2.2 billion a year earlier as the company produced fewer ounces of gold. The results were released following the close of markets. Barrick shares initially weakened in trading after regular hours in New York.
Cash costs were slightly higher at $578 an ounce versus an average estimate of $565 by eight analysts surveyed by Bloomberg. The company had average all-in sustaining costs of $782 an ounce of gold in the second quarter, compared with an average estimate of $831, which matched the level of sustaining costs in 2015.
“Management is now indicating that the third quarter will be the peak quarter for all-in sustaining costs based on the timing of capital spending,” Michael Siperco, an analyst with Macquarie Capital Markets, said in an e-mail. That and slightly higher cash costs in the second quarter could have weighed on the stock, he added.
Barrick produced 1.34 million ounces of gold in the second quarter compared with 1.45 million a year earlier and the 1.3 million average of nine estimates compiled by Bloomberg. Excluding the impact of divested mines, production increased by 126,000 ounces in the second quarter, the company said.
Copper production was slightly ahead of estimates at 103 million pounds.
Gold futures rose 5.8 percent from a year earlier to average $1,262 an ounce in the second quarter. Barrick stock has almost tripled since the start of the year. In January, the company regained its status as Canada’s biggest gold miner by market value, surpassing Vancouver-based Goldcorp.
On Wednesday, Goldcorp reported a second-quarter net loss as costs rose more than analysts expected. In its statement, the miner said it has begun implementing a companywide program to “optimize” all its businesses and save $250 million as year by 2018.
(Barrick scheduled a conference call on Thursday at 11 am EDT. North American callers can dial +1-877-648-7976. International callers dial +1-617-826-1698. The pass code is 2489 2564.)