Barrick Focuses on Quality Even as Smaller Peers Think Bigby
Gold miner opts for modest output growth and boosts dividend
Agnico, Goldcorp promise 20% boost to ounces in coming years
Barrick Gold Corp. remains committed to growing free cash flow above all else, even as some of its peers focus on boosting production.
Already the world’s largest miner of the metal, Barrick plans to increase annual output modestly this year to between 5.6 million and 5.9 million ounces of gold, from 5.52 million ounces in 2016, it said Wednesday in its fourth-quarter earnings statement. But by 2019, production is expected to fall back to 4.5 million to 5.1 million ounces. And while it expects to maintain levels of at least 4.5 million through 2021, it noted that threshold is subject to potential divestments.
That contrasts with Vancouver-based Goldcorp Inc., which reiterated Wednesday it plans to increase production 20 percent to 3 million ounces in the next five years. Meanwhile, Toronto-based Agnico Eagle Mines Ltd. said Wednesday it will invest more than $1.2 billion in Canada’s subarctic to help boost annual production more than 20 percent to 2 million ounces by 2020.
Toronto-based Barrick said in its earnings release its “overarching objective is to grow our free cash flow per share.”
The company, which produced a record 8.64 million ounces of gold in 2006, has emerged from a multiyear strategy to cut costs and sell assets to lower its debt. In a separate statement Wednesday, it said that progress, along with a higher-quality asset base, will allow it to increase its quarterly dividend from 2 cents a share to 3 cents.
The challenge for Barrick will be convincing investors that its focus on quality over quantity is the right one -- especially as some of its peers take advantage of higher gold prices to aggressively boost production.
“Now you have resolved the short-term pressures the company faces, but what about the longer-term production shortfall the company faces after 2019?” Josh Wolfson, an analyst at Dundee Capital Partners, said in an interview before the results were released.
On Wednesday, Barrick reported on the progress of internal projects in its pipelines that have the potential to add as much as 1.1 million ounces of gold production beyond 2021, even as output from some of its existing assets starts to decline.
In a third news release, the company said it has initiated a prefeasibility study to evaluate whether to build an underground mine at Lama, on the Argentinian side of the Pascua-Lama project which straddles the Chilean border. The company also is looking at strategies to develop its Frontera District assets in the same area, including Veladero and Alturas.
Pascua-Lama has been shuttered since 2013, when a Chilean court accepted an injunction filed by indigenous groups over environmental concerns.
Barrick’s Cortez underground expansion is on track to contribute average production of more than 300,000 ounces a year from 2022 to 2026, Barrick said. The feasibility study of the mine in Nevada is expected to be completed by the end of this year.
Barrick also said its Goldrush project could become the company’s newest mine in Nevada, with first production as early as 2021. Average annual production for the first full five years of operation is expected to be about 450,000 ounces of gold. Initial capital costs are estimated at about $1 billion.
Barrick reported fourth-quarter net income was $425 million, compared with a net loss of $2.62 billion a year earlier. Earnings excluding one-time items were 22 cents a share, more than the 20-cent average of 21 analysts’ estimates compiled by Bloomberg. Sales climbed 3.6 percent to $2.32 billion, topping the $2.23 billion average of eight estimates.
Barrick rose 5.6 percent to C$26.69 at 10:42 a.m. in Toronto. The shares have gained 24 percent this year as gold prices climbed.
“Barrick offered up a solid fourth-quarter result combining an earnings beat, a dividend increase, and 2017 operational guidance that indicates better-than-expected performance compared to our current forecasts,” Matthew Korn, a New York-based analyst at Barclays Plc, said in a note.
The company said it plans to cut its total debt by $2.9 billion, to $5 billion, by the end of 2018, with about half the reduction targeted for this year. Barrick will do that through the use of cash, free cash flow, joint ventures and asset sales, Chief Financial Officer Catherine Raw said on the company’s earnings conference call Thursday.
Barrick has been trying to sell its stake in Australia’s Kalgoorlie Super Pit mine. Talks have been stalled as the buyer, Minjar Gold Pty, has faced financing delays for its $1.3 billion offer, according to people with knowledge of the matter.
On the call, Barrick President Kelvin Dushnisky said the company remains in “advanced discussions” with a buyer.