Barrick Tumbles on Triple-Whammy Setback Amid Argentina Woesby
Shares fall most in 21 months after profit missed estimates
World’s largest gold miner lowers 2017 production forecast
Barrick Gold Corp. plunged after the world’s biggest bullion producer missed estimates on earnings and production -- as well as costs after expenses increased at mines in Argentina and Nevada.
Reporting only its second earnings miss in seven consecutive quarters, the Toronto-based miner also said it expects to produce less gold this year after selling half of its Veladero mine in Argentina. Even as the company plans to sell the stake to a Chinese partner, costs jumped at the mine, and for the company overall. The shares tumbled as much as 11 percent in Toronto.
Barrick will need a strong performance in the coming quarters to meet guidance as the company kept its forecasts at other mines largely unchanged, Evan Kurtz, a Morgan Stanley analyst in New York, said in a note to clients.
All-in sustaining costs in the first quarter were $772 an ounce, compared with $706 an ounce a year earlier, Barrick said Monday in a statement. Analysts expected costs of $747, the average of six estimates.
In the first quarter, about 90 percent of the increased costs, or roughly $58 an ounce, was “a result of higher sustaining capital expenditures compared to the prior-year period,” Barrick said in the statement. These included higher costs at Veladero and stripping costs in Nevada.
Barrick said it now expects all-in costs at Veladero to be $890 to $990 an ounce in 2017, higher than a previous forecast of $840 to $940.
Barrick produced 1.31 million ounces in the first quarter, missing the 1.44 million average of five analysts’ estimates. The company now expects to produce 5.3 million to 5.6 million ounces of gold in 2017, compared with a previous forecast of 5.6 million to 5.9 million.
Earlier this month, Barrick announced it will sell half its Veladero gold mine to Shandong Gold Mining Co. for $960 million. On Monday, Barrick said total production at the mine will fall to 630,000 to 730,000 ounces from a previous forecast of 770,000 to 830,000.
The week before the Veladero deal was announced, a pipe carrying cyanide solution at the mine ruptured. Although Barrick said there was no risk to the environment, it was the third incident involving cyanide solution at Veladero in two years. Senior management flew to Argentina as authorities threatened to rescind the mine’s license or suspend operations.
Barrick has presented a “comprehensive plan” to federal and provincial authorities in Argentina to improve Veladero’s operating systems, the company said in Monday’s statement. In an email after the release, spokesman Andy Lloyd said preliminary spending estimates of $500 million include sustaining capital costs over five years and an already-planned expansion of the leach pad. Funding for projects to further upgrade and improve operations is also included in that figure, he said.
Barrick is assuming the leach pad will be operating normally in June, the company said in the earnings statement.
“Overall we expect investors to see this as a shaky start to the year,” Matthew Korn, an analyst with Barclays Plc, said in a research note Tuesday. “The timeline offered for government approvals, execution of a new mine plan, and restart of heap leaching activity seems aggressive to us on first glance.”
Barrick’s shares fell 11 percent to C$22.89 at 4 p.m. in Toronto, the most since July 2015, cutting the year-to-date gain to 6.5 percent.
The drop in production at Veladero comes as analysts are increasingly focused on how Barrick intends to replenish its existing pipeline. “Increasingly, analyst attention is shifting to the long term for Barrick,” Michael Siperco, an analyst at Macquarie Capital Markets, said last week by phone from Toronto.
Barrick had said it intends to maintain production of at least 4.5 million ounces a year through 2021 -- with higher levels until 2019 -- subject to divestments. Brownfield projects are expected to replenish production while the company studies the feasibility of other longer-dated projects.
If the latter end up not making sense, “it raises a question, not in the next five years but 10 years plus, what does the production profile look like?” Siperco said. He estimates Barrick can sustain production of at least 4 million ounces a year until 2027 without developing new projects. “The question is beyond that.”
The company reported first-quarter net income of $679 million, which compared with a net loss of $83 million a year earlier. Earnings excluding one-time items were 14 cents a share, missing the 20-cent average of 19 analysts’ estimates compiled by Bloomberg.
First-quarter revenue rose 3.3 percent from a year earlier to $1.99 billion, missing the $2.14 billion average estimate.
Barrick has emerged from a multiyear strategy to cut costs and sell assets to lower its debt. Unlike some of its peers, it has stressed that improving free cash flow is more important than adding ounces to its production pipeline.
Gold futures rose 3.1 percent from a year earlier to average $1,221 an ounce in the first quarter.
(Barrick scheduled a conference call for Tuesday at 4:30 p.m. New York time. U.S. and Canadian callers can call toll-free at +1-800-319-4610; international callers +1-416-915-3239.)