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Barrick Gold - Gold reserves up, costs weigh on profits

Barrick reported full year revenue of $11.0bn, down from $12.0bn the prior year. Declines were largely driven by...

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Barrick reported full year revenue of $11.0bn, down from $12.0bn the prior year. Declines were largely driven by lower Gold production and sales volumes, as average selling prices were broadly flat. The smaller Copper division also saw revenue fall, as a lower market price was partially offset by higher sales volumes.

Underlying cash profit (EBITDA) fell 23% to $5.6bn, reflecting the drop in revenue and an increase in costs.

Barrick was able to more than replace its gold reserves for the second year in a row and significantly increased copper resources. Output is expected to increase for Gold and Copper in 2023, with production costs broadly stable.

Free cash flow fell from $1.9bn to $0.4bn and net debt of $0.3bn compares to a net cash position of $0.1bn the prior year.

The board declared a dividend of $0.1 per share for the fourth quarter and announced a new $1.0bn buyback programme to be completed over the next year.

The shares were broadly flat following the announcement.

View the latest Barrick Gold share price and how to deal

Our View

By historical standards, gold prices are still high. That's good news for Barrick but a host of other challenges from significantly higher costs of production and infrastructural issues over the year have weighed on performance.

CEO Mark Bristow is a serial dealmaker. An audacious bid to acquire Newmont ended instead in a joint venture combining the two groups' Nevada assets. The Nevada estate contains 3 tier-1 mines, these are large, low cost and long life. Big expansion plans are underway, including the flagship $1bn Goldrush project at one of the tier-1 sites.

The expansion of the low-cost Pueblo Viejo mine is also progressing, expected to extend the mine's life beyond 2040. Increased production at existing mines can be a particularly powerful driver for the group - since costs rarely increase in line with output. That means rising production helps boost margins, while lower production hits the bottom line hard.

There's also been positive progression in both Gold and Copper reserve levels, as organic expansion uncovers new deposits. This is key, as it reduces reliance on acquisitions to support future production guidance.

With fingers in many regions and mines, Barrick's relationships with its partner countries are important, and the group's record here is encouraging. Battles with the Tanzanian government over the former Acacia mines have been resolved and operations and exports are back up and running. We're still waiting to see if the magic can work in Papua New Guinea too, where the Porgera mine is sitting dormant. Work with the government is still ongoing to get licences sorted so operations can resume.

But these projects don't come cheap, nor is the ongoing maintenance cost just to keep mines running. Free cash flow was barely in positive territory over the year and the net cash position has disappeared. Debt's still low, so there's no immediate liquidity concerns, but it highlights the speed at which things can change.

The strong balance sheet and high-quality production has given Barrick the confidence to mark in some considerable shareholder returns. The slightly weaker balance sheet does mean returns on top of the basic dividend were off the table in the fourth quarter. The recently renewed dividend policy has a set value, plus a tiered bonus based on the amount of net cash on the balance sheet. Aside from that, the group also announced a new $1bn share buyback - although a continued rise in costs or lower gold price could cause that to come under pressure.

The gold price remains a decent level above Barrick's costs per ounce, but that margin is narrowing. We view Barrick's large, diversified, footprint as one of the better options in the sector. But we remain cautious on the shorter-term outlook while costs continue to rise.

Barrick Gold key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Senior Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 15th February 2023