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Barrick Gold - bumper dividend

First quarter revenue of $2.9bn was 3% lower than last year. That reflected lower gold production and sales...

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First quarter revenue of $2.9bn was 3% lower than last year. That reflected lower gold production and sales, which more than offset the benefit of a higher gold price and increased copper revenue.

Profit after tax fell 19% to $438m as all-in sustaining costs (a measurement which includes capital expenditure requirements as well as operating cash costs) rose across the board.

The board declared an enhanced dividend of $0.2, double the base rate of $0.1. Under the dividend policy an additional $0.1 is to be paid should the net cash position be between $500m-$1bn, the group reported net cash of $743m.

With a stronger performance expected in the second half of the year, 2022 production targets remain on track.

The shares were broadly flat in out of hours trading.

View the latest Barrick Gold share price and how to deal

Our View

Buoyant commodity prices over the past couple of years have provided an enviable tailwind for Barrick. Whilst prices may be down from their highs, and that's dented profits somewhat, they've proved high enough for Barrick to report reasonable cash flow - although we can't ignore that rising costs have made their mark.

There's a lesson in that - since Barrick's fortune is to some extent out of its hands. When prices rise, profits roll, and when prices fall the pain is unavoidable. Still Barrick has done its best to influence its own destiny.

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. Barrick's also taken full control of struggling Acacia Mining in recent years. With a healthy net cash position, despite billions of dollars invested in expanding the very low-cost Pueblo Viejo mine, the group's well positioned to take advantage of any other opportunities as they arise.

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.

We expect homegrown expansion, either on greenfield sites or expanding existing mines, to be more common in years to come, with the current 10 year plan focused on growing production organically. It's underpinned by the group's top-quality, Tier One mining assets - with an average all-in sustaining gold cost of $1,164 compared to a price of $1,876. This should be profitable in most environments though margins are narrowing which is worth keeping an eye on. It's also a plan that the group can fund through its own cash flows, which is a positive in our book.

The strong balance sheet and high-quality production has given Barrick the confidence to mark in some considerable shareholder returns. An improved net cash position means additional returns in the form of a performance dividend. Plus, the group also announced a $1bn share buyback in the full year results back in February - although a sudden reverse in the gold price could upset the apple cart and there are no guarantees.

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.

Global uncertainty is currently helping keep the gold price well above Barrick's costs per ounce. This helps the gold miner considerably but there are no guarantees. We view Barrick's large, diversified footprint as one of the better options in the sector.

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.

First Quarter Results

Gold production and sales fell 10% and 9% respectively, to just shy of 1m ounces in both cases. However, realised gold prices rose 6% to $1,876 an ounce. All-in sustaining gold costs rose 14% to $1,164 an ounce.

Copper production rose 9% to 101m pounds, with sales flat at 113m. The realised copper price increased 14% to $4.68 a pound. All-in sustaining copper prices rose 26% to $2.85 a pound.

Capital expenditure in the first quarter was up 13% at $478m. Free cash flow of $393m was down 48% on the previous year largely due to lower profits. The group's net cash position improved from $130m at the end of December 2021, to $743m.

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
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: 4th May 2022