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Barrick Gold - profits fall, but beat expectations

Barrick reported a 7% drop in first quarter revenue to $2.6bn. That was driven by lower revenue from Gold, where production fell...

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Barrick reported a 7% drop in first quarter revenue to $2.6bn. That was driven by lower revenue from Gold, where production fell 4%, partially offset by a higher realised gold price. The smaller copper division also saw revenue drop, a result of 13% lower production and a lower realised price.

Underlying cash profit (EBITDA) fell 28% to $1.2bn, reflecting the drop in revenue and an increase in costs, but ahead of market expectations.

Free cash flow fell from $393m to $88m, and net debt of $400m compares to a net cash position of $743m the prior year.

Barrick continues to expect full-year gold production in the range of 4.2-4.6m ounces, that compares to 4.1m ounces produced last year.

A quarterly dividend of $0.10 per share was announced, in line with the previous year.

The shares rose 1.0% in pre-market trading.

View the latest Barrick Gold share price and how to deal

Our View

On the face of it, performance is struggling somewhat relative to the same period last year. But when compared to the fourth quarter of 2022, things start looking a little better. Free cash flow returned and the benefits of the recent jump in gold prices are only just starting to feed through.

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. Papua New Guinea is an ongoing battleground, where the Porgera mine is sitting dormant. There was some progress over the quarter with an agreement signed by all parties that confirms commitment to reopening the mine. There are still hurdles to overcome, but each step brings the mine closer to opening its doors.

But these projects don't come cheap, nor is the ongoing maintenance cost just to keep mines running. In that respect higher operating costs are proving to be a bugbear at the minute, and something to keep an eye on. For now, prices are high enough that free cash flow returned over the quarter, but the net cash position seen for parts of last year has disappeared. Debt's still low, so there are no immediate liquidity concerns, but it highlights the speed at which things can change.

Barrick's shareholder returns policy relies on a base dividend, which was declared in the quarter just gone, and the potential for further returns base on net cash levels. As it stands, further returns are off the table. There's an ongoing $1bn buyback, expected to be completed over the year, but no shares were repurchased over the first quarter. This shows, as ever, that no returns are guaranteed.

We view Barrick's large, diversified, footprint as one of the better options in the sector and it's in a position to benefit if the gold price stays elevated. 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
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: 3rd May 2023