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Barrick - higher prices drive profit beat

Barrick reported third-quarter revenue of $2.9bn, up 13% from last year driven by both higher gold prices and production levels.

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Barrick reported third-quarter revenue of $2.9bn, up 13% from last year driven by both higher gold prices and production levels. Underlying cash profit (EBITDA) was up 27% to $1.5bn. Total costs of production for gold and copper were down 1% and 3% respectively.

The period ended with net debt of $514m, from a net cash position the previous year of $145m. Free cash flow improved from an outflow of $34m to an inflow of $359m.

Gold production is expected to rise in the fourth quarter, but come in a little lower than guided for the full year. Copper production remains on track.

The board declared a dividend of $0.10 per share.

The shares were broadly flat in pre-market trading.

View the latest Barrick Gold share price and how to deal

Our view

Clouds of uncertainty around how the next year or so will play out in broader markets, along with the risk of spillover from events in the Middle East, means appetite for gold has been strong. Current gold prices in USD aren't far from their 2020 all time highs.

Sticky inflation has been a persistent thorn over the year, but some signs of easing pulled through third quarter results. Cost guidance now looks a little on the optimistic side, given the group's already trending a good way ahead of that guidance on gold and toward the top end on copper. And management comments suggest they're feeling the same.

Increased production at existing mines can be a particularly powerful driver for the group - since costs rarely increase in line with output. On that note, the expansion of the low-cost Pueblo Viejo mine, expected to extend the mine's life beyond 2040, is also progressing. Though there have been some hiccups, with the full benefits now expected a couple of quarters later that hoped, in early 2024.

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.

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 gold mine is sitting dormant. We may have production back up by the end of the year, which would be a boost to production given guidance doesn't include any contribution.

But these projects don't come cheap, nor is the ongoing maintenance cost just to keep mines running. For now, prices are high enough that free cash flow has returned, 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.

As it stands, returns above the standard dividend are off the table. There's an ongoing $1bn buyback, expected to be completed over the year, but no shares have been repurchased over the first 9 months. 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 would remind investors that Barrick doesn't control commodity prices and performance can be volatile.

Environmental, social and governance (ESG) risk

Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste, and community relations are key risk drivers in t his sector. Carbon emissions, resource use, health and safety, and labour relations are also contributors to ESG risk.

According to Sustainaytics, Barrick's overall management of material ESG issues is strong.

Barrick's best practices when it comes to ESG policies and implementation are strong, with performance improvement targets and independent certification. A wide range of tools to help assess water risk help the group score well on its water risk management, there is also comprehensive climate change and energy efficiency strategies in place. We note the Pogera mine, which Barrick has a 24.5% stake in, uses a tailings method Barrick's prohibited at other sites due to water pollution concerns - it's considered the only feasible option for the mine in question.

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: 2nd November 2023