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Barrick – higher gold price drives Q1 growth

Barrick is benefiting from a higher gold price, offsetting some production softness that should improve over the year.
Barrick - buyback announced

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Barrick reported first-quarter revenue growth of 4% to $2.7bn. Growth was driven by higher gold prices, which offset a small drop in production and sale volumes. Underlying cash profit (EBITDA) was up 7% to $907mn. Total costs of production for gold and copper were up 8% and 6%, respectively.

The period ended with net debt of $783mn, up from $400mn the prior year. Free cash flow fell 64% to $32mn.

Gold production is expected to rise over the year and full-year guidance remains at 3.9-4.3mn ounces. Copper production should be weighted toward the second half.

The board declared a dividend of $0.10 per share.

The US listing of the shares rose 1.4% in pre-market trading.

Our view

Barrick's top line continues to benefit from buoyant gold prices, and first-quarter profits were better than expected. That's helping to cover some of the production cracks seen in recent results.

Sticky inflation has been a persistent thorn over the year, and Barrick has now missed its original gold cost guidance for two years in a row. A mix of lower production and increased maintenance have also been adding pressure to the cost line. Things are expected to improve from here, with Barrick expecting costs to ease over the year.

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 and restarting of the Pogera mine are both positive catalysts for production over the medium term.

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.

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 a $1bn buyback which management plan to use at their discretion over 2024. But last year saw the same scope and not a single share was repurchased. This shows, as ever, that no returns are guaranteed.

2024 looks set to be another volatile year. Equity markets in the US are looking frothy in places, there's a stream of global elections coming, and conflicts continue to cause turbulence across the globe. The general level of uncertainty should help keep gold prices elevated, though there are no guarantees.

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. The general level of uncertainty should help keep gold prices elevated, though there are no guarantees.

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 this sector. Carbon emissions, resource use, health and safety and bribery, and corruption are also contributors to ESG risk.

According to Sustainalytics, Barrick’s management of material ESG issues is strong.

Barrick has robust ESG policies with best practices like performance targets and independent certification. It has a strong climate change strategy and effective water risk management, using various tools to assess water risks. Barrick is aiming for net-zero emissions, with a 2030 target to reduce operational greenhouse gas emissions by 30% from 2018 levels.

Barrick key facts

All ratios are sourced from Refinitiv, based on previous day’s closing values. 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: 1st May 2024