Barrick Gold Corp (ABX) Com Stk (CDI)
HL comment (7 November 2019)
Barrick Gold raised the quarterly dividend by 25%, to $0.05 per share, as strong production in the third quarter was buoyed by higher gold prices. Underlying earnings per share of $0.15 rose 67% quarter-on-quarter as a result, which was slightly ahead of market expectations.
The shares rose 2.4% on the news.
Barrick's position as the world's second largest gold miner is the result of its 2018 merger with Randgold. The move also saw former Randgold boss Mark Bristow installed as CEO.
Since then Bristow's displayed an appetite for more M&A, but an audacious bid to acquire Newmont, which has gone on to buy Goldcorp, was abandoned. Barrick has instead settled for a joint venture to combine the two group's Nevada assets.
We think that's probably for the best. There are $1.5bn of asset disposals planned, the merger with Randgold is still bedding in, and Barrick's recently taken full control of UK-listed Acacia mining. Plenty to keep the corporate finance team busy.
But that doesn't mean to say we don't like the deals the group's currently digesting.
Battles with the Tanzanian government over the former Acacia mines seem to be coming to an end. Barrick brokered a $300m settlement in March, and in return for splitting the mines with the Tanzanian government is getting operations back up and running.
The JV with Newmont offers potential for meaningful cost savings, with $500m per annum targeted by 2024. It also adds tier one assets to a portfolio already boosted by the Randgold merger. The enlarged group's portfolio is not only high quality, but with assets across the Americas and Africa it's got geographic diversity too (the value of which Acacia found out the hard way).
Barrick's all-in cash cost per ounce, which covers both extraction and maintenance costs, of $984 is among the lowest in the industry. And since the price miners get for the product is set by the wider market, keeping costs down is key.
We think the dividend looks at least sustainable, not least because Randgold had run with a net cash position, so bringing it on board in an all-share deal has improved leverage. However, the prospective yield is a lowly 1.0% and as with any dividend there are no guarantees.
With global uncertainties helping the gold price rise, miners have risen such that the shares trade on 2.5 times book value. That's comfortably above the longer-term average. So while we think the group is on the right track, if conditions change and the gold price moves, there's scope for a de-rating.
Third quarter results
Gold production rose to 1.3m oz in the quarter, an increase of 13.7% from last year. Nevada Gold Mines, Barrick's joint venture with Newmont, delivered its inaugural quarter on plan, while the Loulo-Gounkoto mine in Mali and Porgera mine in Papua New Guinea both delivered strong quarters.
The average price during the quarter was $1,476 per oz, an increase of 21.4% on last year and 12.1% on the second quarter.
Gold revenues rose 32.9% as a result to $1.9bn.
Despite increase production, quarterly copper revenues of $163m declined 48.1% on the year before. That reflects lower prices, although increased production saw all-in sustaining cash cost per lb fall 4.8% to $2.58.
Group operating cash flow rose 42% to just over $1bn, compared to $706m last year. After capital expenditures of $502m free cash flow was also $502m. Net debt fell 14% on the previous quarter to $3.2bn.
For the full year Barrick expects to deliver production at the higher end of guidance and total costs to be at the lower end. Planned capital expenditure remains unchanged at $1.4-$1.7bn and is weighted towards maintenance, with $300-$400m on expansion.
Barrick and the Tanzanian Government launched a partnership, Twiga Minerals, to manage three previously Acacia operated mines. Barrick will share any economic benefits equally with the government.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. 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.
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