Barrick fails to impress in Q3

Barrick Gold (ABX-T, ABX-N) has unveiled another disappointing quarter, where it continues to wrestle rising costs, project delays and shrinking profits, prompting investors that expected a better third quarter to drive down the stock.

Net earnings more than halved to US$620 million, compared to US$1.37 billion a year ago. Adjusted earnings per share fell 38% to US$850 million or US85¢, missing the Street expectation of US99¢.

The company’s president and CEO Jamie Sokalsky said on a conference call the lower earnings during the third quarter resulted primarily from reduced sales volumes, higher cost of sales, and lower realized gold prices.

The Toronto-based miner produced 1.78 million oz. gold and 112 million lbs. copper during the period, which Sokalsky explains was “slightly below expectations” owing to slipping production and rising costs from Australia Pacific and African Barrick Gold (ABG-L).

The company’s total cash costs were US$592 per oz. gold and US$2.33 per lb. copper, with net cash costs coming in at US$537 per oz. gold.

Barrick posted an operating cash flow of US$1.73 billion and an adjusted operating cash flow of US$1.27 billion, excluding roughly US$500 million it gained in a settlement relating to its Australian dollar hedge position. The figures were down 9% and 37% respectively compared to the year earlier.

“The market was expecting a strong quarter, but operating results were similar to Q2/12,” Haywood Securities analyst Kerry Smith writes in a report. He has revised his target price to $48.25 from $50 per share, maintaining a “sector outperform” rating.

Along with the lacklustre financials, Barrick hiked up its capex estimate again for the Pascua-Lama gold project on the Chile-Argentina border to US$8-8.5 billion, an increase of US$500 million over its July estimate, and delayed production to the second half of 2014 from mid-2014.

Since July, Sokalsky says Barrick along with its EPCM contractor, Fluor, has been working to get a better handle on costs and the schedule at Pascua-Lama, and are aiming to release final results from a top-to-bottom review by year-end.

Barrick has pushed back the third-quarter start-up at the Jabal-Sayid copper project in Saudi Arabia until it achieves full compliance with the country’s standards, expected to be reached in 2014.

The setback at Jabal Sayid has caused Barrick to trim its 2012 copper guidance to 450 million lb., from 460 to 500 million lbs., while C1 cash costs are still slated to fall within US$2.10-$2.30 per lb.

The company has also tightened its full-year gold guidance to 7.3 to 7.5 million oz., from 7.3 to 7.8 million oz. previously. Cash costs are estimated at US$575-$585 per oz., up from US$550-$575 previously.

“Expectations of achievable guidance appear to be undermined by project delays (Pascua-Lama and Jabal-Sayid) and persistent higher costs,” writes BMO Nesbitt Burns analyst David Haughton in a note, downgrading his price target to $46 from $50 per share, and stock to “market perform” from “outperform.”

Despite, the additional spending at Pascua-Lama, and ongoing costs pressures, Barrick anticipates 2013 capex to be similar to this year’s US$6-$6.3 billion as it has cut or put off roughly US$1 billion in spending next year.

Both analysts agree the company’s balance sheet could be further helped by a potential sale of its more costly African operations.

In August, Barrick confirmed that China National Gold Group was possibly looking to buy 74% of African Barrick.

“Barrick could potentially net over US$3 billion in proceeds from the sale of its stake, and a transaction could simultaneously shore up the balance sheet, improve liquidity, strengthen the quality of the asset base, and reduce operating costs, which we believe would be positively received by the market,” writes Smith.

However he cautions that any possible sale will likely come in below African Barrick’s IPO of £5.75 per share. The stock recently traded at £4.26.

Barrick announced its quarterly results on Nov.1, a day after it stated a quarterly dividend of US20¢ per share. Its stock has dropped a total of 13% on the financial news to close Nov.2 at $35.23 apiece.