Barrick sinks on Q1 earnings miss

Barrick Gold (TSX: ABX; NYSE: ABX) shares fell nearly 11% after it missed analysts’ expectations for first-quarter earnings and trimmed its 2017 production guidance, largely due to selling half of its Veladero gold mine in Argentina.

For the first quarter, adjusted earnings were US$162 million, or US14¢ per share, compared to last year’s US$127 million, or US11¢ per share.

While the higher year-over-year earnings reflect improved gold and copper prices, analysts had estimated adjusted earnings of US20¢ per share. 

BMO analyst Andrew Kaip notes the miss came from lower-than-expected gold production from Barrick’s portfolio. Barrick’s 10 continuing operations churned out 1.31 million ounces. On a conference call, Barrick’s chief operating officer Richard Williams said quarterly output was 2.2% below the company’s internal guidance.

Production was “negatively impacted by the timing of autoclave maintenance at the Pueblo Viejo mine, as well as El Nino weather-related events at Lagunas Norte,” Haywood Securities analyst Kerry Smith remarks.

Drilling at the Veladero gold project in Argentina in 2008.  Credit: Barrick Gold.

All-in sustaining costs for the quarter were US$772 per oz. higher than the US$706 per oz. recorded the year before. Barrick says 90% of the increase, or US$58 per oz., came from “higher sustaining capital expenses,” including stripping costs at Barrick Nevada and higher costs at the lately problematic Veladero mine.

Compared to the first quarter of 2016, Barrick generated slightly higher operating cash flow of US$495 million. But free cash flow fell by US$20 million to US$161 million, largely due to increased spending. Both metrics missed BMO’s estimates of US$759 million in operating cash flow and US$425 million in free cash flow.

Barrick expects annual gold production of 5.3 to 5.6 million oz., down 5% from its previous estimate of 5.6 to 5.9 million ounce. The miner attributes the revision to its proposed 50% sale of the Veladero mine to China’s Shandong Gold Group. The transaction, announced in April, should close by the end of June.

Also affecting annual guidance are the operating restrictions at Veladero after its third leak in the past 18 months. Barrick’s president Kelvin Dushnisky called the occurrence “completely unacceptable” at the company’s annual shareholders meeting.

On March 28, a pipe carrying gold-bearing solution to the mine’s heap-leach facility leaked, Dushnisky notes. “The solution was contained on-site. There was no impact on the people or the environment.”

Two days later, the government of San Juan province temporarily restricted cyanide use at Veladero until Barrick completed remedial work and proposed a plan to prevent future incidents.

The revised annual guidance assumes leaching will resume at Veladero in June, after the provincial government’s approval and without operating restrictions.

On a 100% basis, Veladero could churn out 630,000 to 730,000 oz. this year, down 15% from the midpoint of its original target of 770,000 to 830,000 ounces.

Barrick, which expects to halve its Veladero ownership starting July 1, estimates its 2017 share of output from Veladero should range between 430,000 and 480,000 ounces.

All-in sustaining costs for Veladero this year have jumped from US$840 to US$990 per oz. to reflect the remedial work.

Barrick plunged 11% to $22.98 per share, its steepest daily decline in recent history.