Barrick on the backfoot as FY22 output misses guidance

Despite a strong finish in the fourth quarter of 2022, Canada-domiciled Barrick Gold’s (TSX: ABX; NYSE: GOLD) production fell to the lowest level in decades after missing full-year guidance on the back of several operational issues.

Barrick reported a 13% sequential recovery in gold output for the December quarter to 1.12 million oz., bringing the full-year total to 4.14 million oz, 1% less than forecast.

According to Barrick, its preliminary fourth-quarter gold output improved from September and was the highest quarter for the year. The Cortez, Carlin and Tongon operations underpinned the improved production profile.

The world’s second-biggest gold producer has faced challenges at its mines through 2022 that hurt production, including repairs and upgrades in Nevada and the inability to resume operations at its Porgera mine in Papua New Guinea while awaiting an agreement with the government to restart the facility. Weaker production at Veladero, Long Canyon, Pueblo Viejo, and Hemlo contributed to the miss, partly offset by solid performance at the North Mara and Tongon operations.

Barrick has seen gold production decline steadily since acquiring Africa-focused Randgold Resources in 2019. Barrick’s highest annual output was in 2006 when it produced a record 8.64 million oz. following its takeover of erstwhile Canadian rival Placer Dome.

Quarter-over-quarter, Barrick’s gold cost of sales per oz. metric is expected to be 4% to 6% higher, total cash costs per oz. are expected to be 2% to 4% lower and all-in sustaining costs per oz. are expected to be 1% to 3% lower than the prior quarter.

Looking back over Barrick’s public filings, gold production fell to the lowest since 2000.

Barrick captured an average market gold price of US$1,726 per oz. and US$3.63 per lb. of copper.

Copper output for the year came in at 440 million lb., in line with guidance of 420-470 million lb., after recording production of 440 million lb. for the December quarter.

BMO Capital Markets mining analyst Jackie Przybylowski views the production update negatively, pointing at least partly to delayed access to higher-grade ore at Nevada Gold Mines. “Weakness extends to Nevada Gold Mines joint venture assets, which suggest a modest negative read-through to Newmont (NYSE: NEM),” wrote Przybylowski in a note to clients.

“Barrick also provided Q4/22 unit cost guidance ranges for gold and copper, which were above our consensus expectations,” said the analyst.

Industry cost creep

Przybylowski also pointed out that cost creep continued to challenge the industry. BMO expects Barrick’s fourth-quarter cost of sales per oz. metric in the gold segment to be 1-4% lower on a cash cost and AISC basis compared with the prior period. Unit costs in the copper segment will also likely be 20-28% higher on a cash cost and AISC basis, mainly due to lower grade and higher strip ratio at Lumwana, in Zambia, and higher input costs and sustaining capital at Zaldívar (joint venture with Antofagasta (LSE: ANTO).

“The cost guidance ranges provided today were above our and consensus expectations,” said Przybylowski.

The bank maintains an ‘outperform’ rating on the issuer with a US$23 price target.

Barrick will report its full-year 2022 financial results on Feb. 15.

Canaccord Genuity Capital Markets also chimed in on the creeping cost factor, characterizing Barrick’s cost performance as “disappointing.”

“While gold costs are expected to be down modestly from Q3 on higher volumes, the decline looks to be less than previously expected (management had expected Q4 gold cash costs to be the lowest of the year, which didn’t materialize) and copper costs are expected to be up about 20% q/q,” wrote mining analyst Carey MacRury in a note.

Barrick’s Toronto-quoted equity closed 3.75% lower on Tuesday at $25.12 apiece, giving it a market cap of $44.3 billion.