Barrick reports strong Q1; withdraws guidance for Porgera

Barrick Gold (TSX: ABX; NYSE: GOLD) has withdrawn its 2020 guidance for its 47.5%-owned Porgera mine after placing it in temporary care and maintenance on April 27. Work was halted after Papua New Guinea said it would not renew the mine’s 20-year special mining lease (SML). The revised group guidance without Porgera is between 4.6 million and 5 million oz. gold, about 200,000 oz. less than its previous guidance of between 4.8 million and 5.2 million ounces.

“The government’s recent response to our engagement towards the extension of the SML came as a surprise,” Mark Bristow, Barrick’s CEO, said on a conference call reporting first-quarter results on May 6. “Last week, we filed a lawsuit in the PNG court, seeking to quash the government’s decision. We received a preliminary order that directed the government to cooperate with our efforts to secure and protect the mine, and also directed the government to engage in negotiations with us to attempt to resolve the matter.”

“The order was very clear for us to engage in a committed way to working to find a solution,” Bristow added during the question and answer portion of the call. “I’m very committed to finding solutions and spent my entire career working towards ensuring we have constructive partnerships with our stakeholders.”

Barrick reported a strong start to the year, with first-quarter gold production and costs consistent with its full-year guidance. The company produced 1.25 million oz. gold at total cash costs of US$692 per oz. and all-in sustaining costs (AISCs) of US$954 per oz., and 115 million lb. copper at C1 cash costs of US$1.55 per lb. and AISCs of US$2.04 per pound. Net earnings came in at US$400 million, or US22¢ per share, generating free cash flow of US$438 million. The company also trimmed its debt by 17% to US$1.85 billion, with no significant maturities until 2033, and maintained its dividend of US7¢ per share.

Meanwhile, the company continues to spend about $170 million per year on exploration, Bristow said. “Brownfield exploration around our existing assets last year replaced all the reserves depleted by mining, and, I might add, at a higher grade and we’re looking for a similar performance this year.”

Bristow also noted that the company’s exploration and generative teams “are looking further afield for our next tier one and tier two discoveries” and have also “been extending our horizons to Saudi Arabia, Japan, as the Pacific Rim.”

Exploration at its 50%-owned Jabal Sayid copper mine in Saudi Arabia “has been very promising and we have intersected very high grade mineralization from step-out drilling that point to mine life extensions.” The copper operation, 350 km northeast of Jeddah, is a joint-venture with Ma’aden and started commercial production in July 2016.

In South America, the El Indo trend, which runs along the Andes and includes the Veladero mine and its Pascua Lama project, “is rich in potential for major gold and copper discoveries,” he added, and now that Barrick has a full exploration team for that region, it has “embarked on an extensive compilation of legacy data to generate new ideas. At Veladero itself, indications are that satellite deposits could extend its life beyond the current tenures.”

Barrick’s share price has appreciated 45% so far this year, Bristow added, “and if we measured from the time of the Randgold merger announcement, it is substantially more, outpacing both the industry and the gold price.”

At press time in Toronto, Barrick was trading at $38.10 per share within a 52-week range of $15.73 and $40.14.

Kerry Smith, a mining analyst covering Barrick at Haywood Securities, raised his target price on the stock from $40 to $42 per share following the conference call and recommended accumulating shares in the company at current levels.

“Barrick declared a strong quarter, has started 2020 on sound footing, and excluding Porgera, 2020 guidance has been maintained,” he wrote in a research note on May 7.

“Following closure of the Nevada joint-venture on July 1, the new management team has moved quickly,” Smith said. “With the debt situation now stabilized, the company can now focus on organic growth and is shifting its focus on optimal exploitation of the orebodies and growth through the drill bit.”