Barrick Gold Headline Loss Is Horrible; Adjusted Earnings Solid

gold bars nuggets
gold bars nuggets

Barrick Gold Corp. (NYSE: ABX) reported second-quarter 2013 earnings before markets opened this morning. The gold miner posted adjusted earnings per share (EPS) of $0.66 on revenues of $3.2 billion. In the same period a year ago, the company reported EPS of $0.82 and revenues of $3.24 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.56 and $3.11 billion in revenues.

The headline number everyone will focus on today is $8.56 billion, which is the net loss Barrick posted for the quarter. That is $8.55 per share. The loss is mainly attributable to a $5.1 billion charge for a government-forced construction stoppage at the company's Pascua-Lama project in Chile, $2.3 billion in goodwill impairment and another $1.3 billion in asset impairment charges.

Not counting all the bad news, Barrick did pretty well in the quarter. Operating results were good, cash costs have come down and guidance has improved.

Jamie Sokalsky, the company's CEO, said:

We have reduced 2013 budgeted capital and costs by about $2.0 billion which has offset the cash flow impact of the drop in gold and copper prices that has occurred this year. We have reduced all-in sustaining cost guidance by about $100 per ounce this year from levels which are the lowest of our peers. The bulk of our expected 2013 gold production is at all-in sustaining costs well below current spot levels, and for those operations that are not generating positive cash flow, we will change mine plans, suspend, close or divest them.

Barrick reaffirmed its gold production guidance for the full year, calling for production in a range of 7.0 million to 7.4 million ounces of gold. The forecast for total cash costs fell sharply from a range of $610 to $660 per ounce to a new range of $575 to $615 per ounce. Some of that drop may be due to a change in the way the cash costs are reckoned.

Copper production is expected to total 500 million to 540 million pounds, a jump of 20 million pounds at the lower end. The company's cash costs for copper production are expected to drop from the prior estimated range of $2.10 to $2.30 per pound range to $1.95 to $2.15 per pound.

In the second quarter, Barrick produced 1.81 million ounces of gold and 134 million pounds of copper. The average realized gold price was $1,411 an ounce, a significant drop from the first quarter's $1,629 an ounce. The average realized copper price was $3.28 a pound, down from $3.56 a pound in the first quarter.

The hit to the company's bottom line is a direct result of the sharply lower spot prices for its produced metals that have to be extended over the long lives of the company's mines. The gold price used to test impairments was $1,300 an ounce, while the silver price assumption was $23 an ounce and the copper price assumption was $3.25 an ounce.

It is also worth noting that Barrick wrote down $4 billion in impairment charges on its copper assets in the fourth quarter of 2012.

Shares of Barrick are up about 2.3% in premarket trading this morning, at $17.35 in a 52-week range of $13.43 to $43.19. Thomson Reuters had a consensus analyst price target of around $22.75 before today's report.

Filed under: Commodities & Metals Tagged: ABX