Barrick Gold’s Earnings: Is It All That Bad?

The first quarter earning reports of Barrick Gold (NYSE: ABX), a leading gold producer, was recently released. This quarterly report didn’t impress its investors and the company’s stock keeps falling. But is it all that bad? Let’s take a closer look at this report, see if the company was able to reach its quarterly goals, examine how the recent developments in the precious metals market affected its bottom line, and what these quarterly results mean for Barrick Gold’s investors.

Production

In its quarterly earnings report, Barrick Gold has revised down its 2014 copper production guidance by 12% to an annual output of 425 million pounds. Nonetheless, the company left its annual gold production guidance unchanged.  During the first quarter, Barrick Gold was able to reach its production goals as its gold production reached 1.588 million of ounces; alas, it was nearly 11.6% lower than in the first quarter of 2013. Its copper production also fell by 18%, year over year. Therefore, while Barrick Gold reached its quarterly production goals, they were well below last year’s output quotas. Also, the newly revised copper production outlook will translate to lower revenue in the coming quarters than previously estimated.

Let’s turn to the changes in the production costs — another factor that affects this company’s profit margin. 

Cost of production

On this issue Barrick Goldwas able to exceed its goals: the company’s all-in sustaining costs for producing an ounce of gold were only $833 — nearly 10% lower than in the first quarter of 2013. This number was also 12% below Barrick Gold’s annual goals. This factor slightly offset the negative impact the drop in production and prices had on the company’s operating profit.

Gold market

The weak gold market has had an adverse impact on Barrick Gold’s revenue. The average quarterly price of gold plunged by 21%, year over year. If the gold market starts to reheat, as it did in recent months, this could improve its revenue and profit margin. Nonetheless, due to lower price of gold, the profitability of Barrick Gold decreased from 41% in the first quarter of 2013 to 23% in the past quarter.

Further, if the gold market doesn’t recover, this could lead to another reduction in the company’s dividend payment. In the past quarter, Barrick Gold left its quarterly dividend at $0.05 per share, which comes to $0.2 per share during the year or 1.15% annual yield. This yield is much lower than other precious metals companies’ dividend yield: Goldcorp (NYSE: GG) offer an annual yield of 2.4%; Yamana Gold (NYSE: AUY) pays a yearly dividend of $0.15 per share, which comes to a 2.1% yield.

 Capital expenditure

Finally, this factor determines Barrick Gold’s progress in expanding its production. Based on Barrick Gold’s 2014 guidance, its capex is set at $2.5 billion — nearly half the amount it spent in 2013. During the first quarter the company spent only $509 million, which was around 20% below its guidance. This number, however, could pick up in the coming quarters, e.g. the company might resume construction at Pascua-Lama by mid-2014, which will increase its capex.

Takeaway

Barrick Gold didn’t impress its investors with its recent quarterly earnings. Nonetheless, the company was able to reach its quarterly goals in terms of production and cost of production. But the low capital expenditure, the ongoing fall in production and low dividend yield could keep steer investors towards other precious metals investments.

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Disclaimer: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.