Barrick’s Third Quarter Results Disappoint

on Nov 2, 2012

On 1 November 2012, the world’s largest gold producer Barrick Gold Corp (TSE:ABX, NYSE:ABX) released its results for the third quarter of 2012, reporting a huge decline in earnings on account of lower sales volumes and lower realised gold prices. Barrick, which is reportedly in talks to sell its majority stake in its London-listed unit African Barrick (LON:ABG), will most likely use funds generated by the divestment to reduce debt.

**Barrick Gold Reports Huge Drop in Third Quarter Profit**
As noted in the company press release, Barrick’s net earnings for the third quarter stood at $0.62 billion (£0.39 billion) or 62 cents per share, relative to $1.37 billion or $1.37 per share in the same period the previous year. On an adjusted basis, the company earned 85 cents per share, down from $1.38 per share relative to the same quarter in 2011. The company said that the earnings results reflected lower gold and copper sales volumes, higher cost of sales applicable to gold, as well as lower realised gold prices.

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Bloomberg reports that Barrick’s results have now disappointed for four successive quarters, with the company struggling to contain costs rising at a faster pace than gold prices. Following the announcement, Barrick’s shares fell by 9.5 percent in Toronto, the most since February 2009.
**African Barrick Sale Possible**
Barrick’s President and CEO Jamie Sokalsky, however, noted that the company was on track to achieve its production guidance with higher output expected in the fourth quarter. “We’ve cut or deferred significant capital expenditures that were previously budgeted and we’re continuing to work toward optimising our asset portfolio,” noted Mr Sokalsky in the company statement.

!m[World’s Biggest Gold Producer Reviewing Assets with a View To Improving Cash Flows](/uploads/story/712/thumbs/pic1_inline.png)The asset portfolio optimisation is likely to include the sale of Barrick’s 74 percent stake in its African unit, African Barrick, with a potential buyer being China National Gold Corp. Bloomberg quotes Mr Sokalsky as saying that Barrick would use funds from asset disposals to reduce debt. “If we were to realise proceeds from the sale of any assets, the first priority from that money would be to reduce our debt,” pointed out Mr Sokalsky in a telephone interview.

**Pascua-Lama Capex Revised Again**
Among the highlights of Barrick’s quarterly statement was the revision of the capital cost estimates for the company’s Pascua-Lama project in the Andes. Barrick noted that work to date suggested that capital costs were likely to be closer to $8.0-$8.5 billion, up from July’s $7.5-$8.0 billion estimate, with the asset remaining the company’s “top priority”.

The revised Pascua-Lama capex spurred some negative reactions, with Bloomberg quoting George Topping, analyst at Stifel Nicolaus & Co as saying that the second revision was disappointing, given that it came after “a whooping increase” made several months ago. “You would think when you put out the first estimate you would have made darn sure the estimates were closer to what you expected,” added Mr Topping.
Bloomberg reports that in July, Standard & Poor’s lowered Barrick’s credit rating from A- to BBB+ with a negative outlook, noting that the company’s higher spending forecasts for the next two years were likely to limit its ability to reduce debt.


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