Barrick Gold Corp. (ABX, Financial) released its operating and financial results for the second quarter of fiscal 2017 after market close on July 26.
The world's largest gold producer closed the quarter with adjusted EPS of 22 cents, a substantial 57% increase from the same quarter a year ago. The company attributed this year-over-year increase to a decline in direct mining costs, an increase in sales from its low-cost operations in Nevada, a decline in relative sales from Turquoise Ridge and Acacia, an increase in sales volumes for gold and copper and an increase in copper prices.
The Canadian miner has beat analysts’ expectations on second-quarter earnings by four cents, generating a surprise of 22.2%.
Revenue for the quarter came in at $2.16 billion, a 7.5% increase on a year-over-year basis. The mining company beat expectations by $80 million. The company generated revenue through the sale of 1.398 million ounces of gold, an 8.2% increase from the comparable quarter of 2016, at an average realized gold price of $1,258 per ounce, flat year over year, and the sale of 98 million pounds of copper, a 5.4% increase year over year, at an average realized copper price of $2.60 per pound. In the same quarter of 2016, Barrick Gold realized an average price of $2.14 from the sale of one pound of copper.
Stock price movements over the next several days will determine whether the surprise has had a positive impact on the market value of Barrick. Before the company's earnings announcement, Barrick Gold closed at $16.27 per share yesterday, up 20 cents or 1.25% from the previous trading day, with a volume of 18,460,554 shares traded on the New York Stock Exchange.
Year-over-year increases in gold and copper sales volumes were backed by an increase in production. During the quarter, the company produced 1.432 ounces of gold – a 6.9% increase year over year – and 104 million pounds of copper – 1% increase from the pior-year quarter. The improvement in production reflects the company’s strategy to expand productivity and enhance efficiency. The Canadian miner is also benefiting from this strategy in terms of lower costs. As a matter of fact, driven by a solid 10% decline in costs directly associated with mining, the cost of sales per ounce of gold decreased 13.2% year over year to $726 in the second quarter and the all-in sustaining costs (AISC) declined 9.2% to $710 per ounce of gold sold.
The increases in sales volumes and copper prices and the decline in mining costs were not enough to offset the negative impact on the miner’s operating cash flow by the Tanzanian government's export ban, increased taxes and the temporary suspension of operations at Veladero. As a result, the company reported a 15% decline in operating cash flow to $448 million. After allocating approximately $405 million for capital expenitrues, free cash flow was $43 million.
As part of its strategy to deliver long-term value to its shareholders through strengthening its balance sheet, Barrick Gold achieved another important target during the second quarter. The company’s total debt was reduced by $309 million to $7.4 billion, of which $200 million will mature before 2020 and 75% will not mature before 2033.
As of the second quarter, Barrick Gold had approximately $2.9 billion in cash and securities, a 22.5% increase from the prior quarter, thanks to $960 million in proceeds from the sale of its 50% interest stake in Veladero mine to China's Shandong. The company says the proceeds will be used to further reduce its financial burden.
Barrick Gold also reported operations at Veladero have been resumed. For full fiscal 2017, the company continues to target a gold production ranging between 5.3 million ounces and 5.6 million ounces. The cost of sales per ounce of gold is expected to range between $780 and $820, while the AISC is expected to range between $720 per ounce and $770 per ounce of gold sold.
The gold stock is uptrending again after a significant downtrend that began in April and has gained 1.63% year to date. Barrick Gold has a market capitalization of $17.28 billion, a price-book (P/B) ratio of 1.62, a price-sales (P/S) ratio of 2.2 and a price-earnings (P/E) ratio of 19.8.
The analysts’ average target price for Barrick Gold is $20.25 per share and the recommendation rating is 2.5 out of 5.
Disclosure: I have no positions in any stock mentioned in this article.
