Barrick Gold Corp. (ABX, Financial) soared 9.4% to $12.58 per share on Thursday after the release of results on production and sales for the third quarter of 2018.
The significant jump in the stock market is explained by the increase in production and sales volumes and by the improved tonnage that was processed at the Cortez and Goldstrike mines in Nevada.
Barrick Gold Corp confirmed previous expectations of consolidated gold production of 4.5 million to 5.0 million ounces and suggested that it will beat expectations on third-quarter revenues by about $360 million.
Consensus is for a revenue of $1.86 billion as of Oct. 12. That is a mean of five estimates that range between $1.76 billion and $2.01 billion. The company placed on the gold market 1.204 million ounces at a price of $1,213 per unit during the quarter. The sales volume derived from stockpiles and a total production of 1.15 million ounces. Third quarter production reflects an 8% increase from a year ago.
If the company exceeds consensus regarding third quarter revenues, the sales growth will be about 11.6% compared to a year ago. Such advancement may push net earnings far beyond the forecasted 9 cents per diluted share, producing a positive impact on the market value of the stock.
In addition, if the company keeps its guidance on costs unchanged for full fiscal 2018, expectations of a meaningful positive earnings surprise can continue. This is unless analysts review their estimates on net earnings upwards by the time Barrick Gold Corp. releases its complete financial results, which is scheduled for Oct. 24.
The miner is maintaining that cost of sales will total $810 to $850 per ounce and that the all-in sustaining cost will be $765 to $815 per ounce of gold sold.
The improved throughput at Cortez and Goldstrike mines indicates that the planned shutdowns for extensive maintenance at the roaster of the Nevadan assets is over and operations are back to normal.
This is an important advancement because the combination of Cortez and Goldstrike assets, or Barrick Nevada, contributes nearly 50% of the total gold production and sales volumes of the business. The company has also said that the average grade of ore that miners are encountering during excavations in Nevada is rising. The improved grade will support the next generation of revenues, cash flow and net income with higher sales volumes and lower costs.
Concerning copper, preliminary results for the third quarter of 2018 show that Barrick Gold Corp. sold 114 million pounds of copper, reflecting 58% growth from the prior-year quarter.
The red metal was placed on the market at $2.77 per pound. From a year ago, the production of copper increased 28% thanks to a higher copper grade and recoveries at the Lumwana open pit mine in Zambia. Improved crushing efficiency also underpinned the production in Zambia. Higher production means lower costs as fixed expenses will be spread over a larger base.
Barrick Gold Corp. is keeping guidance on consolidated copper production unchanged at 345 million to 410 million pounds and is lowering costs for full fiscal 2018. The company forecasts a cost of sales of $2 to $2.30 per pound and an all-in sustaining cost of $2.55 to $2.85 per pound of copper sold.
Copper is the second metal that Barrick Gold Corp. produces, but it is not less important than gold. The sale of copper will contribute nearly 35% of total revenue of Barrick Gold Corp. for the third quarter of 2018.
Issues solved with the roaster at Barrick Nevada and improved copper grades in Zambia are the catalysts for the stock. They should also offset the 9% increase in the effective tax rate to 48-50% expected for full-year 2018.
After Thursday’s jump, Barrick Gold Corp. is now trading above the 200-day simple moving average line, too. The share price is also above the 100- and 50-SMA lines. For the 52 weeks through Oct. 11, the share price has fallen 25%. The market capitalization is approximately $14.67 billion. The share price at market close Oct. 11 is nearly 5% below the midst of a $9.53 to $16.84 range.
The price-book ratio is 1.56 versus an industry median of 1.74, and the EV-to-Ebitda ratio is 8.92 compared to an industry median of 9.3.
The recommendation rating is 2.9 out of 5. Twenty-four analysts released their recommendation on Barrick Gold Corp. for October. Four of them gave a strong buy recommendation, four analysts a buy recommendation and 15 analysts a hold. For one analyst, Barrick Gold Corp. will underperform the industry in the market.
The average target price is $14.19 per share compared to a share price of $12.58 at market close Thursday.
Disclosure: I have no positions in any security mentioned in this article.
