2 Big Challenges for Barrick Gold Earnings

Barrick Gold (NYSE: ABX  ) will release its quarterly report on Thursday, and with the entire industry having gotten hit hard by the recent plunge in gold prices, it's no surprise to have seen the stock drop sharply in the past few months. Yet gold prices aren't the only thing that will affect Barrick Gold earnings, with some other bad news potentially posing more of a long-term threat to the company.

Barrick Gold is one of the largest gold producers in the world, and with its relatively low costs of production, the company is in a better position than many to withstand the drop in gold prices and the corresponding impact on revenue. But the company faces a big threat to a major mining asset that could have a ripple effect on production expectations for years to come. Let's take an early look at what's been happening with Barrick Gold over the past quarter and what we're likely to see in its quarterly report.

Stats on Barrick Gold

Analyst EPS Estimate

$0.56

Change From Year-Ago EPS

(28%)

Revenue Estimate

$3.1 billion

Change From Year-Ago Revenue

(5.4%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How badly will Barrick Gold earnings get hurt this quarter?
Analysts have cut their views recently on Barrick Gold earnings, with a dime-per-share drop in June-quarter estimates looking small in comparison to markdowns of 25% on full-year 2013 figures and an even greater percentage cut in next year's earnings. The stock has predictably moved lower, falling by another 7% since late April even after the stock had already posted substantial losses.

Gold's declines sent the entire industry reeling, but Barrick is in a strong position to survive the plunge. Barrick's size has helped it keep all-in cash costs of production at low levels, comparing favorably to rival Newmont Mining (NYSE: NEM  ) and even low-cost leader Goldcorp (NYSE: GG  ) , according to a recent Visual Capitalist report. Those low costs will allow Barrick to remain profitable even as other higher-cost producers face the prospect of having to shut down.

But the big problem that Barrick has faced involves its Pascua-Lama mining project in South America. Back in May, regulators in Chile fined Barrick for alleged violations of its environmental permit, and while those fines were minimal at just $16 million, the regulator also said that further construction work on the project would have to stop until the company builds systems to handle contaminated water. Then earlier this month, an appeals court formally suspended all work, forcing the company to predict further delays of initial production beyond its late-2014 forecast until mid-2016. With Pascua-Lama having 18 million ounces of proven and probable gold reserves and 676 million ounces of silver, the setback has huge implications for Barrick's long-term results. Already, costs of developing the project have climbed over the $8 billion mark, showing how much is at stake. Joint-venture partner Silver Wheaton (NYSE: SLW  ) will bear some of the damage from the move, but Barrick still faces the difficult decision of how to move forward with the mine from here.

In the Barrick earnings report, watch to see if the company comments on strategic plans for Pascua-Lama going forward. Obviously, rising gold prices would help the company's other assets, but with so much invested in the project, investors need to know how Barrick will deal with project in order to assess the company's overall profit prospects.

Barrick faces some unique concerns, but the drop in gold prices has hurt plenty of producers. The Motley Fool's new free report, "The Best Way to Play Gold Right Now", dissects the recent volatility and provides a guide for your best gold investing options going forward. Click here to read the full report today!

Click here to add Barrick Gold to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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