Here's What to Expect From Barrick Gold Corp in 2014

Barrick Gold will cut its reserves estimates and take impairments charges when it reports its fourth quarter earnings.

Jan 24, 2014 at 10:56AM

While Barrick Gold (NYSE:ABX) doesn't present its fourth-quarter results until February 13, we can already get an idea of what to expect from this gold miner. The company recently presented at CIBC Whistler Institutional Investor Conference and gave some clues on what to expect in the current year.

More impairments and reserve reduction
Barrick Gold stated that it will count its gold reserves at $1,100 per ounce, which will inevitably lead to a decrease in reserves. It's important to note that the excluded reserves will not disappear physically. Once the gold price rises above current levels, the company may choose to use a higher price of gold for its reserve estimates.

The troubled Pascua-Lama project will once again contribute to impairments, as Barrick Gold plans to record an additional impairment charge for the project as a result of the temporary suspension. Pascua-Lama already caused a $5.1 billion impairment charge in the second quarter of 2013. However, this time the write-off must be significantly lower.

Should you be worried about these developments? I don't think so. Both reserves estimates cuts and impairments charges are non-cash events which aren't big news for investors.

Lower production
As a part of the strategy to reduce debt and optimize its portfolio, Barrick Gold made approximately $850 million of sales of non-core assets in 2013. As a result, gold production will decrease in 2014. Meanwhile, several other gold miners plan to grow production in the current year.

Eldorado Gold (NYSE:EGO) recently stated that it expects a 6% rise in gold production in 2014. What's more, the company plans to hold its all-in sustaining costs below $1,000 per ounce, comfortably below existing gold prices. The situation is more difficult for IAMGOLD (NYSE:IAG).

The company will remain a relatively high-cost producer and expects its all-in sustaining costs to be in the $1,150-$1,250 range. The high end of IAMGOLD's production guidance assumes an almost 8% gain. IAMGOLD is likely to remain very vulnerable for gold price dips as its costs are dangerously close to existing price levels.

Focus on debt reduction
Despite the recent equity issue, Barrick remains highly leveraged with more than $11 billion of debt. Barrick's CEO Jamie Sokalsky stated that debt reduction is a priority. The company's debt schedule is easy, with just $800 million of payments in the next four years.

The focus on debt reduction means that the dividend, which was recently cut by 75%, is not likely to be restored anytime soon. Currently, Barrick yields just 1.00%, so if you are searching for income, this gold miner is not your choice.

Bottom line
Barrick's main advantage lies in its low costs. All-in sustaining costs in the third quarter were just $916 per ounce. If the company manages to optimize its portfolio further, this figure could drop below $900, which would be a good sign for investors.

To gain back the market's love, Barrick needs to maximize its cash flow. While the company cannot control gold prices, it can control costs. Any improvements on the cost side will big a big positive for the stock. On the other hand, the big debt and the uncertainty about the future of the Pascua-Lama project will continue to weigh on the company.

Where should you put your money in 2014?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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