Barrick Gold Corporation’s Earnings: Is It All That Bad?

Barrick Gold recently released its first quarter earnings report. Despite a decline in revenue, the company’s performance actually showed some bright spots.

May 15, 2014 at 7:31AM

Barrick Gold's (NYSE:ABX) recently released its first quarter earnings. The report didn't impress investors, however, and the stock took a beating. Is it all that bad, though? Let's take a closer look at this report, see if the company was able to reach its quarterly goals, examine how the recent developments in the precious metals market affected its bottom line, and determine what these quarterly results mean for Barrick Gold's investors. 

Production
In the report, Barrick revised down its 2014 copper production guidance by 12% to an annual output of 425 million pounds. The company left its annual gold production guidance unchanged, however. During the first quarter, Barrick was able to reach its production goals, producing 1.588 million of ounces; however, this was nearly 11.6% lower than in the first quarter of 2013. Its copper production also fell by 18% year over year. Its newly revised copper production outlook will also translate to lower revenue in the coming quarters than previously estimated. 

Cost of production
On this issue, Barrick Gold was able to exceed its goals: the company's all-in sustaining costs for producing an ounce of gold were only $833, nearly 10% lower than in the first quarter of 2013. This number was also 12% below Barrick Gold's annual goals. This factor slightly offset the negative impact that the drop in production and prices had on the company's operating profit. 

Gold market
The weak gold market has had an adverse impact on Barrick's revenue. The average quarterly price of gold plunged by 21% year over year. If the gold market starts to reheat, as it did in recent months, this could improve its revenue and profit margin. Due to the lower price of gold, however, Barrick's profitability decreased from 41% in the first quarter of 2013 to 23% in the past quarter. 

If the gold market doesn't recover, this could lead to another reduction in the company's dividend payment. In the most recent quarter, Barrick Gold left its quarterly dividend at $0.05 per share, which comes to $0.2 per share during the year or a 1.15% annual yield. This is much lower than other precious metals companies' yields: Goldcorp (NYSE:GG) offers an annual yield of 2.4%, while Yamana Gold (NYSE:AUY) currently yields 2.1%. 

Capital expenditure
This factor determines Barrick Gold's progress in expanding its production. Based on Barrick Gold's 2014 guidance, its capex is set at $2.5 billion; that's nearly half the amount it spent in 2013. During the first quarter the company spent only $509 million, which was around 20% below its guidance. This number, however, could pick up in the coming quarters;  the company might resume construction at Pascua-Lama by mid-2014, which will increase its capex. 

Takeaway
Barrick Gold didn't impress its investors with its recent quarterly earnings. Nonetheless, the company was able to reach its quarterly goals in terms of production and cost of production. The low capital expenditure, the ongoing fall in production, and the low dividend yield could keep steering investors toward other precious metals investments.

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