The world's largest gold producer, Barrick Gold (NYSE:GOLD), is on deck to report its third-quarter results on Wednesday after markets close. It is a report that investors hope will answer their most burning questions. Here's what investors are looking for.
1. Did the company cash in on higher gold prices?
One of Barrick Gold's priorities over the past few years has been to get its costs down so that it can produce free cash flow at lower gold prices. For example, the company has reduced its all-in sustaining costs by 19% year over year to $782 per ounce. Because of that, it can generate free cash flow as long as the price of gold is greater than $1,000 an ounce.
Given where gold was last quarter, Barrick Gold was able to produce $274 million in free cash flow during the quarter. It marked the fifth straight quarter that it generated free cash flow. The company should not have a problem extending that streak given that the price of gold was even stronger during the third quarter:
In fact, Barrick Gold's falling costs should have driven its free cash flow substantially higher during the quarter as it cashed in on those higher prices. If it did not, investors should look to see if the company had any unexpected setbacks.
2. Did the Veladero Mine shutdown affect full-year guidance?
We already know that the company did experience one setback during the quarter. In mid-September, Barrick Gold announced that it had to temporarily suspend operations at its Veladero Mine in Argentina pending further inspections of that mine's heap leach area. That was after falling ice damaged a pipe, which then started leaking. Because of this problem, the company did not resume operations at the mine until early October.
When Barrick announced that it restarted production at the mine, it said that it was still assessing the impact that the shutdown would have on the mine's production for the full year. As such, it is possible that this shutdown could affect the company's full-year guidance. While the company did say that it continues to believe that it will produce between 5 million to 5.5 million ounces this year, investors should be on the lookout for any changes to the company's guidance as a result of this or any other issues.
3. Is it still on pace to hit its debt reduction target?
The final question that investors want to see the company answer this week is whether or not it remains on target to hit its debt reduction goal. The company's aim is to reduce debt another $2 billion from the $9 billion it had to start the year. As of the end of last quarter, the company was halfway to its target after cutting debt by a total of $968 million.
Asset sales have been the primary driver of debt reduction over the past year. For example, earlier this year it closed a $610 million non-core asset sale to Kinross Gold (NYSE:KGC). That was a significant transaction for both companies, with Kinross Gold bolstering its asset base while Barrick got much-needed cash for debt reduction.
Looking ahead, Barrick Gold said last quarter that it had initiated a process to explore the sale of its 50% stake in the KCGM joint venture in Australia, which it co-owns with Newmont Mining (NYSE:NEM). That venture owns the biggest open-pit gold mine in the country, producing 700,000 ounces of gold per year. Because of its size, the sale of this entity could bring a considerable cash haul to Barrick for debt reduction. That said, more's at stake than just cash for debt reduction. That's because Newmont Mining is one of the parties interested in buying out Barrick's stake. That is worth noting because the full transfer of ownership of this mine to Newmont could cause Barrick to lose its crown as the world's largest gold miner to its partner. That said, given Barrick's desire to cut debt, investors want to see progress on debt reduction as long as it receives good value for the asset, even if it leads to the company getting unseated as the top gold miner by Newmont.
Barrick Gold has many questions to answer this week when it reports its third-quarter results. Ideally, the report will respond to those questions by showing that the company did indeed cash in on rising gold prices, that the Veladero shutdown will not impact guidance, and that it is nearing a deal to hit its debt reduction target. If not, it will only lead to more questions, such as how it missed the mark and what it intends to do to address the situation.