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3 Takeaways From Barrick Gold's Q3 Earnings

By Scott Levine - Oct 27, 2017 at 8:10AM

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Grab your pickaxe. It's time to mine the Q3 earnings report for golden nuggets of insight.

Reporting third-quarter adjusted earnings of $0.16 per share, Barrick Gold (GOLD -2.57%) recognized a 33% drop from the adjusted earnings of $0.24 per share which it reported during the same period last year. Undesirable as it may be for investors, there are much more important things to discern from the company's earnings report. 

Digging out of debt

Strengthening its balance sheet, Barrick lowered its debt by $990 million during the quarter. Consequently, Barrick, having reduced its debt by $1.48 billion through the first nine months of fiscal 2017, exceeded its annual debt-reduction target of $1.45 billion. Management's attention to shoring up the balance sheet is not new. It began in 2014 when the company identified the goal of reducing its total debt from $13 billion to $5 billion by the end of fiscal 2018.

A businessman holds a magnifying glass to a document.

Image source: Getty Images.

As a result of its third-quarter activity, Barrick now has less than $100 million in debt due before 2020 and 75% of its debt is due in 2033 or later. Investors don't have to worry that the company's debt-reduction effort compromised Barrick's cash position. The company ended Q3 with over $2 billion in cash and equivalents on its balance sheet.

The future of gold in the Silver State

Forecast to be one of Barrick's more profitable assets, Barrick Nevada -- comprised of the Cortez and Goldrush mines -- is expected to report all-in sustaining costs (AISC) per gold ounce between $620 and $650 for fiscal 2017. In terms of consolidated results, however, Barrick forecasts AISC per gold ounce between $740 and $770 for the year. During the third quarter, Barrick, making strides in lowering costs at its Nevada operations, began to implement digital technology solutions at Cortez, which management deems the company's "flagship digital operation." 

And illustrating Barrick's commitment to growth in Nevada, the company reported progress on its two projects in development: the Cortez Deep South underground expansion and an underground mine at Goldrush. Feasibility studies for both projects remain on track. In addition, activities -- like excavations -- in preparation for construction of the projects are proceeding on schedule and within budget. Management foresees initial production commencing at Goldrush and Cortez Deep South in 2021 and 2023, respectively.

Developments in Tanzania

Regarding Barrick's interest in Africa, the company announced that it had reached a tentative agreement with the Tanzanian government after several months of discussions.  Operating three mines, Acacia Mining, in which Barrick retains 64% ownership, suffered a major blow last March when the Tanzanian government imposed a ban on mineral concentrate exports.

Rows of gold bars.

Image source: Getty Images.

Several months later, in September, Acacia Mining announced a plan to reduce operations at Bulyanhulu, disappointing Barrick's shareholders

According to the proposed agreement, the "economic benefits" of Acacia's future operations will be split equally with the government of Tanzania. In addition, Acacia will grant a 16% interest in each of its three mines to the Tanzanian government, and it will also provide a $300 million payment to settle tax disputes. Barrick expects to finalize the agreement, subject to Acacia's review and approval, in the first half of 2018.

Although the agreement provides a semblance of resolution to the dispute between Barrick and the Tanzanian government, it has been met with some opposition. For one, there is no indication as to when the concentrate ban will be lifted, and Acacia doubts its ability to fulfill the terms of the proposed agreement. Speaking to analysts, Andrew Wray, Acacia's chief financial officer, said, "We don't have the ability to make an upfront $300 million payment," according to Financial Times.

Investor takeaway

By several measures, Barrick reported a solid quarter. Shrugging off the year-over-year drop in adjusted EPS, investors should be encouraged by Barrick's commitment to reducing its debt and the successful development of the projects in its pipeline. Moving forward, investors should monitor how the situation between Acacia and the government of Tanzania unfolds since Acacia can have a material impact on Barrick's financial performance. Acacia, for example, accounted for 12% of Barrick's revenue in fiscal 2016. Moreover, Barrick's management, in the company's press release, partly attributed the $11 million net loss in the third quarter to "the impact of Tanzania's concentrate export ban on Acacia."

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