Barrick Gold Corp. (ABX) posted record third-quarter 2011 results driven by higher gold and copper prices along with higher copper sales volumes. The third quarter reported a net income of $1.37 billion or $1.37 per share.
Adjusted net income was up 52% year over year to $1.39 billion or $1.39 per share compared with $912 million or 93 cents per share in the prior-year quarter, above the Zacks Consensus Estimate of $1.30.
Revenue
In the third quarter of 2011, total revenue rose 43.7% year over year to $4.0 billion.
In the reported quarter, gold production was 1.93 million ounces at total cash costs of $453 per ounce and net cash costs of $328 per ounce.
In third-quarter 2011, copper production was 140 million pounds at total cash costs of $1.91 per pound.
Region Wise
North America: North America region produced 0.84 million ounces at total cash costs of $415 per ounce. The Cortez property performed as per plan with production of 0.35 million ounces at total cash costs of $230 per ounce in the third quarter. The Cortez Hills open pit continues to be in a higher waste stripping phase, which is expected to result in lower production in fourth quarter before it returns to a higher grade area in first quarter 2012.
The Goldstrike operation performed strongly, producing 0.26 million ounces at total cash costs of $516 per ounce in the third quarter, primarily due to better-than-expected grades from the open pit and higher roaster throughput.
Full-year 2011 production for the North America region is expected to be 3.30–3.40 million ounces at total cash costs of $425–$450 per ounce.
South America: This business unit performed exceptionally, with production of 0.48 million ounces at total cash costs of $358 per ounce in the third quarter. The Veladero mine produced 0.22 million ounces at total cash costs of $380 per ounce in the third quarter. The Lagunas Norte operation contributed 0.22 million ounces at total cash costs of $260 per ounce, exceeding expectations primarily due to changes in mine sequencing, which resulted in higher production in the quarter.
In 2011, South America production is expected to be 1.80–1.90 million ounces at total cash costs of $360–$380 per ounce.
AustraliaPacific: This business unit produced 0.47 million ounces at total cash costs of $609 per ounce in the reported quarter. The Porgera mine, the region's largest operation, produced 0.13 million ounces at total cash costs of $545 per ounce. Production from Porgera was impacted by lower underground production, primarily due to equipment availability issues and unplanned maintenance.
Australia Pacific is expected to produce about 1.90 million ounces at total cash costs of $610–$635 per ounce in 2011.
African Barrick Gold plc. (ABG): Attributable production from ABG in the third quarter of 2011 was 0.14 million ounces at total cash costs of $687 per ounce.
Barrick's share of 2011 production is expected to be 0.515–0.560 million ounces at total cash costs of $675–$700 per ounce.
Financial Position
In the third quarter of 2011, operating cash flow was $1.89 billion and adjusted operating cash flow was $1.92 billion versus operating cash flow of $1.40 billion and adjusted operating cash flow of $1.44 billion, respectively, in the comparable prior-year period.
Cash balance at the end of September 30, 2011 was $3.0 billion.
Barrick’s board of directors authorized a quarterly dividend of 15 cents per share, representing an increase of 25% from the previous dividend. Over the last five years, Barrick had a consistent track record of returning capital to shareholders and increasing its dividend by more than 170% on a quarterly basis. The quarterly dividend is payable on December 15, 2011 to shareholders of record as of the close of business on November 30, 2011.
Corporate Development
During the quarter, Barrick announced two significant gold discoveries on the Cortez property in Nevada, Red Hill and Goldrush. Recent drilling continues to expand the mineralization at these two discoveries. In addition, infill drilling between the two deposits is successfully finding new mineralization, advancing the possibility that they will merge into a single deposit. A total of 264,000 feet of drilling is planned in 2011 and the program is approximately 80% complete.
At Lumwana in Zambia, drilling activity has been ramped up with 11 drill rigs active and an additional four rigs being mobilized. Areas of focus include resource definition drilling at the Chimiwungo deposit to convert inferred resources into indicated resources as well as extensional drilling to expand the mineralization. Drilling at Chimiwungo East commenced in September and results received from initial drill holes are in line with expectations. In addition, Barrick is advancing an expansion study that could potentially double processing rates.
The development of the Pueblo Viejo and Pascua-Lama mines advanced during the third quarter with first production on track to commence in mid-2012 and mid-2013, respectively.
Pueblo Viejo and Pascua-Lama are anticipated to contribute 1.4-1.5 million ounces of average annual gold production over the first full five years of operation at total cash costs, which is significantly lower than Barrick's overall current cash cost profile.
Outlook
The company is on track to achieve its full-year 2011 operating guidance, with production expected to be 7.6-7.8 million ounces at total cash costs of $460-$475 per ounce, within original guidance ranges. Net cash costs for 2011 are anticipated to be $330-$350 per ounce, reflecting a lower copper price assumption than previously assumed. Copper production is expected to be 450-460 million pounds at total cash costs of $1.60-$1.70 per pound in 2011.
In 2012, total cash costs are expected to be approximately 10% higher, primarily due to inflationary cost pressures, as well as a change in the production mix. Gold production in 2012 is anticipated to be comparable to 2011.
Lumwana is expected to produce approximately 155 million pounds of copper at total cash costs of $1.95-$2.10 per pound from June 1, 2011 until year end.
The Zaldivar copper mine in Chile is expected to produce approximately 300 million pounds of copper at $1.40-$1.50 per pound in 2011.
Barrick faces stiff competition from AngloGold Ashanti Ltd. (AU) and Newmont Mining Corp. (NEM).
We maintain our Outperform recommendation on Neutral. Currently, it holds a Zacks #2 Rank (Buy) on the stock.
BARRICK GOLD CP (ABX): Free Stock Analysis Report
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