Barrick Gold Corp. (ABX) posted record first-quarter 2011 results driven by higher gold sales volumes and higher prices for both gold and copper. The first quarter reported a net income of $1.0 billion or $1.00 per share.
Adjusted net income was up 32% year over year to $1.0 billion or $1.01 per share compared with $763 million or 78 cents per share in the prior-year quarter, in line with the Zacks Consensus Estimate of $1.01.
Revenue
In the first quarter of 2010, total revenue of $3.1 billion was higher than $2.6 billion in the prior-year quarter, below the Zacks Consensus Estimate of $3.2 billion.
In the reported quarter, gold production was 1.96 million ounces at total cash costs of $437 per ounce or net cash costs of $308 per ounce and was ahead of budget primarily due to strong performances from Cortez, Goldstrike and Veladeron.
In first-quarter 2011, copper production was 75 million pounds at total cash costs of $1.25 per pound.
Region Wise
North America: North America region produced 0.86 million ounces at total cash costs of $396 per ounce primarily due to higher production from Cortez and Goldstrike. The Cortez property produced 0.37 million ounces at total cash costs of $220 per ounce.
In March, the federal Bureau of Land Management issued a Record of Decision approving the Supplementary Environmental Impact Statement for Cortez Hills effective on March 15, 2011, which enabled the operation to immediately revert to its original scope.
The Goldstrike operation performed strongly, producing 0.29 million ounces at total cash costs of $461 per ounce in the first 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 3.30-3.46 million ounces at total cash costs of $425–$450 per ounce.
South America:This business unit performed exceptionally, with production of 0.50 million ounces at total cash costs of $340 per ounce in the first quarter. The Veladero mine produced 0.27 million ounces at total cash costs of $312 per ounce in the first quarter due to a higher than planned drawdown of leach pad inventory. The Lagunas Norte operation contributed 0.19 million ounces at total cash costs of $282 per ounce, in line with the expectations.
In 2011, South America production is expected to be 1.80–1.935 million ounces at total cash costs of $350–$380 per ounce, primarily due to lower grades at Veladero as anticipated in the mine plan.
AustraliaPacific: This business unit produced 0.46 million ounces at total cash costs of $585 per ounce in the reported quarter. The Porgera mine, the region's largest operation, produced 0.13 million ounces at total cash costs of $476 per ounce. Production from Porgera was impacted by pit wall remediation activities and heavy rainfall, which restricted access to the higher grade ore during the quarter.
Australia Pacific is expected to produce 1.85–2.00 million ounces at total cash costs of $610–$635 per ounce in 2011.
African Barrick Gold plc (ABG):Attributable production from ABG in the first quarter of 2011 was 0.13 million ounces at total cash costs of $658 per ounce.
Barrick's share of 2011 production is expected to be 0.515–0.560 million ounces at total cash costs of $590–$650 per ounce.
Financial Position
Operating cash flow was $1.4 billion versus $1.1 billion in the prior-year period. Capital expenditure was $1.1 billion versus $709 million in the prior-year period.
Cash balance at the end of March 31, 2011 was $4.4 billion.
Corporate Development
On April 25, 2010, Barrick announced that it had entered into a support agreement with Equinox for Barrick to acquire, through an all-cash offer, all of the issued and outstanding common shares of Equinox for C$8.15 per share, or a total of approximately C$7.3 billion.
The acquisition of Equinox would add a high quality, long-life asset to the Company's portfolio and is consistent with the strategy of increasing gold and copper reserves through exploration and acquisitions. The transaction is expected to be accretive to cash flow and earnings on a per share basis. It does not dilute Barrick shareholders' gold exposure per share, and enhances copper exposure and leverage per share in a strong copper price environment. Combined with the Zaldivar mine and the Cerro Casale project in Chile, this acquisition would position Barrick with significant production growth potential in two of the most prolific copper-producing regions of the world.
Outlook
Management expects fiscal 2011 gold production to be comparable to 2010 in the range of 7.6–8.0 million ounces at total cash costs of $450–$480 per ounce and net cash costs of $340–$380 per ounce.
Copper production for 2011 is anticipated to be about 300 million pounds at total cash costs of $1.35–$1.45 per pound. Total cash costs are expected to be higher in 2011 compared with 2010, primarily due to increased market prices for sulfuric acid and the processing of lower grades. The company has secured contracts for essentially all of its sulfuric acid supply required in 2011 at prices well below the average current market price.
Capital expenditures for 2011 are expected to be in the range of $2.1–$2.3 billion primarily related to construction activities at Pueblo Viejo and Pascua-Lama. Open pit and underground development, which includes capitalized waste stripping, is anticipated to be $750–$850 million as Goldstrike and Cortez enter a period of high waste stripping as anticipated by their mine plans. The high waste stripping phases at both mines are expected to be substantially complete by the end of 2011. Mine site expansion capital is expected to be $450–$500 million and includes expenditures on development projects at Lagunas Norte, Cortez, Turquoise Ridge, Goldstrike, Bald Mountain, Golden Sunlight and North Mara. Mine site sustaining capital expenditures are expected to be $0.90–$1.00 billion. Based on the current portfolio of development projects and mine plans, total capital expenditures are anticipated to decrease in 2012.
Barrick faces stiff competition fromAngloGold Ashanti Ltd. (AU) and Newmont Mining Corp. (NEM).
We maintain our Neutral recommendation on Barrick. Currently, it holds a Zacks #3 Rank (Hold) on the stock.
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