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Barrick Gold’s Solid 4Q16 Earnings Beat: It's Worth a Look

PART:
1 2 3 4 5 6
Part 4
Barrick Gold’s Solid 4Q16 Earnings Beat: It's Worth a Look PART 4 OF 6

Barrick Gold’s Cost Supremacy in 2017 and Beyond

Strong cost position

Barrick Gold (ABX) achieved AISC (all-in sustaining costs) of $732 per ounce in 4Q16. That was flat YoY (year-over-year) and a rise of 4.0% over the last quarter.

Barrick Gold&#8217;s Cost Supremacy in 2017 and Beyond

Barrick Gold&#8217;s Cost Supremacy in 2017 and Beyond

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In 2016, Barrick’s AISC came in at $730 per ounce, an improvement of 12.0% YoY. While Barrick’s focus is on capital discipline, productivity and efficiency savings were beneficial. A positive change in its sales mix due to the divestment of high-cost mines was a major driver.

Barrick Gold is very competitive as far as AISC is concerned. In fact, it’s the lowest-cost senior gold producer. Its costs are lower than its nearest peers (RING) such as Newmont Mining (NEM), Yamana Gold (AUY), and Kinross Gold (KGC).

Cost guidance lowered

Previously, Barrick Gold guided for AISC of $740–$790 per ounce for 2017. Now it has lowered it to $720–$770 per ounce. It’s worth noting that Barrick reduced its cost guidance three times in 2016 on the back of efficiency and productivity gains that year.

Barrick intends to improve its plans in 2017 as well. For 2018 and 2019, it expects to further reduce costs to $710–$770 per ounce and $700–$770 per ounce, respectively.

Focus on lowering costs

Barrick Gold wants to achieve AISC below $700 per ounce by 2019. That would be below the 25th percentile of the industry cost curve. As we saw in the previous part, ABX’s production guidance has risen, which should help lower costs. Savings in operating expenses should also help costs.

In the next part of this series, we’ll look at Barrick Gold’s financial leverage.

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