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

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

Drivers of Barrick Gold’s Reserves Growth Going Forward

Reserve replacement

Gold miners (GDX) (SGDM) have ongoing concerns. They face the problem of compensating for every ounce they take out of the ground. So it’s important to look at miners’ reserves and resource estimates and the assumptions used to calculate them.

Drivers of Barrick Gold’s Reserves Growth Going Forward

Barrick Gold (ABX) reported a 6.5% fall in reserves for 2016, which totaled 85.9 million ounces. While 1.9 million ounces were divested, 6.8 million ounces were depleted during the year.

The additions to reserves occurred due to drilling and cost improvements adding 4.1 million ounces. The company is using a gold price assumption of $1,000 per ounce for the next four years and a long-term gold price assumption of $1,200 per ounce from 2021 onward. These assumptions are consistent with Barrick’s approach in 2015.

Exploration update

During its 4Q16 conference call, ABX stated that since 1990, it has spent about $3.6 billion on exploration for an overall finding cost of about $25 per ounce. That’s about half the industry average.

The company has increased its exploration budget and is also broadening its focus to include greenfield opportunities. It allocated 80.0% of the total $185.0 million–$225.0 million budget to the Americas, while the rest will go to Acacia.

Barrick also stated that over the medium term, its pipeline project remains on track. The project has the potential to begin contributing in 2021 and onward.

Higher reserve grade

Barrick Gold’s five core mines, which are expected to produce 70.0% of its volumes for 2017, have an average grade of 1.8 grams per ton. The company boasts the highest grades in the industry. Its closest peers, Newmont Mining (NEM), Goldcorp (GG), Kinross Gold (KGC), and Newcrest Mining, have lower grades than Barrick.

Higher grades are one of the most likely reasons for Barrick’s lower all-in sustaining costs. We’ll look at this more in a later part of this series.

In the next part of this series, we’ll look at Barrick Gold’s production performance in 2016 and its outlook.

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