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Why Some Are Looking Past Barrick Gold's 1Q17 Miss

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Part 2
Why Some Are Looking Past Barrick Gold's 1Q17 Miss PART 2 OF 6

Why Did Barrick Gold Slash Its Production Guidance for 2017?

What affected ABX’s production

For miners, production growth is an important variable. Along with realized metal prices, production growth drives a company’s top line. Gold miners aim to increase their production levels at minimal additional costs through productivity and operational enhancements. In this part of our series, we’ll examine how Barrick Gold (ABX) is driving production growth.

Why Did Barrick Gold Slash Its Production Guidance for 2017?

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In 1Q17, ABX’s gold production totaled ~1.3 million ounces, representing a rise of 2.3% YoY (year-over-year). This was still lower than what the market was expecting. The weaker production growth was due to the following:

  • the timing of the autoclave maintenance at ABX’s Pueblo Viejo mine
  • heavy rains, road closures, and power outages, which affected production at the Lagunas Norte mine

The company, however, mentioned in its press release that despite these offsets, both operations are on track to achieve their full-year production guidance.

Production guidance slashed

Barrick slashed its gold production guidance for 2017 from 5.6 million–5.9 million ounces to 5.3 million–5.6 million ounces. About two-third of this reduction is due to due to the company’s anticipated sale of a 50% stake in the Veladero mine.

This guidance assumes the resumption of processing activities at the Veladero mine in June and is subject to government approval of changes to the mine’s operating systems. On March 29, 2017, there was a cyanide spill at the Veladero mine—the third such incident in the past two years. Argentinian authorities have now restricted Barrick from adding fresh cyanide solution to Veladero’s heap-leach facility.

Barrick Gold’s peers

Barrick Gold’s peers (GDX) (GDXJ) are also trying to raise their production levels. Agnico-Eagle Mines (AEM), Goldcorp (GG), and Eldorado Gold (EGO) have stable production profiles, whereas Kinross Gold (KGC) could have problems replacing its reserves in the long term.

Notably, there are various ways to invest in gold, including physically purchasing gold, investing directly in gold miners, and investing in gold ETFs. If you’re looking for indirect exposure to gold, you might consider investing in the SPDR Gold Shares (GLD).

In the next part of this series, we’ll take a look at Barrick Gold’s cost guidance.

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