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Gold Miners’ 2Q17 Earnings Preview: Setting Expectations

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Part 7
Gold Miners’ 2Q17 Earnings Preview: Setting Expectations PART 7 OF 14

Barrick Gold Looks to Resolve Its 1H17 Issues as It Enters 2H17

Barrick Gold’s underperformance in 2017

Barrick Gold (ABX) underperformed its peers (GDX) (GDXJ) in the first half of 2017. Its stock fell 0.5% in the first half compared to a gain of 8.0% in the SPDR Gold Shares ETF (GLD) and a gain of 5.5% in the VanEck Vectors Gold Miners Index ETF (GDX). 

This trend is a complete reversal from Barrick Gold’s performance in 1Q17. The company’s 1Q17 earnings miss, along with ongoing issues at its Veladero mine and its subsidiary, Acacia Mining, have pressured the stock.

Barrick Gold Looks to Resolve Its 1H17 Issues as It Enters 2H17

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Veladero mine issues

Barrick Gold’s (ABX) Veladero mine in Argentina has faced issues since the end of March 2017, when a pipe carrying the processing solution failed, causing a cyanide spill. This was the third such spill for Barrick Gold in the last two years. 

The government of Argentina has stopped Barrick Gold from adding fresh cyanide at its Veladero facility. The company had to reduce its overall production guidance for 2017 due to the situation at Veladero. The company stated during its 1Q17 results that two-thirds of the reduction resulted from its 50% stake sale in Veladero to Shangdong Gold. 

Investors should be anticipating comments by the company’s management on the further anticipated action at Veladero and how could that impact its overall production and costs.

In contrast to Barrick Gold’s cut in production, its peers Kinross Gold (KGC), Goldcorp (GG), and Agnico Eagle Mines (AEM) maintained their production guidance. Newmont Mining (NEM) raised its longer-term guidance to incorporate its recently started projects.

Tanzanian ban on mineral exports

Another issue that has recently affected Barrick Gold stock is the Tanzanian government’s ban of mineral exports from the country. It wants more gold to be processed within the country and has banned concentrate exports. 

Plus, the Tanzanian government has accused miners—including Acacia Mining, in which Barrick Gold holds a 63.9% stake—of “under-invoicing” its export sales. Any impact on production or sales of its subsidiary would also impact Barrick Gold’s overall production.

In a press release dated June 14, 2017, Barrick Gold stated that its chairman met with the president of Tanzania to discuss issues related to Acacia Mining.

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