Barrick gold mines
Barrick Gold (ABX) is one of the largest gold mining companies. Its headquarters are located in Toronto, Canada. It holds some the world’s premier gold assets. It has an enterprise value close to $17.93 billion as of September 2015. According to the company reports, it has five cornerstone mines—Cortez and Goldstrike in Nevada, Pueblo Viejo in the Dominican Republic, Lagunas Norte in Peru, and Veladero in Argentina.
Impact as gold prices fall
The persistently falling gold prices have made the mining business and its cost a challenging task for the companies. The falling gold prices have negatively impacted the profitability of Barrick’s operations in 2015. Barrick Gold’s share prices fell 3.45% to $6.29 as of September 9, 2015, due to falling gold prices amid a strong dollar and concerns over the Fed’s rate hike. The above chart confirms Barrick Gold’s downward drifting share price as gold falls.
Also, the high debt levels on Barrick’s books in a weak gold market prompted Moody’s to downgrade Barrick’s credit rating to the lowest investment grade. Such a rating reduction will raise the borrowing costs for the company. However, the current Standard & Poor’s debt rating for Barrick stands at BBB- and the debt outlook is stable. To address the dual concerns of falling profitability and high debt, Barrick Gold has opted for stake sales in high-cost mines. Barrick Gold’s debt stood at $13.1 billion at the end of 2014. The company seems to have pledged to raise at least $3 billion through mine stake sales and reduce its debt level to ~$12.9 billion. There are also some non-core US mining assets that Barrick might want to sell.
Understanding the AISC for ABX
The company’s 2014 estimate for the full-year gold production guidance was 6.1–6.4 million ounces at AISC (all-in sustaining cash) costs of $880–$920 per ounce. However, these figures were reduced from the earlier forecast that they had of $900–$940 per ounce. Out of the AISC costs, about 65%–69% is attributed to the adjusted operating cost alone and the rest may be employed to depreciation. The AISC for the nine months ending September 2014 was $844, according to the MD&A (Management’s Discussion and Analysis) released by the company.
Other mining equities and ETFs
Apart from snapping the company returns, a slide in gold prices also affected the leveraged ETFs like the Direxion Daily Jr. Gold Bear 3X (JDST) and the Direxion Daily Jr. Bull Gold 3X (JNUG). They fell ~27% and ~70% on a YTD (year-to-date) basis.
Other Canada-based mining equities that fell on a YTD basis include Kinross Gold (KGC), IamGold (IAG), and Yamana Gold (AUY). Together, they account for ~15% of the VanEck Vectors Gold Miners ETF (GDX).