What Helped Barrick Gold Beat Production Estimates in 3Q15?



Production beat estimates

As we touched upon in the first article, Barrick Gold’s (ABX) production beat market expectations. Its North American mines, Cortez and Goldstrike, contributed significantly to the upside surprise. In this article, we’ll discuss the operational performance of these two mines in 3Q15 and expectations going forward.

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Cortez: Exceptional performance

Barrick Gold Corporation’s (ABX) Cortez properties include the Cortez mine and the Cortez Hills underground mine. The Cortez mine is located 100 kilometers southwest of Elko, Nevada, in Lander County. It’s Barrick’s highest-producing mine and it contributes close to 15%–18% of the total production at a cost per unit.

The Cortez mine produced 321,000 ounces at all-in sustaining costs (or AISC) of $501 per ounce. Its production was up mainly due to higher open-pit tonnage and improved underground productivity. Cortez’s costs also benefitted from higher production, lower operating costs, and lower sustaining capital.

Management revised its guidance positively for 2015. While the production guidance increased to 900,000–950,000 ounces from 825,000–900,000, AISC guidance was revised from $760–$835 per ounce to $675–$725 per ounce. This implies that production for 4Q15 will be higher than 3Q15 and that costs are also expected to be higher.

Goldstrike: Strong quarter

Barrick’s Goldstrike property is located in the Elko and Eureka counties in north central Nevada, North America’s richest gold-producing area. Many of Barrick’s peers, including Newmont Mining (NEM), also have significant operations there.

The Goldstrike mine produced 328,000 ounces of gold at AISC of $558 per ounce. While production was 37% higher year-over-year (or YoY), AISC was 40% lower YoY. The production benefitted from Barrick’s thiosulfate (or TCM) circuit that achieved commercial production in 3Q15. The complete ramp-up is expected in the first half of 2016. Costs, on the other hand, were better than expected due to lower operating costs and lower sustaining capital.

Management expects Goldstrike’s production to range between 1.0 million and 1.1 million ounces at an improved AISC of $650–$700 per ounce. The previous guidance was $700–$800 per ounce. The implied fourth quarter production will be similar to the third quarter. Costs would be somewhat higher.

Newmont Mining’s (NEM) earnings also beat market estimates on the back of higher production and lower costs. Goldcorp (GG) reported a surprise loss on impairments, but the production was strong for the quarter.

Investors who prefer a higher risk-to-reward can go with gold miners (GDX), even leveraged ones. Investors who prefer a low-risk environment invest in physical gold or ETFs that track gold prices, including the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU).


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