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How 2Q16 Affected Barrick Gold’s Cost Guidance

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Strong cost position

Barrick Gold (ABX) achieved AISC (all-in sustaining costs) of $782 per ounce in 2Q16. This was an impressive rise of 13% YoY (year-over-year). This improvement was mainly due to ongoing operating and capital cost savings as well as lower energy prices (USO) (UCO) and foreign exchange gains. Reduced royalty expenses, lower input costs, and a higher proportion of production coming from low-cost operations also helped overall costs during the quarter. Barrick Gold’s AISC increased 11% sequentially in 2Q16, as was predicted by management in the 1Q16 results. That was mainly due to mine plans and capital sequencing.

The company expects AISC to be higher in the third quarter due to a shift in the timing of sustaining capital expenditure.

Barrick Gold’s costs are also lower than those of its nearest peers, including Newmont Mining (NEM), Yamana Gold (AUY), and Kinross Gold (KGC).

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Focus on lowering costs

Barrick aspires to achieve AISC below $700 per ounce by 2019. This will be below the 25th percentile of the industry cost curve. Its previous midpoint guidance of AISC for 2016 was $800 per ounce, while its estimates for 2017 and 2018 are lower still at $765 per ounce and $750 per ounce, respectively.

Cost guidance lowered further

On the back of strength in the first half of the year, the company has reduced its cost guidance to $750–$790 per ounce from $760-$810 per ounce. This is the second time that the company has improved its cost guidance. In its 1Q16 results, Barrick improved the cost guidance to $760–$810 per ounce from $775–$825 per ounce. While expected production remains at previous levels, most of the improvement in costs is due to the savings in operating expenses. These should, in turn, filter down to lower cash costs.

The company has also lowered its capital guidance to $1.25 billion–$1.4 billion from $1.35-$1.55 billion.

In the next part of this series, we’ll look at Barrick Gold’s financial leverage.

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