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Barrick Gold Scores Hat Trick in Lowering Cost Guidance

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Nov. 1 2016, Updated 7:06 a.m. ET

Strong cost position

Barrick Gold (ABX) achieved AISC (all-in sustaining costs) of $704 per ounce in 3Q16. This was an impressive fall of 8.7% YoY (year-over-year) and 10.0% over the last quarter.

While Barrick’s focus is on capital discipline, productivity and efficiency savings were beneficial. A positive change in sales mix due to the divestment of high-cost mines was a major driver. Barrick Gold’s costs were also higher in 2Q16 due to mine plans and capital sequencing.

Barrick Gold’s costs are also lower than those of its nearest peers (RING), 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 AISC guidance for 2016 was $770 per ounce. Its estimates for 2017 and 2018 are even lower at $765 per ounce and $750 per ounce, respectively.

Cost guidance lowered further

On the back of the strength in its year-to-date results, Barrick Gold has reduced its cost guidance to $740–$755 per ounce from $750–$790 per ounce. This is the third time the company has improved its cost guidance. In its 2Q16 results, Barrick improved its cost guidance to $750–$790 per ounce from $760–$810 per ounce.

As we saw in the previous part, production guidance has also risen, which should help lower Barrick’s share price. Savings in operating expenses should also help costs. The company has lowered its capital guidance to $1.2 billion–$1.3 billion from $1.3 billion–$1.4 billion earlier.

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

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