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Understanding Barrick Gold’s 1Q17 Miss

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Nov. 20 2020, Updated 4:27 p.m. ET

Barrick Gold’s 1Q17 miss

Barrick Gold (ABX) reported its 1Q17 results after the market closed on April 24, 2017. The next day, it held a conference call to go over the results with analysts.

The company’s results were weaker than expected. For 1Q17, ABX reported adjusted EPS (earnings per share) of $0.14, which was lower than the consensus estimate of $0.20. Though its revenues rose 3% YoY (year-over-year) to $1.99 billion in 1Q17, ABX missed the analyst estimate by 8.3%.

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The company also downwardly revised its production estimate for 2017 to between 5.3 million and 5.6 million gold ounces from its previous estimate of 5.6 million–5.9 million ounces. The company mentioned that approximately two-thirds of this reduction stemmed from its anticipated sale of a 50% stake in the Veladero mine.

Price performance: an overreaction?

After the earnings call on April 25, 2017, Barrick gold’s stock fell 11.2%. The VanEck Vectors Gold Miners ETF (GDX) closed 4.2% that day, by comparison. Investors seemed disappointed about the reduced production guidance as well as about the delays in the operations at Veladero after a cyanide spill in March 2017.

This latest cyanide spill is the company’s third in the past two years. A new plan is being devised to normalize the operations at the site, which could come at a preliminary cost of $500 million, including the capital to sustain these operations for five years.

But while the company missed market expectations for the quarter, the 11% drop in share price seems to be an overreaction. About two-thirds of the decline in production guidance is due to the stake sale, the proceeds of which will be applied toward debt reduction.

Despite its lower production guidance, the company held strong on its cost guidance, which is in the lowest quartile in the industry. Investors might thus add up the stock after the initial reaction as the fundamentals of the company remain strong.

Year-to-date, Barrick has outperformed its major peers, including Newmont Mining (NEM), Goldcorp (GG), and Agnico-Eagle Mines (AEM).

Series overview

In this series, we’ll examine Barrick Gold’s future prospects based on its recent 1Q17 earnings and its management’s comments. We’ll also look at the company’s production and cost performances as well as the reasons behind its production guidance downgrade. Barrick Gold has shown significant improvements in its debt and cost performance over the past few quarters. We’ll see if that’s sustainable.

We’ll also take a look at Barrick Gold’s recent developments regarding asset sales and progress toward debt reduction. We’ll do this in an effort to interpret how the company’s management is trying to position itself within the context of the current volatile gold price environment.

In the next part, we’ll look at the production progression for Barrick Gold in 1Q17.

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