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Inside Barrick Gold’s Earnings: Why Analysts Have Lowered Estimates

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Dec. 4 2020, Updated 10:42 a.m. ET

Factors impacting Barrick’s estimates

After outperforming peers by a wide margin, Barrick Gold (ABX) has lagged behind so far in 2017. Until May 31, 2017, ABX has gained just 3.5% YTD (year-to-date), as compared to the 48.5% gain in the VanEck Vectors Gold Miners ETF (GDX) and the 6.5% increase in the SPDR Gold Shares (GLD).

The stock’s downfall started after the company declared its 1Q17 results, which were below expectations. ABX also reduced its production guidance for 2017 in its 1Q17 earnings results, and these were also negative for the stock. The stock fell 11.3% the same day it released its results.

While a major part of the production downgrade was due to the stake sale in its Veladero mine in Argentina, a cyanide spill in March was another contributing factor. (You can read Market Realist’s Why Some Are Looking Past Barrick Gold’s 1Q17 Miss to understand Barrick’s 1Q17 results in detail.)

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Analysts’ revenue estimates

The consensus is calling for revenue of $8.5 billion for Barrick in 2017. This implies flat growth over 2016. Investors should note that after Barrick’s downgrade in 1Q17, its 2017 production implies a drop of 1.2% YoY (year-over-year) at the midpoint.

ABX’s 2018 revenue estimate implies a further fall of 6.5% YoY. Most of this fall can be attributed to the asset disposals that the company has made to prune its portfolio and tighten its balance sheet.

Peer comparisons

Barrick’s close peers (GDX) (GDXJ) have stronger production profiles. Newmont Mining (NEM) has a very strong project pipeline, which has led the company to upgrade its longer-term production guidance.

Goldcorp (GG) also has plans in place to boost its production significantly. Goldcorp is planning to improve its reserves, production, and costs by 20% over the next five years. Kinross Gold’s (KGC) biggest catalyst for production growth is its Tasiast Expansion.

Despite the consensus call for flat revenue growth in 2017, analysts are projecting a growth of 10% for Barrick’s EBITDA (earnings before interest, tax, depreciation, and amortization) in 2017 YoY. The margin for 2017 is better at 50%, most likely due to Barrick’s focus on unit cost reduction.

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