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Why Do Analysts Expect Lower Earnings for Barrick Gold in 2018?

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Factors affecting Barrick’s estimates

Barrick Gold (ABX) has significantly underperformed its peers in 2018. Its stock performance has, however, improved after the announcement of its merger with Randgold Resources (GOLD). Year-to-date, its stock has declined by 13.1%, which is similar to the decline seen by the VanEck Vectors Gold Miners ETF (GDX).

Goldcorp (GG), Newmont Mining (NEM), and Kinross Gold (KGC) have lost 15.4%, 12.8%, and 31.5% of their stock values, respectively, year-to-date. For more about the company’s second-quarter results and outlook, please read No Respite for Barrick Gold after Its Q2 Earnings, Slides Further.

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Analysts’ revenue estimates

Wall Street analysts expect revenues of $7.5 billion for Barrick in 2018, implying a 10.0% fall YoY (year-over-year). The company expects its production to fall 11.0% between 2017 and 2018. This expected fall in production has been the main driver of analysts’ lower revenue estimates for 2018.

In line with its declining production in the medium term, its revenues are expected to decline 0.6% and 1.5% YoY in 2019 and 2020, respectively. Among its close peers (GDX)(JNUG), Newmont Mining (NEM), Goldcorp (GG), Agnico Eagle Mines (AEM), and Kinross Gold (KGC) have stronger production growth profiles than Barrick, which is focusing more on value than volumes.

Earnings estimates

Analysts also expect Barrick to report lower EBITDA in 2018. Analysts expect a more severe decline in EBITDA compared to its revenues. In contrast to its expected revenue decline of 10%, its EBITDA is estimated to fall 24.0% YoY to $3.0 billion in 2018.

Lower production and higher expected costs are the major drivers behind this lower EBITDA projection. Investors should note that Barrick expects its all-in sustaining costs for 2018 to be $765–$815 per ounce, compared with $710–$770 per ounce in 2017.

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