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What’s the Upside to Barrick Gold’s Costs Going Forward?

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Barrick Gold’s AISC

Barrick Gold (ABX) reported AISC (all-in sustaining costs) of $785 per ounce and a cost of sales of $850 per ounce in the third quarter. Its AISC were 1.7% higher YoY (year-over-year) due to lower ounces sold, and its costs improved 8.3% sequentially. Its costs in the third quarter were in line with its guidance.

Barrick is quite competitive in terms of AISC compared to its peers. It’s the lowest-cost senior gold producer, with costs lower than major peers (RING) Newmont Mining (NEM), Agnico Eagle Mines (AEM), and Kinross Gold (KGC).

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Cost guidance maintained

Barrick Gold maintained its AISC guidance for 2018 at $765–$815 per ounce. A year earlier, it had been expecting these costs to be $710–$770 per ounce. Its increased cost guidance reflects the following factors:

  • lower anticipated gold production from Barrick Nevada, Pueblo Viejo, and Veladero
  • increased processing of higher-cost inventory
  • higher costs at Acacia

Cost savings

Barrick also reported annualized cost savings of $100 million following the implementation of a decentralized operating model. The company is aiming for a simplified, lean head office, reallocating roles to operations and eliminating the ones not required. Due to these efforts, the company is now expecting its corporate administration expenses to be $235 million in 2018 compared to its original guidance of $275 million.

In addition to this (and as we’ll discuss later on in this series), due to ABX’s merger with Randgold Resources (GOLD), its costs per unit are expected to decline further.

In the next article, we’ll look at Barrick Gold’s financial leverage.

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