Barrick Gold’s underperformance

Barrick Gold (GOLD) underperformed its senior and intermediate peers (NUGT) (GDXJ) as well as the broader benchmark index (GDX) during the first quarter of 2019.

While Barrick stock rose 1.3% in the quarter, GDX returned 6.3%.

What Will Be Key to Barrick Gold’s Performance in 2019?


Waiting for execution after the merger

While Barrick’s fourth-quarter earnings beat expectations, its top line fell short of market expectations. The initial euphoria surrounding Barrick’s merger with Randgold Resources, which completed on January 1, seems to be over. Analysts and investors are waiting for the actual benefits and the execution plan before they turn more positive on the stock

After the merger, GOLD is guiding for production of 5.1 million–5.6 million ounces of gold in 2019, implying a rise of 18% YoY (year-over-year) at the midpoint of its guidance range. Including 2018, Barrick has reported lower annual production for eight consecutive years. Barrick Gold’s declining production profile was likely one of its motivations in making a deal with Randgold. The company’s all-in sustaining costs imply a potential rise of 11% in 2019 compared to 2018.

Fall in reserves

In addition to its weaker guidance, Barrick reported a YoY fall of 3.4% in its reserves. The average grade of the company’s reserves was essentially unchanged from 2017 at 1.56 grams per ton. The company boasts the highest grades in the industry. Newmont Mining (NEM), Goldcorp (GG), and Kinross Gold (KGC) have lower grades than Barrick Gold.

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