Tuesday, April 25, 2017

What Is Going On With Barrick? My Answer: Nothing Special

Today Barrick Gold (ABX) released its 1Q 2017 report. In my opinion the results were decent however Barrick's shares are diving now (at the time of writing this post they are 9.8% down). What is going on? Well, the company also published its updated production outlook for this year. Look at the table below:

all figures in thousands of ounces

 source: Simple Digressions

The table compares the current and initial outlook (I have plotted the average values). Here is my comment:
  • firstly, according to the current outlook, the overall production is estimated to stand at 5,428 thousand ounces of gold
  • it means a cut of 365 thousand ounces, compared to the initial outlook
  • the biggest cut in production is attributable to the Veladero mine (345 thousand ounces of gold less than in the previous estimate)
  • however, this cut is mainly due to the strategic agreement with the Chinese gold miner, Shandong. According to that agreement, starting from July 1, 2017 Veladero will be shared 50%:50% with this miner. Hence, the overall Veladero production is going to be lower by 200 thousand ounces, compared to the initial outlook
  • unfortunately, due to the technical failure at Veladero, the mine is temporarily suspended. Barrick estimates that the production will be negatively impacted by around 145 thousand ounces of gold
  • the other changes are marginal (for example, production cuts at Kalgoorlie or Porgera)
Interestingly, Barrick estimates that costs of production should remain unchanged, compared to the initial outlook. 

Summarizing - I think that investors are overreacting and the current drop in share prices should be perceived as a nice speculative buying opportunity.

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