GFI Gold Fields Ltd

Barrick Gold Corporation’s (ABX) adjusted earnings (excluding one-time items) fell to 58 cents per share in the third quarter of 2013 from 88 cents in the year-ago quarter, but surpassed the Zacks Consensus Estimate of 50 cents.

On a reported basis, net earnings were $172 million or 17 cents per share, down roughly 73% from earnings of $649 million or 65 cents per share registered in the year-ago quarter. Lower realized gold and copper prices, higher interest expense and higher income tax expense led to the decline in earnings.

Revenues fell around 12% year over year to $2,985 million in the reported quarter but exceeded the Zacks Consensus Estimate of $2,973 million. Average realized price of gold decreased 20% year over year to $1,323 per ounce. All-in costs declined 16 % to $1,184 per ounce while all-in sustaining costs fell roughly 9% to $916 per ounce in the reported quarter.

Gold production rose to 1.85 million ounces in the quarter from 1.78 million ounces a year ago. Copper production increased to 139 million pounds from 112 million pounds in the prior-year quarter.

Separately, Barrick announced its plans to temporarily halt construction work at its Pascua-Lama mine in Chile. The company also announced its plans to raise up to $3.45 billion through a bought deal share offering in a bid to retire its debt.

Regional Results

North America: Barrick’s North American unit produced 0.90 million ounces of gold in the quarter compared with 0.80 million ounces in the prior-year quarter. Average all-in sustaining costs (AISC) stood at $816 per ounce compared with $914 per ounce in the year-ago quarter. Production increased at the Pueblo Viejo mine, and came in at 0.11 million ounces in the quarter. The Cortez mine produced 0.33 million ounces due to lower grades and recoveries.

South America: Production from South America in the quarter was 0.33 million ounces compared with 0.39 million ounces in the year-ago quarter. AISC was $831 per ounce, up 14.8% from the year-ago quarter.

Australia Pacific: The region produced 0.50 million ounces in the quarter, compared with 0.48 million ounces in the year-ago quarter. AISC was $945 per ounce, down from $1,131 per ounce in the year-ago quarter.

African Barrick Gold plc. (ABG): Attributable production of African Barrick Gold in the quarter was 0.12 million ounces, compared with 0.10 million ounces in the year-ago quarter. AISC was $1,275 per ounce in the quarter, up 25.4% year over year.

Financial Position

Cash and cash equivalents stood at $2,283 million as of Sep 30, 2013, down roughly 10% from $2,530 million as of Sep 30, 2012. Total debt was $15.4 billion, up around 11% from $13.9 billion a year ago. Adjusted operating cash flow was $1.3 billion versus $1.4 billion in the prior-year quarter.

Barrick has announced its plans to raise up to $3.45 billion through a bought deal share offering. The company will sell 163.5 million common shares for $18.35 per share, leading to gross proceeds of about $3 billion. With the over-allotment option for the sale of an additional 24.5 million shares, gross proceeds from the offering will be around $3.45 billion (or net proceeds of roughly $3.3 billion).

Barrick plans to use roughly $2.6 billion of the net proceeds from the offering to redeem or repurchase its outstanding debt, mostly focused on debt maturing in the short and medium term. It has roughly $1.3 billion of cumulative debt maturing through to the end of 2015.
Suspension of Pascua-Lama Mine

Barrick announced that it has temporarily suspended construction activities at the Pascua-Lama mine, barring the requisite activities for environmental protection and regulatory compliance. Earlier in the year, Chile's environmental regulator stopped construction on its side of the project, and imposed sanctions citing "serious violations" of its environmental permit.

Barrick stated that it will halt work in a manner that will allow efficient and effective re-start when conditions permit. The decision to re-start will depend on certain factors like improved project economics, outlook for metal prices, and reduced uncertainty associated with legal and other regulatory requirements.

The company further lowered its capital cost guidance for 2014 and expects it to be up to $1 billion.

Divestiture

During the quarter, the company sold Barrick Energy for total consideration of $435 million. Barrick also completed the sale of the Yilgarn South assets to Gold Fields Ltd. (GFI) for total consideration of $266 million.

Barrick continues to actively pursue other portfolio optimization opportunities, including the divestiture of other non-core assets.

Outlook

Barrick lowered its forecast for gold production and expects it to be at the low end of the original 7 -7.4 million ounce guidance range. The company’s AISC are expected to be within the recently reduced guidance range of $900-$975 per ounce.

Barrick rasied full-year company-wide copper production guidance to between 520-550 million pounds from the previous expectation of 480-540 million pounds. Full-year C1 cash cost and C3 fully allocated cost guidance has been reduced to $1.90-$2.00 per pound and $2.40-$2.60 per pound, respectively.

For 2013, production for the North American region is maintained in the range of 3.55–3.70 million ounces. Full-year AISC are expected at the high end of the previous guidance range of $750-$800 per ounce. This estimate is attributed to higher costs at Pueblo Viejo due to lowering of silver by-product credits, the result of slower-than-expected ramp-up.

Production from South America is now expected at the high end of the original guidance range of 1.25-1.35 million ounces in 2013. Full-year AISC are anticipated to be at the low end of the original guidance range of $875-$925 per ounce.

Due to the sale of Yilgarn South, full-year production for Australia Pacific is expected to be at the low end of the original 1.70-1.85 million ounce guidance range. Full-year AISC are forecast to be at the bottom end of the previous guidance range of $1,100-$1,200 per ounce.

Barrick’s share of production at African Barrick Gold is expected to exceed the top end of the original guidance range of 0.40-0.45 million ounces. Full-year AISC are expected to go beyond the low end of the original projected range of $1,550-$1,600 per ounce.

Barrick is planning to introduce a more streamlined operating model in order to maximize risk-adjusted returns and free cash flow by focusing on its most profitable productions. With regard to this, the company expects to eliminate about 1,850 positions, 85% of which has already been achieved.

Currently, Barrick retains a Zacks Rank #3 (Hold).

Other companies in the mining industry with a favorable Zacks Rank are Franco-Nevada Corporation (FNV) and Pretium Resources Inc. (PVG). Both carry a Zacks Rank #1 (Strong Buy).

 
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