2ndUPDATE:African Barrick Gold Cuts Fiscal Year Output Post Fuel Theft

U.K.-listed African Barrick Gold PLC (ABG.LN)'s shares plunged Thursday after the gold company cut its full-year output guidance for a second time in less than a year due to systematic fuel theft at a mine which prompted the company to suspend workers.

The company lowered its full-year gold production guidance to around 2009 levels of 716,000 troy ounces after it was forced to suspend a large portion of the company's mining department following the theft at its Buzwagi gold mine in Tanzania.

ABG initially forecast 2010 gold output of between 800,000 ounces and 850,000 ounces when it sold its shares to investors at 575 pence a share on the day of its initial public offering in March. It subsequently lowered its production guidance over the summer to between 750,000 ounces and 800,000 ounces due to delays in accessing higher ore grades at Buzwagi.

ABG shares opened Thursday 9.3% lower or down 58.5 pence at 565p a share following the news, and as of 0942 GMT are trading at 571p.

"We have recently uncovered an organized and systematic onsite fuel theft which has impacted production at Buzwagi," the company said. "Investigations into this matter indicate that criminal fuel theft syndicates have widely infiltrated our mining department."

ABG, which is 75% owned by Barrick Gold Corp (ABX), suspended 60 employees and a number of contractor representing over 40% of the mining department due to fuel theft. The suspension has delayed mining of higher grader ore and forced the company to process low grade stockpiles.

The incident reduced third quarter production at the company's Buzwagi mine by about 10,000 ounces and will reduce full-year production at the mine by 30,000 ounces.

"Despite the short-term impact on production, these actions were necessary to maintain the integrity of the operating environment at Buzwagi. It should also be noted that the lower production levels are temporary as a result of mining the low grade stockpiles and that the total ounces expected to be produced over the life of mine remains unchanged," the company said.

Equity analyst Cailey Barker of Numis Securities said he was "a little bit surprised" that the incident hadn't been brought to the market's attention sooner, but he noted that ABG may have been hoping to get more staff onsite quickly before it suffered further production delays.

ABG said it had hoped to secure enough operators to recover gold output lost during the third quarter, but added that it has suffered delays and only secured about 20 operators from Barrick to restore mining operations and train a new team of operators.

Analysts at Canaccord Genuity said a second downgrade to the company's full-year output guidance within a year of its initial public offering will not be taken well by the market. But Canaccord said it continues to see value in ABG shares "as the equity has yet to participate in the recent gold price rally," adding that the company should be able to improve operations at Buzwagi and deliver more output from its expansion and exploration projects.

Canaccord recommended that shareholders buy the stock if prices show material weakness on Thursday. Canaccord has a buy recommendation and an 840p target price on the stock.

Barker of Numis also has a buy rating an 850p target price on the stock. He said ABG remains one of his key picks among mid-tier gold companies. The news has "immaterial impact on our NAV [Net Asset Value]," even though it will impact the bottom line in 2011, he said.

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com

Barrick Gold (NYSE:ABX)
Historical Stock Chart
From Dec 2024 to Jan 2025