An industry leader in gold mining, Barrick Gold (GOLD 0.13%) is expected to report its third-quarter earnings on Oct. 25. Interested as investors may be, digging through a miner's earnings report can be overwhelming, and it's easy to feel as if one's been buried by an abundance of facts and figures. Let's try to make things a little easier by focusing on three things we can expect management to address.
Making a production
Producing 2.74 million ounces of gold over the past two quarters, Barrick is on target to meet its production goal of 5.3 million ounces to 5.6 million ounces for fiscal 2017. Investors familiar with Barrick may recognize that this forecast is lower than the initial guidance of 5.6 million to 5.9 million gold ounces, but they need not worry that the revision stems from compromised operations. Instead, the updated figure reflects the sale of a 50% stake in Veladero.
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If Barrick is to meet the midpoint of its production guidance for the year, it will have to produce about 2.7 million gold ounces. According to management, the majority of production will occur in the fourth quarter, so investors can expect about 1.35 million ounces for the recently-completed quarter. But investors should be circumspect about these figures.
In September, Barrick announced that it was partially suspending mining operations at Pueblo Viejo -- one of its core mines -- due to Hurricane Irma. As of yet, Barrick hasn't stated whether operations have resumed or if the company will recognize lower-than-expected gold production as a result of the storm.
The road to growth winds through Nevada
Working to reduce its total debt from $13 billion at the end of 2014 to $5 billion at the end of 2018, Barrick has relied, in part, on using the proceeds from the sales of non-core assets. Last quarter, for example, the company completed the sale of a 50% stake in Veladero to Shandong Gold for $960 million. Besides confirming that management is progressing in achieving this target, investors should look for commentary on the company's progress in developing the projects in its pipeline.
For one, investors can look for updates on the company's projects in Nevada. Cortez Deep South project, which management expects to contribute average annual gold production of more than 300,000 ounces from 2022 to 2026. Management had expected to complete the feasibility study in the third quarter.
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Additionally, the company is pursuing development of an underground mine at Goldrush. According to the prefeasibility study, the project will average annual gold production of 450,000 ounces during the first five years of operation, and construction is estimated to begin in 2020. Management anticipates completion of the feasibility study in the second half of 2017.
Going with the flow
Since debt reduction is one of the company's priorities, maintaining strong cash flow is critical for financing its organic growth projects. Cortez Deep South and Goldrush, for example, are expected to require initial capital costs of $153 million and $1 billion, respectively. Add to that the estimated initial capital costs of $640 million for a project to extend the life of the Lagunas Norte mine and $300 million to $325 million for an expansion project at Turquoise Ridge, and one finds that Barrick has four projects -- in varying phases of development -- that will require approximately $2 billion to develop. And this doesn't include the potential development of the two projects in Chile: Cerro Casale -- a joint venture with Goldcorp -- and Pascua-Lama.
Through the first six months of fiscal 2017, Barrick has reported a 3.6% year-over-year decline in its cash from operations. In addition to tax payments made in the Dominican Republic, management attributes the diminished operational cash flow to the concentrate export ban imposed by the Tanzanian government and an increase in working capital at Veladero. Management contends that it will report higher cash flow in the second half of the year; consequently, investors will want to confirm this in reviewing the Q3 earnings report.
Investor takeaway
Gold production and the development of projects in the pipeline are both important things to look for when digging through Barrick's third-quarter earnings report. More specifically, though, I'll be looking for commentary on operations at Pueblo Viejo. It's no secret that Hurricane Irma wreaked havoc on most things which stood in its way. Although the storm didn't hit the Dominican Republic directly, it wouldn't be surprising if Pueblo Viejo suffered some damage. Just how much, though, is the question. In addition, I'm interested to see if management is right in its assessment that cash flow will grow in the second half of the year since growing cash flow is essential to the company's goal of reducing debt and developing organic growth projects.
