Barrick Gold Corporation (USA) (NYSE:ABX) reported adjusted net earnings of $344 million ($0.30 per share) for the full year and $91 million ($0.08 per share) for the fourth quarter. A net loss of $2.84 billion($2.44 per share) for the full year and $2.62 billion ($2.25 per share) in the fourth quarter reflects the impact of $3.1 billion in after-tax impairment charges. These charges are primarily associated with an adjustment to the company’s short- and long-term gold price assumptions, which have been revised downward to ensure a focus on maximizing free cash flow. Full year adjusted EBITDA was $3.19 billion1, with adjusted EBITDA of $722 million in the fourth quarter. The company generated$471 million2 in free cash flow in 2015 and $387 million in the fourth quarter.
Production for the full year was 6.12 million ounces of gold, in line with our revised outlook for the year. All-in sustaining costs in 2015 were $831 per ounce, below our original guidance of $860-$895 per ounce, and at the low end of our revised outlook of $830-$870 per ounce. The company also produced 511 million pounds of copper at all-in sustaining costs of $2.33 per pound in 2015, in line with expectations. In the fourth quarter, the company produced 1.62 million ounces of gold at all-in sustaining costs of $733 per ounce, and 138 million pounds of copper at all-in sustaining costs of $2.15 per pound.
Our vision is the generation of wealth through responsible mining – wealth for our owners, our people, and the countries and communities with which we partner. We aim to be the leading mining company focused on gold, growing our cash flow per share by developing and operating high-quality assets through disciplined allocation of human and financial capital, and operational excellence.
In 2015, Barrick revitalized the culture that drove the company’s initial success. We implemented a lean, decentralized operating model; optimized our portfolio around assets with the greatest prospects for profitability and growth; and strengthened our balance sheet. We are returning to a high performance culture, characterized by disciplined capital allocation, consistent execution, and relentless self-improvement.
This has laid the foundation for us to pursue our single over-arching objective: to generate, and ideally grow, free cash flow in any foreseeable gold price environment. We also seek to maintain a sustainable portfolio capable of generating a 10-15 percent return on invested capital through metal price cycles. We will achieve this through industry-leading margins, and superior portfolio management. This will allow us to restore our balance sheet to withstand gold price volatility, invest to improve the quality of our asset base, and reward our shareholders with a reliable dividend.
Our production will be measured by quality, not quantity. While we are producing fewer ounces today than we have in recent years, we are generating significantly more cash. With the largest reserve and resource base in the industry, we have many options within our existing portfolio to maintain and grow free cash flow beyond 2020. We will also continue to assess alternative investments and opportunities which align with our strategic focus, and meet our hurdle rate of 15 percent.
Our strategy is distinguished by the following principles:
- We focus on cash margin growth over growth in ounces to deliver free cash flow.
- We have transparent strategic priorities that govern the way in which our capital is allocated.
- Our operating behavior is gold price agnostic, which will ultimately lead to superior leverage to a rising gold price, while enabling the company to endure periods of gold price volatility.
In 2016, we expect to produce 5.0-5.5 million ounces of gold at all-in sustaining costs of $775-$825 per ounce.
For 2017, we expect to produce 5.0-5.5 million ounces of gold at all-in sustaining costs of $740-$790 per ounce.
In 2018, we expect to produce 4.6-5.1 million ounces of gold at all-in sustaining costs of $725-$775 per ounce.
Our aspiration is to achieve all-in sustaining costs below $700 per ounce by 2019.
Based on our current asset mix and subject to potential divestments, we expect to maintain annual production of at least 4.5 million ounces of gold through 2020.
Please see page 13 for detailed operating and capital expenditure guidance. The table found in the appendix at the end of this press release outlines the material assumptions used to develop the forward-looking statements in our outlook and guidance, and provides an economic sensitivity analysis of those assumptions. For certain related risk factors, please see the cautionary statement on forward-looking information at the end of this press release.
INDUSTRY-LEADING MARGINS THROUGH BEST-IN-CLASS OPERATIONS
Our over-arching objective as a business is to generate, and ideally grow, our free cash flow per share in any foreseeable gold price environment. In support of this objective, we intend to achieve and maintain industry-leading margins by improving the productivity and efficiency of our operations through our Best-in-Class program. We will do so with an unwavering commitment to the safety of people and the environment.
Best-in-Class is a data-driven system that will maximize value creation from our operations by driving improvements in efficiency and productivity, as well as sustainable reductions in costs, across our portfolio. The initiative will bring together in a single system all of our existing and future improvement initiatives – those already identified in our Value Realization studies, as well as those associated with our $2 billion cash flow improvement target.
Best-in-Class provides a detailed road map for closing the gap between current performance and optimal performance at each of our mines. We measure the existing productivity and efficiency of each operation, which we then contrast with benchmarks for comparable assets in the industry. To close the gap, each mine develops a scorecard with concrete targets to reduce and optimize the intensity of labor, mining, energy, and capital. These targets are tied to broader objectives: growth in revenue, improvements in asset efficiency, and increasing operating margins.
Best-in-Class demands that our leaders constantly do better, by eliminating waste, improving execution, and optimizing systems. The program also demands constant technological innovation and system redesign. We strive both to achieve best-in-class performance today, and to redefine what best-in-class will look like tomorrow. Our goal is to constantly challenge and push past the technical limits of our operations, redefining what is possible.
SUPERIOR PORTFOLIO MANAGEMENT THROUGH DISCIPLINED CAPITAL ALLOCATION
The second means by which we will generate, and ideally grow, free cash flow per share in any foreseeable gold price environment, is through superior portfolio management, which will demand continued discipline in how we allocate capital.
In 2015, we overhauled our investment review process, with requirements for more rigorous financial analysis and review procedures, stronger business cases, and enhanced risk assessment. We expect our portfolio to deliver a 10-15 percent return on invested capital through the metal price cycle and, as such, all new capital spending is measured against a hurdle rate of 15 percent based on the company’s long-term gold price assumption, currently at $1,200 per ounce.
We have also implemented a consistent methodology for determining the pricing assumptions we use for budgeting and mine planning, calculation of reserves, impairment testing, and project economics. Our short-term gold price will be set at a discount to prevailing spot prices. For 2016, we are using a short-term gold price assumption of $1,000 per ounce. Our long-term gold price assumption has been set at $1,200 per ounce, representing what we believe to be a prudent assessment of long-term consensus pricing. Our long-term pricing assumptions will only be adjusted based on fundamental shifts in the gold market. This approach ensures a focus on maximizing free cash flow in the near-term, while maintaining upside leverage to higher gold prices in the future.
RESTORING A STRONG BALANCE SHEET
Continuing to restore a strong balance sheet remains one of Barrick’s top priorities. In 2015, we reduced our total debt by 24 percent, or $3.1 billion, exceeding our original target of $3 billion. As a result, we expect to save roughly $135 million in interest costs on an annualized basis. We also extended the termination date on the majority of our fully undrawn $4 billioncredit facility from January 2020 to January 2021, and replaced its key financial covenant with a net debt to total capitalization ratio5 that better reflects our deleveraging efforts.
The company’s liquidity position is strong and continues to improve, with robust cash flow generation, and modest near-term debt repayment obligations. At the end of the fourth quarter, Barrick had a consolidated cash balance of approximately $2.5 billion.6 Subsequent to year-end, the company received an additional $610 million in cash from the sale of Bald Mountain and 50 percent of Round Mountain. Barrick has less than $250 million in debt due before 2018, and about $5 billion, or half of our outstanding debt of $10.0 billion, does not mature until after 2032.7
In 2016, we intend to reduce our total debt by at least $2 billion through the following means:
- Drawing on our cash balance.
- Delivering free cash flow from operations.
- Selling additional non-core assets and creating new joint ventures and partnerships.
In the medium term, we aim to reduce our debt to below $5 billion. Philosophically, our goal is to have no debt at all. However, we will continue to pursue debt reduction with discipline, taking only those actions that make sense for the business, on terms we consider favorable to our shareholders.
Barrick generated $471 million2 in free cash flow in 2015, including $387 million in free cash flow in the fourth quarter. This compares to negative free cash flow of $136 million in 2014, a year in which gold prices were on average $106 per ounce higher than 2015. Three consecutive quarters of positive free cash flow reflect our driving focus on maximizing free cash flow through greater capital discipline, operational efficiencies, and strong cost management. The implementation of our lean, decentralized operating model has also contributed to lower costs, by removing management layers, and increasing the speed of decision-making.
Total capital expenditures of $1.51 billion in 2015 were 31 percent lower than in 2014. We also exceeded our overhead cost-reduction target of $50 million for the year, and expect to reach $100 million in annualized overhead savings in 2016.
Lower capital spending, combined with reductions in corporate overhead, and other operating cost savings, helped us to achieve a $33 reduction in our all-in sustaining costs for the year, from $864 per ounce in 2014 to $831 per ounce in 2015.
Fourth quarter adjusted net earnings were $91 million ($0.08 per share) compared to $174 million ($0.15 per share) in the prior-year period, primarily reflecting lower realized prices, and lower copper sales volumes. A net loss of $2.62 billion ($2.25per share) for the fourth quarter reflects the impact of $2.6 billion in after-tax impairment charges. Fourth quarter adjusted EBITDA was $722 million, compared to $755 million in the prior-year period.
Full-year 2015 adjusted net earnings were $344 million ($0.30 per share) compared to $793 million ($0.68 per share) in 2014, primarily reflecting lower realized prices, and lower gold sales volumes.
A net loss of $2.84 billion ($2.44 per share) for 2015 reflects the impact of $3.1 billion in after-tax impairment charges for the full year, primarily associated with an adjustment to the company’s short- and long-term gold price assumptions.
Adjusted EBITDA was $3.19 billion in 2015, compared to $3.81 billion in the prior year.
Operating cash flow of $2.79 billion for 2015 was higher than $2.30 billion in 2014, reflecting the impact of $610 million in proceeds from the Pueblo Viejo streaming transaction. Excluding these proceeds, operating cash flow was lower than the prior-year period, largely as a result of lower realized prices.
Barrick’s operations continued to deliver a strong performance in 2015. Our mines produced 6.12 million ounces of gold, in line with our revised outlook for the year. All-in sustaining costs were $831 per ounce, significantly below our original guidance range of $860-$895 per ounce. At $596 per ounce, our cash costs also came in below original guidance of $600-$640 per ounce and revised guidance of $600-$625 per ounce. Excluding the impact of fuel and currency hedges in 2014 and 2015, and adjusting for the transfer of certain general and administrative costs to mine sites in 2015, our cash costs declined by approximately $55 per ounce year-over-year.
Full-year copper production of 511 million pounds at all-in sustaining costs of $2.33 per pound and C1 cash costs of $1.73 per pound1 was in line with expectations. (Original Source)
Shares of Barrick Gold closed today at $11.88, up $0.29 or 2.50%. ABX has a 1-year high of $13.70 and a 1-year low of $5.91. The stock’s 50-day moving average is $9.39 and its 200-day moving average is $7.74.
On the ratings front, Barrick Gold has been the subject of a number of recent research reports. In a report issued on January 22, Citigroup analyst Brian Yu assigned a Buy rating on ABX, with a price target of $10, which represents a potential downside of 15.9% from where the stock is currently trading. Separately, on the same day, Credit Suisse’s Anita Soni maintained a Hold rating on the stock and has a price target of $10.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Brian Yu and Anita Soni have a total average return of 2.7% and -5.7% respectively. Yu has a success rate of 51.6% and is ranked #734 out of 3610 analysts, while Soni has a success rate of 35.3% and is ranked #2683.
Barrick Gold Corp produces and sells gold and copper. The Company business activities also includes exploration and mine development. It holds interests in oil and gas properties located in Canada.