What to Expect When Barrick Reports Next Week

Can the company manage to keep its costs downs?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Barrick Gold (TSX: ABX, NYSE: ABX) will report its third quarter earnings next Halloween Thursday. But with shares down over 45% in the past 52 weeks, this is shaping up to be a year investors would rather forget. The entire industry has been under pressure due to falling gold prices and rising costs. Additionally, Barrick has also drawn the ire of shareholders over its corporate governance practices.

So should investors expect tricks or treats from Canada’s largest gold miner this quarter? Last summer’s earnings report was downright scary after the company wrote off $8.7 billion in assets and slashed its dividend 75%. Nothing of that magnitude is expected next week. However, investors could catch a sneak peek of the management’s turnaround plan.

Barrick by the numbers

Metric
Analyst EPS Estimate

$0.49

Change From Year-Ago EPS

-51%

Revenue Estimate

$2.88B

Change From Year-Ago Revenue

-16%

Earning Beats in Past Year

3

Source: Yahoo! Finance

Barrick goes on a diet
Sagging metal prices is putting the pressure on Barrick to cut costs. Last quarter, new Chief Executive James Sokalsky promised a complete reorganization the company’s operations. In the August conference call, Barrick announced that any project with all-in extraction costs above $1,000 per ounce will undergo mine plan adjustments, scrapped, or sold.

Already we’re seeing parts of this plan being implemented. This summer Barrick agreed to sell off three mines in Western Australia known as the Yilgarn South assets to South Africa-based miner Gold Fields for $300 million. Then earlier this month Mr. Sokalsky announced at the Denver Gold Forum that the company was in talks to sell two more of its Australian gold mines – most likely the Plutonic and Kanoana operations in Western Australia. These assets combined are worth an estimated $100 million.

That still leaves eight more projects left to be reviewed. Investors should be looking for additional details in the call.

Shareholders in revolt
Barrick has become a case study in bad corporate governance. Last year the company was criticised when the board granted co-chairman John Thornton a lavish $11.9 million compensation package. This put an uncomfortable spotlight on the role of the company’s founder Peter Munk who has an enormous influence in the board room in spite of holding only a small financial interest in the company.

All of which has led to full fledge revolt amongst Barrick shareholders. Earlier this month, the Ontario Teacher’s Pension Plan told the Financial Post that it wants to see at least two thirds of the company’s board independent. Currently seven out of 13 Barrick directors are independent, according to Barrick’s most recent proxy statement.

U.S. hedge fund Two Fish Asset Management and Danish pension giant PGGM have echoed a similar sentiment. These funds are demanding that Barrick revise its executive compensation plan and sell off non-core assets.

Fortunately, it appears shareholders are having an impact. In September, Barrick promised to add new independent directors and pledged to review its executive pay practices following investor criticism. While I expect this to be a bigger issue at the company’s annual meeting next spring, expect to hear some reaction from management in the conference call.

Foolish bottom line
The most important metric to watch this quarter will be Barrick’s extraction cost per ounce. Given the fact that gold prices have remained in the doldrums, profitability will be driven by reigning in capital spending and cutting production from high cost mines. And given management’s plan to proceed with the Pascua-Lama megaproject, be on the lookout for any surprise cost overruns.

More from The Motley Fool
Interested in the top small-cap stock idea from The Motley Fool’s senior investment advisor? Click here to download a FREE copy of “A Top Canadian Small Cap for 2013 — and Beyond.”

Disclosure: Robert Baillieul has no positions in any of the stocks mentioned in this article.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Profit dial turned up to maximum
Tech Stocks

$1,000 Invested in Constellation Software Stock Would Be Worth This Much Today

Constellation Software (TSX:CSU) is trading above $2,000 today. Why this stock is so expensive, and is it worth buying?

Read more »

Dividend Stocks

Passive Income: 3 Top Canadian Stocks to Buy for Monthly Dividends

Companies such as Pembina Pipeline and Killam Apartment REIT pay investors monthly dividends, making them top bets for income-seeking investors.

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Stocks for Beginners

TFSA Investors: Top TSX Stocks to Buy With $6,000

Here are two safe, dividend-paying TSX stocks for your long-term portfolio.

Read more »

Gold medal
Investing

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Are you looking for growth stocks that could be huge winners in the next decade? Here are three top picks!

Read more »

Retirees sip their morning coffee outside.
Investing

Retirees: How to Make Over $95/Week in Passive Income TAX FREE!

Canadian retirees who are hungry for passive income should look to snag stocks like Sienna Senior Living Inc. (TSX:SIA) in…

Read more »

Man holding magnifying glass over a document
Investing

Where to Invest $500 in the TSX Right Now

Given the massive correction, long-term investors can start buying stocks like Shopify and goeasy to outpace the broader markets by…

Read more »

Aircraft wing plane
Investing

Air Canada Stock Is a Fantastic Deal Right Now

Air Canada (TSX:AC) is a great stock to own, as market fear turns into hope amid falling recession fears.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern
Investing

Beginner Investors: Get Passive Income by Investing in REITs!

You can get passive income by investing in REITs like Northwest Healthcare Properties REIT (TSX:NWH.UN).

Read more »