Barrick Gold Corporation, ABX 1Q06
Analysts’ estimates can’t seem to keep up with the gold stocks.
Wednesday evening Barrick reported net income of $0.29 per share, 6 cents better than expectations. These earnings were the result of the Barrick’s and Placer Dome’s newly combined operations which generated $1.22 billion in sales of gold and copper in the quarter. The company was able to produce gold at an average cost of $283 per ounce while the realized price during the quarter was $583. Further, Barrick produced copper at an average cost for the quarter of $0.77 per pound, while spot prices for the metal ranged as high as $3 per pound yielding an average selling price of $2.31.
In addition to enjoying these tremendous margins, the company has worked aggressively to reduce its gold hedge position since the completion of the Placer Dome merger. Barrick has reduced its overall gold hedge by 5.7 million ounces this year, and the company expects to eliminate contracts on an additional 2 million ounces during the remainder of the year. Management has indicated that it will completely reduce the hedge book by 2009. Barrick is clearly confident that gold prices will stay significantly above the company’s $283 cash cost per ounce.
Although Barrick has already benefited from the increased production brought by the Placer acquisition, management maintains that it can achieve $200 million in operating cost savings by 2007. This will be achieved through regional consolidation of mine ops, integration of the exploration teams and reduction in other corporate redundancies. Barrick’s management appears to have the discipline to implement strategies to maximize shareholder value even during these times of plenty for the mining industry.
Despite the combination of Barrick’s obvious margin strength, focused management, and superior reserves,
