Bristow defends frugal dividend as “big capital” looms
BARRICK Gold has reported a whopping 963% jump in free cash flow to $340m for the June quarter underscoring what the soaring gold price can do for earnings if a gold miner maintains production and holds down costs.
Initial results and trading statements so far released for the June quarter have been disappointing with groups like B2Gold and Gold Fields reporting poor earnings because they missed out on the gold price bonanza through falling production.
Not so Barrick which pushed gold sales up 5% to 956,000 ounces (March quarter: 910,000 oz) and held gold all-in sustaining costs (AISC) to a 2% rise at $1,498/oz ($1,474/oz) and so received the full benefit of the 13% increase in the realised gold price of $2,344/oz ($2.075/oz).
The overall impact was a 25% rise in net earnings to $370m ($295m), but the more telling metric is arguably the adjusted net earnings figure which jumped 67% to $557m ($333m).
“Adjusted net earnings”” is a non-GAAP (generally accepted accounting principles) measure which excludes from the net earnings calculation such items as; impairment charges; foreign currency translation gains and losses and significant tax adjustments.
Barrick says the industry uses adjusted net earnings internally to evaluate underlying operating performance, but the company cautions: “the measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS (International Financial Reporting Standards)”.
Barrick believes adjusted net earnings “is a useful measure of our performance because impairment charges, acquisition/disposition gains/losses and significant tax adjustments do not reflect the underlying operating performance of our core mining business and are not necessarily indicative of future operating results.”
Loosely translated, that means Barrick cracked it in the second quarter, although shareholders may not necessarily experience a warm and fuzzy feeling out of this because, so far, they have seen no real material benefits in terms of increased dividends or a higher share price.
Barrick has maintained its quarterly dividend at an unchanged $0.10 per share while the share price performance has been pedestrian.
When gold first went through the $2,000/oz mark some three years ago, Barrick shares traded on the Toronto stock exchange at levels around C$40 a piece. They subsequently dropped to as low as C$19/ share and have since traded in a range of between about C$20 and C$25/share over the past year as gold went back through the $2,000 mark and then continued on up to current levels above $2,400/oz.
Asked why Barrick was being tight-fisted on the dividend CEO Mark Bristow replied: “We have got big capital coming at us”.
Bristow is referring to the expansion of the Lumwana copper mine in Zambia along with development of the Reko Diq copper/gold project in Pakistan as well as the Goldrush mine and adjacent Fourmile project in Nevada which he said was “shaping up as new Tier One mine with a potential gold production in excess of 500,000oz per annum over more than two decades.”
“We are at where we were at with Randgold in 2011,” said Bristow.
“We have the assets; we have the people, we have delivered alongside the rest of the market as far as returns go and we bring growth. The key is the share value and that will come. I am very mindful that delivery is a key component of that.”