The shine may be off Barrick Gold earnings

Gold miners are digging for profits as the precious metal’s price has been taking a dive. Canada-based Barrick Gold is also being hit by project delays and cost over-runs. Data produced by a StarMine analysis shows a large negative Predicted Surprise that indicates Barrick may miss already-lowered earnings estimates.

Gold prices crashed by almost 10% on April 19 to $1,358, but that was just the culmination of a slow collapse over the last 8 months. On April 18, gold traded at $1,587 an ounce, compared to just under $1,800 as recently as October 2012, as the chart below shows. As seen in this previous Alpha Now article, gold has lost some of its luster as a safe haven.

All gold miners are adversely affected by falling prices, but some have been hit harder than others. One example: Barrick Gold (ABX.N). The large negative Predicted Surprise of 10% for the quarter ended on March 31 shows that analysts were bearish on earnings even before the April crash.

Consensus estimate declining

In the chart below, the consensus estimate (gold line) for first fiscal quarter earnings is down to 90 cents per share, from $1.16 just 90 days ago. Of the nine estimate revisions since the beginning of April, eight are below the consensus. There are two ‘Bold Estimates’ for the company, i.e. estimates by 5-star analysts (the highest rated analysts by StarMine), that are significantly below the consensus. A note to the wise: these analysts have a history of being accurate.

Source: Datastream Professional / StarMine

Mining project halted

Barrick has invested in its biggest-ever mining project, the Pascua-Lama project on the Chile-Argentina border. Estimated capital expenditure is about $8.5 billion — just under half of the company’s total market capitalization. Just a week ago, the Chilean government halted work on the mine, raising environmental concerns. With Chilean elections coming up, work could be halted for several months and the project could get derailed if the government does not give clearance. The company already has $12 billion in debt, a large part of that accrued from the Pascua-Lama mine which is both behind schedule and over budget.

In an attempt to strengthen its balance sheet, Barrick announced on April 22 that it wants to sell its Australian gold mines, as was reported in this Reuters News Article. The more delay Pascua-Lama faces, the longer it will take for the company to recoup its investments — assuming gold price level off. If prices keep falling, Barrick, along with a lot of other gold miners,could see earnings fall even more. Analysts have been lowering earnings estimates for Barrickfor the full year (ending December 31) by 22% in the last 90 days, which means they expect the company to earn less this year (ending in December 2013)than the previous year. Keep in mind that earnings fell in 2012, so that would be two consecutive years of shrinking earnings..

Source : Eikon

In the meantime, first quarter earnings for Barrick Gold are on tap for April 24, and will likely give analysts a better idea of what to expect in terms of earnings, and what the company’s plans are for Pascua-Lama. Based on the best analysts, and the large negative Predicted Surprise, signs point to the company missing the already-lowered estimates.

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