As mentioned in previous articles, Barrick Gold (ABX) has demonstrated that it is a poor investment for those seeking exposure to the gold mining sector. The company's share performance continuously underperformed its peers and the Gold Miners Index (GDX), while it regularly continued to disappoint investors with excessive capital cost increases and operational mismanagement.
Unfortunately for Barrick shareholders nothing has changed and third quarter reporting brings more of the same.
The world largest gold producer increased, yet again, the estimated capital costs for its Pascua-Lama project. Capital costs estimates increased from the July 2012 estimate of $7.5-$8B to $8-$8.5B, while initial production has been delayed from mid-2014 to sometime in the second half of 2014.
The Pascua-Lama project is a large deposit that is estimated to contain reserves of about 17.9M ounces of gold and is located in the Andes Mountains at an altitude of about 3800 meters on the Argentinean-Chilean border.
Since construction of the project began, capital costs gradually increased to a point where it now seems like the project is an endless pit for capital. Looking just at the past year, one can see how destructive this project has been for shareholders with production dates pushed forward and capital costs pushing higher.
Initial Production Estimates
Mid-2014; costs rise
Second Half-2014; costs rise
Pascua-Lama Capital Costs Range Estimates in 2012:
Operationally, Barrick did not fare any better. The company lowered the upper end of the previously guided production range from 7.3M-7.8M ounces to 7.3-7.5M ounces, which will likely impact the company's revenues for 2012.
Similarly, the company raised its guidance for the total cash cost per ounce it originally guided just this past July. The range of $550-$575 per ounce was revised upward to $575-585 per ounce, a 4.5 percent increase on the low end and a 1.7 percent on the high end.
In close, third quarter reporting continued to show Barrick's meager operational performance and poor treatment of capital. Until the company demonstrates a fundamental shift away from the 'growth at all cost' mentality and commences a disposition program of its less productive, high cost operations, it will continue to lag its peers and disappoint its investors.