On February 17, 2016, after market close, Barrick Gold Corporation (NYSE:ABX) will release its fourth quarter 2015 results followed by a conference call and webcast on February 18 at 11:00 am ET.
Barrick Gold Corporation (Barrick) is a gold mining company. The Company is engaged in the production and sale of gold and copper, as well as related activities, such as exploration and mine development. The Company operates in segments: eight individual gold mines, Acacia and Pascua-Lama project. The remaining operating segments have been grouped into two other categories: its remaining gold mines and its two copper mines. The Company sells its production in the world market through the distribution channels: gold bullion is sold in the gold spot market; gold and copper concentrate are sold to independent smelting companies, and copper cathode is sold to various manufacturers and traders. The Company has 14 producing gold mines, located in Canada, the United States, Peru, Argentina, Australia, the Dominican Republic and Papua New Guinea. It also holds a 63.9% equity interest in Acacia Mining plc. (OTC:ABGLY) that owns gold mines and exploration properties in Africa.
First quarter of 2015, Barrick Gold Corporation reported EPS of $0.05 while analyst estimate was $0.09; a surprise of -44.40%.
Third quarter of 2015, the gold company reported EPS of $0.11 vs. analyst estimate of $0.07; a surprise of 57.10%.
Picture 1.
I will examine the impact of the two earnings announcement on the value of ABX.
First event study:
Barrick Reports First Quarter 2015 Results (April 27, 2015): TORONTO, April 27, 2015 - Barrick Gold Corporation (Barrick or the company) met cost and production targets for the first quarter, reporting net earnings of $57 million ($0.05 per share). Adjusted net earnings were $62 million ($0.05 per share)^{1}. Operating cash flow was $316 million. Gold production guidance for 2015 remains at 6.2-6.6 million ounces, with production 55 percent weighted to the second half of the year, in line with plan. Costs are also expected to be 20 percent lower in the second half of the year, with full-year all-in sustaining costs in line with guidance of $860-$895 per ounce. (here).
Second event study:
Barrick Gold reports 3rd-quarter loss of $264 million (October 28, 2015): "TORONTO (NYSE:AP) _ Barrick Gold Corp. on Wednesday reported a third-quarter loss of $264 million, after reporting a profit in the same period a year earlier. On a per-share basis, the Toronto-based company said it had a loss of 23 cents. Earnings, adjusted for non-recurring costs, were 11 cents per share. The results topped Wall Street expectations. The average estimate of nine analysts surveyed by Zacks Investment Research was for earnings of 6 cents per share. The gold and copper mining company posted revenue of $2.32 billion in the period. Barrick Gold shares have fallen 28 percent since the beginning of the year. In the final minutes of trading on Wednesday, shares hit $7.69, a decline of 43 percent in the last 12 months." (news from the official website of the company).
1st Event Study:
Event window (from March 27, 2015 to May 26, 2015): 20 days prior to the event day plus the event day plus 20 days post the event day.
This was 'Bad News' since EPS actual was more than 2.5% less than expected. It was -44.40% than expected.
I use the 250-trading-day period prior to the event window as the estimation window (from March 31, 2014 to March 26, 2015) for this announcement ('Bad News'). So I will estimate the 2-factor model parameters (intercept and the beta coefficients of the function Rabx = f(Rmkt; Rgoldpr.), where Mkt = S&P 500 and Goldpr. = Gold Fixing Price 10:30 A.M. (London time) in London Bullion Market, based in U.S. Dollars [GOLDAMGBD228NLBM], retrieved from FRED, Federal Reserve Bank of St. Louis, January 27, 2016, over the 250 days prior to the event period.
I don't get a statistically significant regressor with a market model, that's why a chose a 2-factor model.
I run the regression tool in excel to estimate the beta_{mkt} and beta_{goldpr.} The first one represents the exposure of ABX returns to the changes in the stock market price (S&P 500) and the second one represents the exposure of the gold stock returns to the changes in the gold price.
Coefficients | Standard Error | t Stat | P-value | Lower 95% | Upper 95% | |
Intercept | -0,00159 | 0,0016 | -0,99139 | 0,322468 | -0,00474 | 0,001565 |
MKT | 0,369751 | 0,213349 | 1,733083 | 0,084329 | -0,05046 | 0,789965 |
GOLD | 0,508216 | 0,192448 | 2,640799 | 0,008798 | 0,129168 | 0,887264 |
Multiple R and Rsq are low but the residuals seem to fall in a symmetrical pattern and have a constant spread throughout the range.
Rmkt's beta is 0.37: Barrick daily return is less volatile than daily S&P 500's return over the estimation window (from March 31, 2014 to March 26, 2015).
P-value and t- Stat value for Rmkt tell us that factor is not statistically significant.
Rgoldpr's beta is 0.51: Barrick daily return is less volatile than daily changes in the gold price over the estimation window (from March 31, 2014 to March 26, 2015).
P-value and t- Stat value for R_{goldpr.} tell us that the factor is statistically significant.
Rabx* = -0,00159 + 0,369751 x Rmkt + 0,508216 Rgoldpr. is the mathematical expression that roughly summarizes the normal return of ABX.
Now that I have the parameters of the 2-factor model, I can calculate the expected return, E(r), the abnormal return, AR, the abnormal cumulative return, CAR, and the abnormal return t-test, AR t-test. To calculate the expected return, E(r), we will substitute Rmkt and Rgoldpr with the daily returns on S&P 500 and on GOLDAMGBD228NLBM in the 2-factor model over the event window, 41 days, from March 27, 2015 to May 26, 2015.
To calculate the abnormal return (AR), we need to subtract from the daily return on Goldcorp Inc. (which is the actual return) the expected return (E(r)) over the event window, which is composed of 41 days, from March 27, 2015 to May 26, 2015.
Then I calculate the cumulative abnormal return. The t-test is calculated instead as the abnormal return divided by the standard error. The standard error is 0.025241.
The table represents the abnormal returns of ABX as well as the cumulative abnormal returns for earnings announcement of April 27, 2015, categorized as 'Bad News' since ABX's actual EPS was minus -44.40% than expected:
For this 'Bad News', the abnormal return of the event day is 0.0295 (2.95%), with a standard error of 0.025241 leading to an AR t-test value of 1.168 (less than +1.96). There is no evidence against the null-hypothesis, H0, that the event has no impact on the value of ABX.
But on April 1, 2015, 17 days before the event day, abnormal return is 0.098 (9.8%), and an AR t-test of 3.8825 (more than +1.96). News of the day:
2nd Event Study:
I won't explain the entire method again. I just want to specify that the event window is from September 30, 2015 to November 25, 2015: 20 days prior to the event day plus the event day, plus 20 days post the event day. Event day is on October 28, 2015.
I use the 250-trading-day period prior to the event window as the estimation window (from October 01, 2014 to September 29, 2015) for this announcement ('Good News').
Third quarter of 2015, the gold company reported EPS of $0.11 vs. analyst estimate of $0.07, a surprise of 57.10% ("Good News").
I run the regression tool in excel to estimate the beta_{mkt}, (I use a market model this time):
Coefficients | Standard Error | t Stat | P-value | Lower 95% | Upper 95% | |
Intercept | -0,00277781 | 0,002098703 | -1,323583862 | 0,18686 | -0,00691136 | 0,001355745 |
MKT | 0,591437641 | 0,219368524 | 2,69609163 | 0,007496 | 0,15937475 | 1,023500533 |
Multiple R and Rsq are low but the residuals seem to fall in a symmetrical pattern and have a constant spread throughout the range:
Rabx* = -0,00277781 + 0,591437641 x Rmkt is the mathematical expression that roughly summarizes the normal return of ABX.
The table represents the abnormal returns of ABX as well as the cumulative abnormal returns for earnings announcement of October 28, 2015, categorized as 'Good News' since ABX's actual EPS was +57.10% than expected:
For this 'Good News', the positive abnormal return of the event day is 0.0042 (0.42%), with a standard error of 0.033182136 leading to an AR t-test value of 0.4315 (less than +1.96). There is no evidence against the null-hypothesis, H0, that the event has no impact on the value of ABX.
But on October 14, 2015, 10 days before the event day, abnormal return is 0.1021 (10.21%), and an AR t-test of 3.0764 (more than +1.96). News of the day (from Yahoo Finance):
On November 17, 2015, 14 days after the event day, abnormal return is -0.0803 (-8.03%), and an AR t-test of -2.420 (less than -1.96). News of the day (from Yahoo Finance):
Analyst Estimates on Goldcorp Inc. earnings and revenues:
For next quarter, Q4 2015, analysts are looking for earnings per share of $0.07 on revenue of $2.24B.
EPS range between $0.04 and $1.13 on revenues that range between $1.89B and $2.40B.
Dividend history:
Barrick Gold Corporation has a long history of dividend paid to its shareholders as you can see from the picture below. The dividend per share is $0.02 paid 4 times per year.
Yesterday (January 27, 2016), Barrick Gold Corporation closed at $9.85. The stock lost 20.76% in 1 year and the S&P 500 lost 8.22% (as of January 28, 2016, market close).
Conclusion
2-event study:
First quarter of 2015 - Barrick Gold Corporation reported EPS of $0.05 while analyst estimate was $0.09; a surprise of -44.40%.
Third quarter of 2015 - the gold company reported EPS of $0.11 vs. analyst estimate of $0.07; a surprise of 57.10%.
Both events had no impact on the value of the stock.
But on April 1, 2015, 17 days before the event day, abnormal return is 0.098 (9.8%), and an AR t-test of 3.8825 (more than +1.96).
"NEW YORK (TheStreet) -- Shares of Barrick Gold (ABX - Get Report) were gaining 5.7% to $11.58 Wednesday as gold prices increased ahead of Friday's U.S. jobs report.
U.S. gold futures for June delivery were up 1.5% to $1,200.40 an ounce on the Comex late Wednesday morning." (here).
On October 14, 2015, 10 days before the event day, abnormal return is 0.1021 (10.21%), and an AR t-test of 3.0764 (more than +1.96).
"NEW YORK (TheStreet) -- Barrick Gold Corp. (ABX - Get Report) stock is advancing 5.76% to $7.89 in late morning trading on Wednesday as gold prices increased after new data supported a delayed U.S. rate hike.
Gold for December delivery is up 0.99% to $1,176.90 per ounce on the COMEX this afternoon."(here).
On November 17, 2015, 14 days after the event day, abnormal return is -0.0803 (-8.03%), and an AR t-test of -2.420 (less than -1.96).
"NEW YORK (TheStreet) -- Shares of Barrick Gold (ABX - Get Report) are down by 5.83% to $7.18 in early afternoon trading on Tuesday, as the tumbling price of gold drags some metals and mining stocks into the red today.
[…]
Gold for December delivery is lower by 1.55% to $1,066.80 per ounce on the COMEX this afternoon." (here).
This article shows that a 2-factor model where one variable is the return on the stock market and the other one is the changes in the gold price will predict returns on ABX.
Coefficients | Standard Error | t Stat | P-value | Lower 95% | Upper 95% | |
Intercept | -0,000982426 | 0,001088395 | -0,90264 | 0,367007 | -0,00311907 | 0,001154215 |
Rmkt | 0,418713672 | 0,131196741 | 3,191494 | 0,001474 | 0,161159909 | 0,676267436 |
R GOLD pr | 0,66799987 | 0,109918896 | 6,077207 | 1,94E-09 | 0,452216879 | 0,883782861 |
Over a period of 758 trading days (from January 23, 2013 to January 26, 2016), ABX is less volatile than the changes in the gold price (as well the return on the stock market); changes in the gold bullion price reveals to be a statistically significant variable to take into consideration. Better a 2-factor model or a multi-factor model to estimate returns on ABX than a simple market model.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.