The Conversation (0)
Apr. 22, 2014 04:15AM PST
Barrick Gold is shaking off its financially precarious position by divesting high-cost, low-return projects and focusing on low-cost mines in Nevada.
Barrick Gold (TSX:ABX,NYSE:ABX) has been in a financially precarious place for the past two years, according to Seeking Alpha; however, its position is improving, and the publication recommends the company as a good long-term pick.
Indeed, Barrick’s shares are up 16 percent already this year, largely due to the many beneficial choices it has made. For instance, the company has divested or partially divested many of its properties — such as Kanowna in Australia and 41 million shares in African Barrick Gold (LSE:ABG) — and has been able to restructure much of its debt. Those strategies have increased its liquidity and near-term cash flow, Seeking Alpha states.
Opportunities in Nevada
While divesting properties has certainly helped Barrick, what’s perhaps more important to look at is which assets the company has chosen to retain. That’s particularly key in Nevada, where the major miner recently divested its minority interest in the Marigold mine to Silver Standard Resources (TSX:SSO,NASDAQ:SSRI), but decided to keep the Cortez and Goldstrike mines.
Looking at that situation, Forbes points out that it’s unsurprising that Barrick chose to keep those mines as they accounted for 31 percent of the company’s total gold production in 2013. Specifically, Goldstrike produced 892,000 ounces of gold at an all-in sustaining cash cost of $901 per ounce last year, while Cortez put out 1.337 million ounces of gold at an all-in sustaining cash cost of $433 per ounce. Those costs are low compared to those at many of the company’s other sites, and help bring down the overall average all-in sustaining cost per ounce of gold produced by Barrick, states Forbes.
Furthermore, both mines have proven and probable resources that could support production for quite some time to come. As of the end of 2013, Goldstrike had proven mineral reserves of 65.94 million tonnes containing 6.76 ounces of gold, while probable mineral reserves sat at 28.78 million tonnes containing 3.94 million ounces of gold. Overall reserves stood at 10.7 million gold ounces. Meanwhile, Cortez has probable reserves of 183.83 million tonnes containing 9.45 million ounces of gold.
The takeaway
Given their fairly high reserves and low cost of production, Goldstrike and Cortez have serious potential to catapult Barrick to success, especially as Forbes estimates that they will each remain in production for the next 10 to 15 years. More importantly, they should allow the company to weather the current spot gold market conditions.
Investors wondering which other companies are likely to do so would do well to keep in mind the strategy Barrick is following: divest high-cost, low-return assets in favor of productive, low-cost mines that can be depended on in the long term.
Related reading:
Nevada: Where Low-grade Gold Deposits Can Still be World Class
