Barrick's Production Miss Not So Bad?

Source: Adrian Day 04/24/2024

Global Analyst Adrian Day looks at more first-quarter results from some resource companies, as well as some positive exploration results that, according to him, could extend a mine's life.

Barrick Gold Corp. GOLD maintained its full-year guidance after first-quarter production in both gold and copper, which came in lower than expected. Part of the lower production was because of planned maintenance at the Nevada Gold Mines, but other causes were unexpected, including lower grades at Lumwana.

The lower production, with copper output in particular weak, about 15% lower than the consensus estimates, meant higher per-unit costs. Barrick estimated that its costs for gold at about $1,473 per ounce (for All-In Sustaining Costs) would come in about 8% higher than the previous quarter, while copper would jump about 15%. Once again, Barrick will not generate meaningful free cash flow for the quarter.

As usual, Barrick said it expected production to increase throughout the year, with the first quarter usually being its lowest. It pointed to Pueblo Viejo's expansion ramping up in the second quarter and the restart of Porgera.

Potential Bad News From Mali

Just as Barrick was reporting its first-quarter production (with full results scheduled for May 1) came a report that Mali's military government was planning to expropriate its Loulo-Gounkoto gold mine, which represents about 9% of the company's NAV. Mali's junta has been targeting the mining sector with a controversial audit of the industry as well as a proposed new mining code.

Barrick has not commented on the report. Separately, there are reports that Saudi Arabia is close to a deal to acquire a minority stake in Barrick's Reko Diq mine in Pakistan, investing at least $1 billion to buy part of the government's stake.

Saudi Arabia's interest has been public. Though any deal would not affect Barrick's interest in the project, it would be a positive, bringing in a wellfunded partner. Barrick's stock sunk sharply on the one-two punch from the production shortfall and Mali report, falling from over $18 to under $16.50 before a partial recovery.

In truth, it was an overreaction. The higher costs were for the most partly simply a function of lower production, while the production miss, beyond the planned Nevada maintenance, was quite minor, and the company reiterated its full-year guidance, backed by solid reasons. In truth, I think investor sentiment was less about the specifics of the quarter but more a not-illegitimate sense of déjà vu since Barrick has missed its often-optimistic forecasts on more than one occasion. As for the Mali report, expropriation would indeed be serious, but there was little that was new in the widely publicized report. In short, our position has not changed.

We would hold here but look for opportunities to buy.

Royal Gold Offers Weak Guidance, but Likely Low

Royal Gold Inc. RGLD announced its 2024 guidance of between 290K and 315K Gold Equivalent Ounces (GEOs), more-or-less flat versus 2023 actual GEOs of 312K, and meaningfully lower than expected. However, there are several headwinds that are taken into account with Royal's guidance, which may turn out to be conservative.

It should be emphasized that there are several possibilities for upside, including improvements at Goldrush and Robertson in Nevada and some new assets coming on stream, including IAMGOLD's new Côte gold mine in Ontario.

Royal has also continued to pay down its credit facility, which it used to make major acquisitions in 2022 and 2023; it has repaid $125 million this year, bringing its balance down to $125 million.

We are holding after a better-than-20% jump since the end of February.

Strong Royalty Quarter for Altius

Altius Minerals Corp. ATUSF said its attributable royalty revenue for the first quarter is expected at $17.4 million, up from less than $16 million in the previous quarter, though down from the first quarter of 2023. The year-ago quarter benefited greatly from high potash prices.

The main gains quarter-on-quarter are from renewal energy (almost doubling) and base metals, while the revenue from coal was eliminated as the Genesee Mine ceased operations at the end of the year. The company continues to buy back shares.

Separately, the eagerly-awaited arbitration hearing over the extent of its royalty on AngloGold's Beaty project in Nevada has taken place, but the company has not commented on it yet. A ruling may take months.

Altius is a core holding for us; we are holding after a nearly 30% stock price appreciation in the last two months.

Positive Drilling Could Extend Fortuna Mexican Mine

Fortuna Silver Mines Inc. FSM reported positive exploration results on its Yessi vein discovery at the San Jose mine in Mexico.

Exploration since the initial discovery last August is intended to test the limits of the vein as well as do in-fill drilling to support a resource estimate. Fortuna earlier said it was bringing forward the planned closure of the San Jose mine to the end of this year, but contingent on any additional resources.

Continued success of the program on the Yessi vein suggests that the closure could be pushed back.

We are holding.

TOP BUYS this week include, in addition to above, Orogen Royalties Inc. OGNRF and Midland Exploration Inc. TSX.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Gold Corp., Altius Minerals Corp., Fortuna Silver Mines Inc., Orogen Royalties Inc., and Midland Exploration Inc.
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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Adrian Day Disclosures

Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor's opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day's Global Analyst. Information and advice herein are intended purely for the subscriber's own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.