always do the opposite to IC 12 Feb 2014 15:44
African Barrick lowers costs
Gold mining shares tanked in 2013 as precious metal prices tumbled. Few were hit as badly as high-cost Tanzanian miner African Barrick Gold (ABG), which saw three-quarters of its market capitalisation wiped out.
But the price of the yellow metal has recently climbed back to nearly $1,300 (£798) an ounce from just under $1,200 an ounce late last year. That, combined with a hugely effective cost-cutting programme at ABG's gold mines, has helped resurrect the company's share price - now 244p, up from a low of 94p in June. How far it can recover from here will depend mostly on the gold price, but also whether the company can continue to find cost savings.
On that front, ABG is certainly heading in the right direction. "It was the first time the company met guidance on production and costs for several years, so we're pleased about that," says Brad Gordon, ABG's new chief executive. The company reduced all-in sustaining costs (AISC) of gold production by nearly $500 an ounce year-on-year to $1,171 in the fourth quarter. The fall in the gold price, nevertheless, resulted in $823m of mine impairment charges, skewing the bottom line performance.
AFRICAN BARRICK GOLD (ABG)
ORD PRICE: 244p MARKET VALUE: £1.0bn
TOUCH: 243-244p 12-MONTH HIGH: 347p LOW: 94p
DIVIDEND YIELD: 0.8% PE RATIO: na
NET ASSET VALUE: 469¢ NET CASH: $140m
Year to 31 Dec Turnover ($bn) Pre-tax profit ($m) Earnings per share (¢) Dividend per share (¢)
2009 0.7 150 14.3 nil
2010 1.0 309 52.2 5.3
2011 1.2 403 67.0 16.3
2012 (restated) 1.0 179 24.5 16.3
2013 0.9 -929 -181 3
% change -8 - - -82
Ex-div: 30 Apr
Payment: 23 May
£1=$1.63
IC VIEW:
For fiscal 2014, Mr Gordon expects AISC of $1,100 to $1,175 and increased production of 650-690,000 ounces - up from 642,000 ounces in 2013. That will only generate adjusted EPS of 20.7¢ in 2014, flat on 2013 and putting the shares on a lofty 19 times forward earnings - compared with just seven times for peer Centamin (CEY). Much will depend on the gold price from here, but ABG's share price appears to have run ahead of itself. Sell.
Last IC view: Sell, 155p, 13 Dec 2013
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