Good read18 Feb 2014 22:28
Barrick's Q4FY13 true all-in costs (costs excluding write-downs) rose on a year-over-year basis from $1352 in Q4FY12 to $1675 in Q4FY13, which is an extremely large rise in the cost of production. But we do caution that since the company reported a large write-down in the fourth quarter due to impairments on existing assets, it will affect this calculation because we have to estimate the tax benefit of the impairment (we use a 30% tax rate).
Thus for companies that experience large annual or quarterly impairments we prefer to use the core non-tax costs (removing taxes and write-downs), which will give us a good idea of the comparative change in costs (i.e. are they rising or falling). But it will also understate costs since it removes declared income taxes from the cost figure - so the true costs of production will be somewhere in between these numbers.
For the fourth quarter, Barrick's core non-tax costs rose from $1,208 per ounce in Q4FY12 to $1348 in Q4FY13, which is a significant 10% rise in costs. Barrick tends to report higher fourth quarter costs, so the annual costs are lower than experienced in the fourth quarter ($1110 in FY2013 versus $1009 in FY2012) but they still rose at around 10% for the year.
Since Barrick is the second company that we've published an all-in cost analysis, we can only compare its fourth quarter costs to competitor Goldcorp (GG) (fourth quarter all-in costs around $2000 - but this was due to extremely large realized taxes).
But for investors wishing to compare the company's fourth quarter performance to the third quarter true all-in costs of other gold companies they are as follows: Newmont Mining (NEM) (costs under $1200), Kinross Gold (KGC) (costs around $1200), Yamana Gold (AUY) (costs over $1150), Alamos Gold (AGI) (costs above $1250), Goldfields (GFI) (costs around $1350), Randgold (GOLD) (costs above $1150), Agnico-Eagle (AEM) (costs under $1150), Iamgold (IAG) (costs under $1150), and Eldorado Gold (EGO) (costs just over $1100). Of course investors should note that these are the third quarter all-in costs for these companies and thus all comparisons should be done with a grain of salt.
We also note the following guidance from the company's recent quarterly report.
What we want to point investors' attention to is that Barrick is expecting to produce 10-15% less gold at higher costs. We're not faulting the company for this, since these costs may be lower than many competitors, but gold investors should take this as a significantly bullish indicator - if the largest gold producer in the world is cutting production AND expecting to produce gold at a higher cost then chances are the rest of the industry will be doing the same.
As we've stated before, we don't believe the gold price in the $1,200 or $1,300 range is sustainable in the long-term and the gold price will need to be much higher for gold production to remain anywhere near current levels. This is something that should be very in
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