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African Barrick Gold: 2012 Preliminary Results: Very Disappointing

Contributed by Fox-Davies Capital

African Barrick Gold (ABG) or “The Company" has announced its December 2012 preliminary results. The Company reported a loss for the December quarter of $45.98M, which included an impairment charge for the Tulawaka mine of $44.5M. This took the net profit for 2012 to $48.2M, significantly below the $284.8M achieved in 2011. The Company is proposing to pay a $0.123 final dividend, taking the full pay-out to $0.163, the same as 2011. This is above the basic earnings per share figure of $0.145/share.

The guidance given for 2013 is for production of between 540 and 600koz at a total cash cost, including royalties of between $925 and $975/oz. By designation, this will be the fourth successive year of falling production and rising cash costs. We are also surprised at the high cash costs forecast for 2013, since Tulawaka, albeit a very small producer, was the highest cost producer in 2012 at $1,269/oz. Management admitted that part of the problem was that they took their eyes off the ball at Bulyanhulu where production was significantly impacted by the paste fill problems and experienced operators leaving the workforce.

As we mentioned in our quarterly commentary, an Operational Review has commenced. Unfortunately, we do not believe that this will have a significant impact until later in 2013, probably the third quarter. Another part of the problem was that management strategy was driven by ounces produced, whereas it should have been driven by profits. As part of the review, costs are being compared with their African peer group, where G&A costs tend to be significantly lower than their North American competitors.

The Bulyanhulu Mine really needs to get up to 400koz pa whereas in 2013 it is forecast to produce only 200koz. The CIL expansion will help towards this but will not make an impact until 2014. Also, higher grades are needed but these are deeper in the ore-body.