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African Barrick Gold: 3Q Production: Disaster strikes

Contributed by Fox-Davies Capital

African Barrick Gold (ABG) has released its production figures for the third quarter of 2012. The mines produced an attributable 147,786oz of gold and sold 147,026oz. The average cash cost of production was $965/oz and the average realised gold price was $1,688/oz. This takes production for the first nine months of 2012 to 445,528oz with an average cash cost of $946/oz. This resulted in quarterly revenues of $265M and a net profit attributable to owners of $29.013M. This took the net attributable profit for the nine months to 30 September 2012 to $94.17M.

This was a very disappointing half. It was supposed to be the start of the turnaround, which with the exception of North Mara where production was reasonably in line with expectations, seems to have been delayed by three months. As a result, management has reduced guidance for 2012. The original guidance was production between 675 and 725k oz at cash costs between $740 and $810/oz. The revised figures are production between 607 and 652k oz and cash costs of $900 to $950/oz. This is very disappointing as it is the fourth straight year of declining production and increasing costs. That said, revenues and profitability for the quarter were very close to those in the second quarter, albeit aided by a gold price $97/oz higher.

Whatever management says, it does appear that the due diligence exercise with the China National Gold Group Corporation has resulted in management taking its "eye off the ball." The large downgrade to guidance overshadowed the improvements to grade and recovery at North Mara and the mill performance at Buzwagi.