Barrick Gold Increases Dividend After Strong Earnings & New Discoveries

September 8th, 2011 by Trefis Team

Barrick Gold Corporation (NYSE:ABX) riding high on account of high gold prices, recently announced an increase in its dividend payout and a possible share buyback. Barrick also announced the discovery of new mining reserves in Nevada. [1] Headquartered in Toronto, Barrick is the world’s largest gold mining company. It competes with other mining companies such as Newmont Mining (NYSE:NEM), AngloGold Ashanti Ltd. (NYSE:AU), Goldcorp Inc. (NYSE:GG) and Freeport McMoran Copper (NYSE:FCX).

Our $59 price estimate for Barrick Gold is roughly 30% above the market price.

Improved Profitability Resulting in Excess Cash

Since April 2009, the spot market price for gold has doubled due to an increase in demand. The widening gap between the production cost and the selling cost of gold contributed to blockbuster second quarter earnings for the company. CEO Aaron Regent said that the company expects to pay a progressive dividend going forward as the company’s earnings grow. He also hinted at a possible buyback of shares, citing that the company has a stronger cash position than it did a few months back. With the booming profits of gold miners, it  is now becoming an industry-wide trend to distribute the additional income generated from the gold price rise. Previously, Newmont Mining announced a gold-price linked dividend mechanism for its shareholders whereby they receive an additional 20 cents per share for every $100 increase in the spot gold price. With excess cash in hand the company also has plans to invest more in developing existing and new projects

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Development Projects

The company is being more aggressive in pumping money into its existing projects under development. The projected cost of the Donlin Gold project, a joint development with Novagold Resources, was increased by more than 50 percent to $7 billion as the project now also includes the construction of a natural gas pipeline and an electricity generation facility at the mine site, which will reduce the costs of running the mine going forward. Furthermore, the company is planning to increase its investment in construction of a more than 300 mile long pipeline for a project under development in Alaska.

New Discoveries

The company also announced the discovery of two new mines – Red Hill and Goldrush, located near the Cortez Hills mine. The initial inferred resources for Red Hill stand at 3.5 million ounces of gold and further studies are underway to estimate the resources at Goldrush as well. The company has also allocated $26 million this year to carry out further drilling to explore the region. With the addition of these regions to the company’s already strong resource base, there is plenty of upside to production from the region and the company may be able to take advantage of the elevated gold price by bumping up its production output.

See our complete analysis for Barrick Gold here.

Notes:
  1. Barrick Announces Two Gold Discoveries in Nevada, Barrick Gold [↩]