Barrick bolsters dividend despite `softer' Q1 results
Hike tied to net cash balance reaching US$743M amid steadily rising gold prices
In the ongoing debate about how to draw investors to the gold mining sector, Barrick Gold Corp. is joining its rivals in a time-tested strategy: giving them money.
The Toronto-based miner on Wednesday announced a 20-cent dividend, made up of a 10-cent base dividend along with a firsttime 10-cent “performance” dividend tied to its net cash balance, which reached US$743 million amid soaring gold prices.
The dividend hike comes as chief executive Mark Bristow announced “softer” first-quarter results in 2022, including US$438 million in net earnings and US$763 million in free cash flow. Both were down 18.5 per cent and 48.3 per cent respectively from the same quarter one year earlier. Lower gold production and higher operating costs did not offset a higher gold price.
“It was always going to be a soft quarter,” Bristow said in an interview, adding that the second half of the year should be stronger.
He explained that typically the company aims for 1.1 million ounces of gold production, but expected lower production this quarter because of scheduled maintenance at several mines.
The results stood out compared to the 1.2 million ounces of gold production in the fourth quarter of 2021. But Bristow said last quarter's production was “artificially inflated” by a stockpile of high-grade ore in Nevada that had accumulated while it fixed one of its mills there, which finally was processed.
Net earnings in the first quarter of 2022 were down 39.6 per cent from the US$726 million posted in the fourth quarter in 2021, while free cash flow was down 45 per cent.
Since last quarter, Barrick's gold production declined 17.7 per cent to 990,000 thousand ounces and its all-in sustaining costs rose 19.9 per cent to US$1,164.
Analysts gave the company's financial performance a mixed review. Fahad Tariq, an analyst at Credit Suisse, wrote that the company's adjusted per share earnings of 26 cents missed his estimate of 29 cents, which he attributed to higher operating expenses.
“On cost inflation, Barrick noted it has built up a strategic inventory of key commodities,” which could help it in the future, Tariq said in a note.
Barrick shares jumped 2.6 per cent, closing at $29.53 in Toronto.
Chief financial officer Graham Shuttleworth told analysts on an earnings call on Wednesday morning that higher energy prices are the bigger driver of cost inflation, but higher commodity prices across the board are also contributing to cost inflation.
On the same call, Bristow that there's “no magic” in managing inflation. “Yes, we've got inflation pressures, but we've also got opportunities,” he said. “Synergy opportunities and continued improvements that will help mitigate that inflationary pressure.”
Still, gold prices have been steadily rising throughout the quarter and the company realized an average gold price of US$1,876 per ounce — up 4.6 per cent from last quarter. More broadly, rising gold prices, which are up 36 per cent from US$1,286 in May 2019, have boosted many gold miners' cash balances, stoking a trend toward higher dividends.
In February, Barrick announced it would add performance dividends of between five to 15 cents on top of its 10-cent base dividend, depending on its cash balance.
Earlier this year, Toronto-based Agnico Eagle Mines Ltd, which has paid a dividend for 38 straight years, announced a 14-per-cent hike to a 40-cent quarterly dividend. In February, Denver-based Newmont Corp. declared a 55-cent quarterly dividend, with the possibility of increases tied to the gold price.
In his earnings call with analysts on Wednesday morning, Bristow cited the Ukraine-Russia conflict, rising inflation and the surge of COVID-19 cases in China as evidence of what he called the “greatest period of economic, social and geopolitical disruption … in more than a generation.”
“All in all, it's a time of radical change, and nobody knows how it's going to turn out,” Bristow said.
But he added that Barrick, the second-largest gold miner in the world with mines throughout the Americas, Africa and the Middle East, considers managing risk one of its core strengths. At the start of every year, its top executives meet and spend a week reviewing risks and opportunities.
“Fortunately for Barrick, managing risks in challenging geopolitical jurisdictions is one of our core competencies, largely gained in Africa ...,” he said in a news release.