Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
African Barrick Gold Plc (LON:ABG) shares shed 16% of its value on Monday on higher than usual trading volumes, after announcing net profits of $65 million, down almost by half – 46% – in the first half compared to last year.
A massive jump in cash costs in the first six months of 43% to $938 per ounce was behind the disappointing numbers and the company blamed the cost of generating its own electricity – which according to CEO Greg Hawkins it has to do “more and more” – for the increase in costs.
By the close in London the Tanzania-focused miner was trading down 16% at 317p on the Footsie, at its lowest for the day, giving the counter a market value of just over $2 billion. Year to date African Barrick – spun out of Canada’s Barrick Gold in 2010 – is down 31%.
Despite the operational difficulties the company said it is maintaining it annual productions forecasts of 675,000 and 725,000 ounces of gold. And, because it will be extracting metal from more productive parts of certain mines, cash costs should also be kept under control:
Reuters quotes Canaccord analyst Dmitry Kalachev: “The company will require around 30 percent higher production in the second half to reach the lower end of the guided range. Although we continue to believe that this is achievable, we note the historically challenging operating environment.”
The company also made its first foray outside Tanzania in the first half buying 2,800 square kilometres for exploration in neighbouring Kenya.
“Whilst Kenya is a relatively new mining destination, it has a solid transport infrastructure, a stable government and ABG already has an established supply chain in country,” said Hawkins.
