The miner's shares, hit last year by its disappointing production, were down 8.7 percent at 473.4 pence at 0940 GMT, underperforming a 1.6 percent drop in the broader sector.
Full year 2011 numbers were in line and while the dividend move looks better-than-expected, shares may react negatively to 2012 volumes and cost guidance
The Tanzania-focused company last month posted a 2 percent dip in full-year production to 688,278 ounces, after outages at its Buzwagi mine held back output in the final quarter. But with power disruptions set to continue into 2012, it set its target for the year on Thursday at a modest 675,000 to 725,000 ounces -- forecasting what could be another drop.
Costs, meanwhile, jumped 22 percent on the back of industry wide inflation in, for example, the cost of materials, but also a higher headcount and increased use of more expensive generator power to keep mines working, with cash costs per ounce coming in at $692. The miner forecast a similar rate of increase for 2012, with cash costs of $790 to $860 per ounce.
Costs, meanwhile, jumped 22 percent on the back of industry wide inflation in, for example, the cost of materials, but also a higher headcount and increased use of more expensive generator power to keep mines working, with cash costs per ounce coming in at $692.
The miner forecast a similar rate of increase for 2012, with cash costs of $790 to $860 per ounce.
The soaring cost of production, the darker side of rising prices in recent years, is becoming an increasingly painful issue particularly for miners in newer frontiers like West and East Africa.
Chief exec Greg Hawkins said the miner would fight rising costs with increased productivity and efforts to make its workforce as local as possible.
Some analysts suggested the dividend hike was a recognition of the miner's difficulty in finding adequately priced deals in booming West and Northeast Africa, but Hawkins said prices were becoming increasingly attractive.
*. 2011 EBITDA $544 million, up 30 pct
*. Total dividend 16.3 cents per share, up 208 percent
*. Cash costs per ounce up 22 pct, similar increase seen for 2012
*. Says power issues to continue, full back up power in place by end of Q2
analyst argues that Barrick Gold shares
This analyst argues that Barrick is not valued as highly as it should be by investors, given its 900% earnings per share growth since 2004. The company has started to issue a dividend in order to attract investors, most of whom are seemingly more swayed by ETFs such as the iShares Gold Trust (IAU) or the SPDR Gold Trust (GLD). However, despite pros such as dividend payouts, one risk of investing with a mining company like Barrick or Goldcorp Incorporated (GG) was pointed out by Jamie Sokalksy, Barrick's chief financial officer. Gold production will "be slightly lower" with costs predicted to be 15% higher, limiting growth potential in the near future.
Investing in a gold mining company brings risk that ETF investments don't. There are the huge costs of production and abiding by susceptible-to-change country-specific government regulations. This is particularly important concerning Barrick as it is constructing three new gold mines in different countries. However, with new sources of production, Barrick´s production levels will rise considerably once these mines are up and running. Also, Barrick's profit margins should increase greatly. The Dominican Republic and Pascua Lama mines will produce 1.5 million ounces of low-cost gold. With this production increase, the company will hope to be able to issue higher dividend payments to shareholders. Indeed Dahlman Rose analyst Adam Graf thinks that "Barrick [has] the capacity this year to double [its] dividend and then again, even more so next year". For this reason, Barrick is seen perhaps as a good long-term investment.
Lest gold investors forget the volatility of 2011, falling to $1,530, it is susceptible to a fall. However, most analysts, including Louise Yamada, are in agreement that gold is on the rise in 2012. What will matter significantly though will be mining companies' plans for growth in 2012 and beyond. Barrick is heavily invested in opening up new mines in three different locations. Holders of this stock and investors considering buying should be keeping a close eye on how costs are kept in check and that each project runs smoothly so as not to unexpectedly heighten costs or delay development. Pueblo Viejo and Pascua Lama will cost 3.8 billion dollars and 5 billion dollars, respectively. Can three different projects in different locations be expected to be completed without any incident which may cause a delay and raise costs? Their construction is expected to raise production levels to 9 million ounces of gold annually, further increasing Barrick's position as the largest market cap gold mining company.
If Barrick's new mine projects are constructed on time and within budget, taking into account that the company is actively raising its dividend payment to shareholders and that gold in general is expected by many to rise in 2012, Barrick could represent a profitable investment.
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