African Barrick Gold ABG had already reported its FY12A gold output, and its cash costs to some extent, yet it still delivered a weaker than expected FY12A result, including a sizeable impairment.

More disappointing is its production guidance for FY13E, which is c.10% below FY12A, particularly since FY12A was thought to be a base from which to grow.

The significant impact on our FY13E forecasts has reduced our TP and our recommendation. * ABG delivered FY12 EBITDA of $331m (Investec forecast $377m) and adjusted net earnings of $104m (Investec $159m).

As part of its operational review, re-setting its production base, ABG appears to be clearing the decks, with a $46m impairment charge against Tulawaka, now nearing the end of its life.

The company’s net cash position during FY12A reduced from $584m to $401m.

* From FY12A production of 626koz at cash costs of US$949/oz, ABG is now guiding FY13 production of 540koz-600koz at $925-975/oz (including a $120/oz reduction from new accounting standards for waste stripping).

We had been looking for 633koz at $908/oz.

Given its history of disappointing, ABG may be taking an overly conservative stance, but we have adjusted our forecasts nonetheless, for the same reason.

We will review our forward assumptions as the ongoing operational review process progresses.

* Our target price is based on an equal blend of NPV and forward earnings multiples (10x FY13E PER, 5x EV/EBITDA).

We are encouraged by ABG’s new strategy of focusing on value accretion rather than growth for growth’s sake.

However, given the reduction in NPV and FY13E earnings, our TP has reduced to 315p per share and our recommendation to Hold accordingly.

Until we have some confidence in ABG’s forward production and cost assumptions, it is difficult to make a more positive recommendation.
To access the full note please click here Analyst: Hunter Hillcoat
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