African Barrick Gold (Price: 170p | Target: Under Review | Rec: Sell) African Barrick delivered a very good Q3, with production of 165koz at cash costs of $730/oz, well ahead of consensus.

It has indicated that FY13 production is now expected to exceed the upper end of its guidance of 540-600koz at cash costs of $925-975oz.

While we are encouraged by the positive production trend, we remain cautious, noting in particular the ongoing cash shortfall, notwithstanding the encouraging headline results.

Maintain Sell. * ABG delivered 3Q production of 165koz and cash costs of $730/oz versus consensus 153koz at cash costs of $910/oz, for EBITDA of $65m (Consensus $44m) and EPS of 4.3cps (Consensus 0.5cps).

North Mara was the stand-out performer, with 68koz of production (196koz so far this year).

ABG now expects FY13 production to exceed the upper end of its guidance of 540-600koz at cash costs of $925-975oz. * We continue to remain cautious, bearing in mind that: (i) FY13E guidance was a low-ball target range, in our view, given that it was well below that of previous years, (ii) Q3 all-in-sustaining-costs were $1,275/oz, only $35/oz below the received gold price, and (iii) operating activities generated cash of $40m, well short of capex of $83m, so that ABG drew down a further $30m of borrowings.

ABG still has ample cash reserves ($289m), but has drawn down $110m of borrowings so far this year and is still some way from being comfortably cash generative. * We had assumed the top end of ABG’s production guidance, with 600koz at $913/oz, and now see room to lift this closer to 625koz.

However, this is unlikely to have a significant impact on FY13E cash generation, given the aforementioned, or on our TP (a blend of NPV and 3-yr forward earnings multiples).

We maintain our Sell recommendation.
To access the full note please click here Analyst: Hunter Hillcoat
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