🕐21.01.14 - 10:54 Uhr

INVESTEC: AFRICAN BARRICK GOLD : MORE GOOD PRODUCTION BUT STILL REDUCING NET CASH



African Barrick Gold (Price: 201p | Target: 137p | Rec: Sell) African Barrick (AGB LN) delivered another solid quarter, producing 165koz in the 4Q (same as 3Q) at cash costs of $774/oz.

ABG’s last FY13 guidance (upgraded) was for over 600koz at cash costs below $925oz and it finished the year with a very good 642koz at $827/oz, with all-in sustaining costs in the 4Q at $1,171/oz.

That said, it finished the year with net cash of $140m, down $261m on the $401m with which it started the year.

We cannot be overly encouraged by the company’s operational improvements until it becomes net cash generative.

Conference call at 9am. * We had forecast FY13E production of 622koz at $863/oz cash costs, so we will need to adjust our FY13E earnings upwards slightly to reflect the better performance.

No FY14 guidance has yet been provided and we currently assume FY14E production of 623koz at $858/oz.

It is of note that all-in sustaining costs in the 4Q fell to a more comfortable $1,171/oz (vs.

$1,275/oz in 3Q13 and $1,675/oz in 4Q12), but we remain cautious on net cash: ABG ended the period with cash of $282m while fully drawing down its $142m credit facility (was $289m cash at end of 3Q with $30m drawn), so net cash now is $140m vs.

$259m in the 3Q and vs.

$401m at the start of 2013. * The company has in 2013 perfected the art of under-promising and over-delivering and the 4Q delivered more of that.

While certainly better than under-delivering, we note that consistent material over-delivery can signal its own issues, including potentially raising uncertainty in the accuracy of the reserve models. * Our TP of 137p per share is based on an equal blend of NPV and three years forward earnings multiples, weighted more towards the current period.

ABG is the most leveraged gold company in our coverage list, but we would require a gold price closer to $1,500/oz to justify a Buy recommendation.
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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