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Seventy-two percent is an interesting number. Just say the words “seventy percent” and most people will envision in their minds a large portion of something good. The number means something entirely different on a report card. It conveys a sort of mediocrity. If that report card is a corporate quarterly report and the 72% is a year-on-year decline in net profit and EPS, it can be downright unsettling. But that’s exactly what African Barrick Gold (LSE:ABG) reported this morning for its 3rd quarter results.
Investors did not panic and run away in large numbers, however. In fact, trading was fairly light at just over 226,000 shares against 410,090,000 in issue. The share price dropped 19.60 pence and 4.07% to 461.90. The company now expects it year-end results to come in somewhere between 5 and 10% below its previous bottom limit estimates. Attributable gold production was down 19% year-on-year, but in line with the first two quarters.
African Barrick is the largest gold producer in Tanzania and focuses on greenfield projects, with four currently in operation and several others under development.
CEO Greg Hawkins said, “This has been a challenging quarter for ABG. We were expecting to see a step up in production levels, leading into the end of the year and 2013, but there have been production interruptions and issues across each of our sites. We have seen the ramp up in grade at North Mara, which is positive and expected to continue in Q4, but have been disrupted in our efforts to mine it at a normal rate given an increase in illegal mining operations. At the same time the production levels at Bulyanhulu and Buzwagi have been lower than planned.” Despite the headaches at the North Mara site, ABG continues to push forward with its strategic plan for growth, The company is looking at potential acquisitions and expansion into Kenya.
A straightforward look at the numbers indicates that revenue dropped 25% from $354.5 million to $264.9 million and EBITDA dropped 55% from $184.3 million to $83.4 million. Both numbers are year-on-year.
Cash from operating activities suffered a 64% decrease from $152.6 million to $55 million. This may be the company’s most pressing issue as it puts pressure on cash flow.
The 72% decrease in net profit was a drop from $102 million to $29 million. That makes 72% feel bad.
Earnings per share dropped by the same percentage from 24.9¢ to 7.1¢.
The company attributes its flagging financial performance in the third quarter to lower production levels than the same period in 2011 along with a significantly lower price per ounce on the gold market compare to last year. The company said that all indications for the final quarter indicate increased production numbers which could be a turning of the corner for the company.
ABG managed to hold its capex to $91.8 million versus $109.5 million in the third quarter. This, no doubt, was a result of a mandate from management to put a hold on capital expenditures in order to keep the the drop in net profit as minimal as possible. Let’s hope that this budget tightening move does not have longer range issues of unintended consequences as a result of not having procured items essential to expansion and increased efficiency.
ABG is a relatively young company and this past quarter was full of growing pains. It will be interesting to see their results a year from now.
