BULL POINTS:
■ Large gold reserves
■ Rising production
■ Financed for acquisitions
■ Outlook for gold price
BEAR POINTS:
■ Limited track record
■ Fuel theft
African Barrick Gold (ABG), whose shares are in the FTSE 100 index, is gold producer based in Tanzania with the potential to raise production both organically and through acquisitions, and to increase profits by cutting operating costs. It has four producing mines, a portfolio of exploration prospects and a large number of other licences and licence applications. The company was spun out of Barrick Gold, the world's largest gold producer, this spring and Barrick Gold retains a 74 per cent shareholding.
| IC TIP RATING | |
|---|---|
| Tip style | Growth |
| Risk rating | High |
| Timescale | Long |
| What do these mean? Find out in our | |
ABG is one of Africa's five largest gold producers. It has produced about 4.3m ounces of gold all told, of which 716,000 ounces were mined in 2009. The bulk of production comes from three mature mines, Bulyanhulu, Tulawaka and North Mara. A fourth mine, Buzwagi, has largely completed its start-up procedures, which means that ABG's production growth should be less risky than those gold miners still in their development phase.
The company is progressing projects designed to grow production at all four mines, although not without challenges. A recently-uncovered theft of fuel at Buzwagi resulted in the suspension of 60 employees and a number of contractors. The resulting delay in mining high grade ore may reduce full-year production from the mine by some 30,000 ounces. The setback should be temporary, however, and shouldn't affect total production over the life of the Buzwagi mine.
Although current year production is now expected to remain at 2009's level, brownfield projects at all four operations should allow the company to lift output to 1m ounces of gold by 2014. Gold reserves stand at an impressive 16.8m ounces, mostly at the world-class Bulyanhulu mine, which will support rising production for many years.
| AFRICAN BARRICK GOLD (ABG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 614p | MARKET VALUE: | £2.52bn | |
| TOUCH: | 612-614p | 12M HIGH / LOW: | 685p | 521p |
| DIVIDEND YIELD: | 0.8% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 370p | NET CASH: | $334m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2007 | 477 | 54 | na | na |
| 2008 | 541 | -157 | na | na |
| 2009 | 693 | 150 | na | na |
| 2010* | 897 | 247 | 51.0 | 64.0 |
| 2011* | 1066 | 419 | 67.0 | 8.0 |
| % change | +19 | +70 | +31 | -88 |
NMS: 850 Matched bargain trading *Numis Securities estimates £1=$1.584 | ||||
ABG has seven principal exploration prospects in Tanzania at various stages of development and is increasing its exploration programme over its extensive acreage. The acquisition of Tusker Gold for $74.2m (£46.8m) brings the company full control of the Nyanzaga project, which management reckons is similar to the Buzwagi mine and could add significantly to production. The company is scheduled to complete 'scoping' studies (initial reviews of project viability) on Nyanzaga and three other projects over the coming year.
Cash costs were $529 per ounce in the six months to 30 June 2010, which is around the industry average. However, tight cost controls, combined with Buzwagi moving towards full production and the mining of higher grade ore at Bulyanhulu, should drive unit costs below the industry average.
Operating cash flow of $158m in the first half of 2010 boosted net cash at the half year to $334m. Add in the availability of more financing from Barrick Gold, and ABG has plenty of capital for acquisitions.
