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Two Big Challenges for Barrick Gold Corporation (USA) (ABX) Earnings

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Barrick Gold Corporation (USA) (NYSE:ABX) will release its quarterly report on Thursday, and with the entire industry having gotten hit hard by the recent plunge in gold prices, it’s no surprise to have seen the stock drop sharply in the past few months. Yet gold prices aren’t the only thing that will affect Barrick Gold Corporation (USA) (NYSE:ABX) earnings, with some other bad news potentially posing more of a long-term threat to the company.

Barrick Gold Corporation (USA) (NYSE:ABX)

Barrick Gold Corporation (USA) (NYSE:ABX) is one of the largest gold producers in the world, and with its relatively low costs of production, the company is in a better position than many to withstand the drop in gold prices and the corresponding impact on revenue. But the company faces a big threat to a major mining asset that could have a ripple effect on production expectations for years to come. Let’s take an early look at what’s been happening with Barrick Gold Corporation (USA) (NYSE:ABX) over the past quarter and what we’re likely to see in its quarterly report.

Stats on Barrick Gold

Analyst EPS Estimate $0.56
Change From Year-Ago EPS (28%)
Revenue Estimate $3.1 billion
Change From Year-Ago Revenue (5.4%)
Earnings Beats in Past 4 Quarters 2

Source: Yahoo! Finance.

How badly will Barrick Gold earnings get hurt this quarter?
Analysts have cut their views recently on Barrick Gold Corporation (USA) (NYSE:ABX) earnings, with a dime-per-share drop in June-quarter estimates looking small in comparison to markdowns of 25% on full-year 2013 figures and an even greater percentage cut in next year’s earnings. The stock has predictably moved lower, falling by another 7% since late April even after the stock had already posted substantial losses.

Gold’s declines sent the entire industry reeling, but Barrick Gold Corporation (USA) (NYSE:ABX) is in a strong position to survive the plunge. Barrick’s size has helped it keep all-in cash costs of production at low levels, comparing favorably to rival Newmont Mining Corp (NYSE:NEM) and even low-cost leader Goldcorp Inc. (USA) (NYSE:GG) , according to a recent Visual Capitalist report. Those low costs will allow Barrick to remain profitable even as other higher-cost producers face the prospect of having to shut down.

But the big problem that Barrick has faced involves its Pascua-Lama mining project in South America. Back in May, regulators in Chile fined Barrick for alleged violations of its environmental permit, and while those fines were minimal at just $16 million, the regulator also said that further construction work on the project would have to stop until the company builds systems to handle contaminated water. Then earlier this month, an appeals court formally suspended all work, forcing the company to predict further delays of initial production beyond its late-2014 forecast until mid-2016. With Pascua-Lama having 18 million ounces of proven and probable gold reserves and 676 million ounces of silver, the setback has huge implications for Barrick’s long-term results.

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