Buy Barrick Gold to Benefit From Copper

Barrick Gold (ABX) hasn’t turned in a good performance on the stock market this year due to the weakness in gold pricing, but gold is not the only driver that can help the company improve. If we take a closer look, Barrick Gold can also benefit from an uptick in the copper market.

Copper prospects will help Barrick Gold

Barrick is increasing its copper production at its Zaldívar and Lumwana mines in Chile and Zambia. The company has increased its copper guidance to 480-520 million pounds during the third-quarter, as compared to its original guidance of 310-340 million pounds at the start of the year.

This growth in copper production at a lower price should drive its growth in the future, as it expects its C1 cash costs to be in the range of $1.60-$1.85 per pound, down from $1.75-$2.00 per pound, driven by currency impacts and improved costs at Lumwana.
So, lower costs due to its focus on better mines will allow Barrick Gold to improve its margins and take advantage of an improvement in copper pricing going forward.

This is because the copper market is expected to turn toward a deficit as there are not enough mines online to provide for the expected increase in growth in the end market. This is due to falling grades and the lack of funding to search for new mines. Hence, Barrick is in a strong position to benefit from better end-market conditions in the future.

Conclusion

Barrick Gold is taking significant steps to improve its operational performance through various cost cutting initiatives. These initiatives are improving its cash flow that should allow the company to pay of its debt. It has total debt of $12.32 billion, but the company plans to bring this debt down to $10.1 billion by the year end. It plans to use the proceeds from the sale of its Zaldívar to pay off its debt. Its balance sheet carries total cash of $3.32 billion and has operating cash flow of $2.47 billion for the trailing twelve months.
Published on Nov 10, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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