Is Barrick Gold's Rally Now Dead?

Gold prices have been on the up in 2016, and gold stocks have reacted accordingly. Barrick Gold (ABX) has outperformed the market by a wide margin and is up almost 80% year to date. While some investors may consider the recent uptick a dead cat bounce back, I think the rally is here to stay and investors betting on the precious metal will be rewarded in the long-run.

Cost Cutting actions

According to the recent quarter, Barrick Gold stated its gold production touched 6.12 million ounces of gold, which came at the lower range of the latest reviewed guidance.
In terms of production costs, Barrick Gold has implemented well and strapped down its all-in sustaining costs or AISC to 831 per ounce of gold. For the previous year, gold price fell by around 8 percent on a yearly basis while AISC by 4 percent. Therefore, Barrick’s margin by ounce of gold still tapered by approximately 4.5 percent.

In spite of the recent rally of the gold price, the company still strategies to reduce gold production by approximately 14 percent. But this has not curtailed the recovery of Barrick Gold that ascended more than 35 percent during the last month.

Barrick Gold again decided to cut its production costs, as it will help the company to increase its margins in the forthcoming years and moderately balance the negative influence gold prices could have on its net earnings.

Moving onward, Barrick Gold’s AISC is likely to fall again in 2016 to a mid-point of $800 per ounce of gold. Regardless of decline in AISC, the Barrick Gold apportioned approximately 1.5 billion towards its capital spending, which is not far of its capex compared to 2015.

Barrick Gold, after reducing its debt by $3.1 billion in 2015, is planning to cut it down further by $2 billion this year. The amount required to pay down debt will be achieved by selling assets and from its operating cash flow. The main aim of the company is to reduce its debt from around $10 billion to $5 billion in the coming years. It will be a difficult target to achieve if gold prices does not sustain to rally.

However, I am bullish on the gold prices and expect Barrick Gold to continue moving higher while meeting its targets. For this reason, I think investors should buy Barrick Gold despite the recent rally.
Published on Mar 15, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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