Is Barrick Gold a Worthy Bet?

Barrick Gold (ABX) has reported continued year-over-year decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment, eating into margins of the company coupled with the rising mining expenditures.

However, Barrick Gold is enhancing its free cash flows even in a continuously declining commodity pricing environment with gold price having declined notably to $1,125 in third quarter of 2015 from the key gold price of $1,669 during the fiscal year 2012 and primarily driven by significant cash flow proceeds from the strategic Pueblo Viejo operations.
Barrick is also keen on optimizing its debt-laden balance sheet by reducing AISC for the complete fiscal year 2015 by approximately 16% in the current range of $830 to $870, down from the earlier defined expense range of $860 million to $895 million and in line with its continued commitment to minimize non-core expenses while delivering impressive shareholder returns.

Will Barrick improve?  

Barrick estimates to achieve $3 billion worth of debt reduction goal with significant free cash flows and notable proceeds from the strategic Zaldívar mine. Total debt reduction of approximately 15% has been achieved till date during 2015 on closure of the key tender offer. Lesser than $250 million of debt is due prior to 2018 and nearly $5 billion of net debt is believed to mature post 2032. The key cash flow enhancements and notably positive credit asset sales are together improving net debt-to-EBITDA ratio. About $3 billion of debt minimization is estimated to lower annual interest expenditure by approximately $140 million with nearly $4 billion of undrawn credit facility.

The cost minimization approach of Barrick in addition to year-over-year improvement in the company’s high-quality gold production is expected to drive long-term sustainable growth for the company while delivering notable shareholder returns.

The long-term growth outlook for key metals such as gold, silver and copper seems well-established with gold and silver estimated to continue to act like counter-cyclical hedges and taken as safest commodities to invest in hard recession periods or significant inflation, doubtful monetary policy. Although, investor sentiments have declined for investments into gold since 2011 but, this declining trend wouldn’t continue eternally.

According to Bloomberg recent data analysis, 14 major investors have bought a significant 26.8 metric tonnes of gold in just five days since January 14 through exchange traded funds which is materially supported by the key metals, the highest expansion in one year.

The longer term growth prospects of the key metals mining industry seems hugely positive with the steadily improving investor sentiments globally regarding investments into core commodities such as gold, silver and copper which is expected to drive sustainable long-term expansion for Barrick Gold.

Barrick has recently declared sale of non-strategic assets in Nevada for approximately $720 million all in cash that includes, the company’s 70 percent ownership in the Spring Valley project, 50 percent ownership in Round Mountain mine, 100 percent ownership of the Ruby Hill mine and 100 percent ownership in the Bald Mountain mine project.

Barrick is focused on offering notable shareholder returns by utilizing the proceeds from sale of non-core assets and in line with its continued commitment to deliver improved shareholder returns.

TheStreet Ratings team rates Barrick Gold Corp as a “Sell” with a ratings score of ‘D’ and primarily driven by several of the company’s weaknesses which are believed to outweigh any of its key strengths. The company's major weaknesses are observed in several areas, like declining net income, usually higher debt management risk, poor return on equity and normally weaker historical stock price performance.

The consensus estimate among 26 polled investment analysts evaluating Barrick Gold Corp. suggests that the company would outperform the market. This consensus estimate is maintained since the investment analyst’s sentiments got better on Jan 19, 2016. The earlier consensus estimate suggested investors to hold their position in the company.

There’s a mix of analyst’s sentiments regarding the growth prospects of the company some indicating strengths while other weaknesses and thus making it difficult for the investors to make the right investment decision.


Overall, the investors are advised to “Hold” their position in Barrick Gold Corporation considering significant growth prospects of the company, given steadily improving global commodity demand and pricing environment while, weaker company’s balance sheet with significant total debt of $12.32 billion against weaker total cash position of $3.32 billion only, restricting the company to make future growth investments. The profit margin of -32.98% seems disappointing and indicates no profit but loss. The PEG ratio of -0.98 signifies no growth but decline.
Published on Mar 25, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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