Is Barrick Gold Rally Now Dead?ABX), IAMGOLD (IAG), etc have all vastly outperformed the market this year and I expect this trend to continue. While investors may be looking to cash in on the recent rally, I think the stocks have more upside. Barrick Gold is still my favorite pick from the sector and the reasons for the same are mentioned below.
The primary reason behind Barrick Gold success is the rally in gold prices, which presently trade at 12-month high after surging around 20 percent compared to the lows observed in December 2015.
During the times of economic instability, one safe way is to invest in gold and this has been a significant driver for demand.
Keeping in mind that gold futures have surged at a stable rate, it is projected that prices will linger to escalate in the long-term, and higher demand will play a significant role to support the surge in prices. The World Gold Council has robust growth projections due to the prospects in India and China.
Apart from this, in 2015, Barrick Gold successfully managed to cut its all-in sustaining costs by around 4 percent to $831 per ounce. This decline in costs was possible due to drop in operating costs and corporate overheads. On the other hand, Barrick accomplished positive cash flow at the time when gold prices plummeted approximately 10 percent during the movement of 2015.
Barrick Gold is also focused on reducing its debt and interest outlays, as this will have a progressive influence on its earnings performance in the long-term. In 2015, the company paid around $3 billion of its total debt via a combination of free cash flow and assets sales.
As a consequence of debt decline, the company has managed to decrease its interest expenditure by $135 million for this year. If Barrick Gold endures and performs at the same pace, the company will be able to carry on decreasing its interest outlays. As per RBC, the company is capable of lessening its debt by $4.5 billion in 2016.
Barrick Gold has many things going for it. Increasing gold prices along with reducing expenses bode well for Barrick Gold longs going forward. Given the positives, I think Barrick Gold’s rally is still sustainable and investors should continue holding the stock in their portfolio.
Published on Apr 12, 2016By Akshansh Gandhi