Is Expecting More Gains From Barrick Gold Greedy?

Gold stocks have proven to be winning investments in 2016. With the likes of Barrick Gold (ABX) already up close to 150% year to date, many investors may be looking to book profits. But, there are many reasons why Barrick Gold’s rally can continue, and investors should continue holding onto the stock despite massive gains.

Significant moves

Earlier this month, Barrick Gold reported its first quarter results. The company’s gold production declined to 1.28 million ounces from 1.39 million ounces a year before.
Moreover, Barrick Gold’s top-line came in at $1.93 billion, a drop of $0.32 billion, while the company swayed to a net loss of $83 million as compared to a profit of $57 million a year ago period. Although the figures are quite disappointing, the company still has a lot of potential to overcome this short-term problem.

Due to the substantial drop in production and frail gold prices, Barrick Gold’s revenue has been falling for quite some time. As a matter of fact, the company’s revenues have plunged for the past three sequential years. However, the company endures to make outstanding progress in its cost cutting and debt reduction struggles.

Furthermore, Barrick Gold plans to pull down its all-in sustaining costs in the range of $775-$825 per ounce from $915 per ounce three years before. When it comes to the lowermost AISC, Barrick Gold holds a leading position with a midpoint AISC of $785 this year. The company decreased its AISC by $15 on both its top as well as bottom end of its projections in the first quarter.

In 2015, Barrick Gold sold off its non-core assets, so as to decrease its leverage.  Apart from this, the company has also planned to reduce its debt by around $3 billion. At present level, the company is not only profitable in around $1,000 per ounce gold rate situation, but is also producing free cash flow, and this is an outcome of its cost cutting efforts.

The company has also effectively reduced its capex and overhead costs, and anticipates spending in the range of $1.35 billion to $1.55 billion, considerably lower on the upper hand as compared to its prior projection three months before.

Moreover, Barrick Gold is expected to carry on delivering profits and free cash flow. The enhancement in cost profile, gold price environment, and debt reduction should have a progressive influence on the company’s valuation. I wouldn’t be surprised if the stock sustains its rally throughout 2016, which is why I think investors should not let go of their Barrick Gold holdings.
Published on May 31, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

Posted in ...