Has Barrick Gold's Rally Come to an End?

Gold stocks were in red during the previous year due to the weak precious metal prices. However, weak precious metal prices weren’t the only thing bothering the companies in the sector. Many of the companies in the sector are highly leveraged, and the downturn in prices made the situation a lot worse for them.

Gold stocks are up considerably this year, but it is important for investors to not repeat the mistakes of the past. In order to benefit from the gold recovery in the long run, investors should pick companies that are reducing their debt. Barrick Gold (ABX) is one such company.

Barrick Gold is up over 200% this year, however there are several other reasons to love the stock.
Barrick Gold has sold its assets to enhance its balance sheet. Furthermore, the company has successfully cut its debt by $4 billion since the end of 2014, and it plans to reduce another $2 billion by the end of 2016. Barrick Gold is doing a great job by massively reducing its debt, as it will allow the company to focus on other activities.

Barrick Gold has a huge advantage compared to its rivals, as the company’s cost of production are among the lowest in the particular industry. The company detailed that its all-in sustaining cost was $706 per ounce in the last quarter and the lowest in the past nine quarters. As an outcome, the production margin came in at $475 per ounce and was the highest too. Still, there are many miners who are struggling beyond the $1,000 mark, and even the surge in gold prices has not helped the company to make enough profit compared to Barrick Gold.

Barrick Gold is now shifting its focus towards exploration and mine development activities. The pipeline of projects proposes the potential to escalate free cash flow per share and speed up gold production at several mines such as Cortez. Barrick Gold’s decision to sell non-core assets, enhance its internal efficiency and productivity, and efficiently reduce its debt accounts for the primary reason of the company’s stunning growth.

Going forward, precious metal prices may not rise much, but Barrick Gold is definitely making the most of this surge by reducing its debt. The company is strengthening its long-term prospects by slashing its debt. The reducing interest expense is another plus and will be beneficial for the company in the long-run. Thus, I think Barrick Gold is the best stock to buy to profit from a further recovery in gold prices.
Published on Jun 24, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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