Is the Barrick Gold Rally Coming to an End?

Over the last few months, Barrick Gold (ABX) has been one of the best stocks in the gold industry. I have been bullish on the stock for quite some time and my stance has yielded great returns. It is fairly obvious that Barrick Gold is gaining considerable profit from the gradually rising gold prices. On the other hand, the company is also taking various steps to decrease its overall debt by billions of dollars, as well as to reduce its yearly capital expenses to only comprise projects with superior ore yields. Given the tailwinds, the chances of Barrick Gold sustaining the current rally look really high, which is why I think investors should continue holding the stock.

Reducing debt

Barrick Gold is making the most of the gold rally as it is on its way to decrease its overall debt by $2 billion this year.
The reduction will aid the company to retain it cash flow positive exceeding $1,000 per ounce. In 2015, despite poor gold prices, the company generated free cash flow of $471 million, but in Q1 FY16 alone, its free cash came in at $181 million. It clearly suggests that the company’s performance is gradually increasing with the surging gold prices.

Despite the increasing gold prices, there are still several companies that are struggling to sustain in the industry, and to make considerable profit. Many of the Barrick Gold’s rivals are struggling to maintain their all-in sustaining cost at a level of more than $1,000 per ounce, whereas, Barrick Gold has the lowest estimated all-in sustaining costs at a midpoint of $785 per ounce. Surging average selling prices and declining costs could lead to astounding profits for gold firms and more so for Barrick Gold.

Bullish sentiment

Despite the rally, the market sentiment around Barrick Gold is still bullish. Goldman Sachs analysts recently upgraded Barrick Gold from buy to conviction-buy while increasing the 12 month price target to $27 from $23. Earlier this year, as per filings with the SEC (Security Exchange Commission), Soros Fund Management established a $19.4 million share stake in Barrick Gold Corporation.

With uncertainty surrounding the market’s future, gold has proven to be a safe haven for shrewd investors. Going forward, investors can expect gold prices to continue moving higher if the uncertainty surrounding the market prevails.

Conclusion

Improving gold prices are here to stay, at least for now. Barrick Gold is making the most of it by reducing debt and should benefit from its initiatives in the long run. Thus, I think Barrick Gold is still a buy.
Published on Jul 11, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

Posted in ...