Barrick Gold Is Making Stunning Progress

Gold stocks have outperformed the market this year as the likes of Barrick Gold (ABX) have staged an impressive turnaround and are up considerably this year. In fact, Barrick Gold is up over 300% from its 52-week low levels. I have been bullish on Barrick Gold this year and although the company has rallied strongly, I think it has more room to run. Thus, I think Barrick Gold is a buy at current levels.

A good quarter

Barrick Gold reported its Q2 earnings last month, missing the analysts’ estimates on both earnings and revenue.
During the quarter, Barrick Gold produced 1.34 million ounces of gold, down from 1.45 million ounces it produced in the corresponding quarter of last year. That being said, Barrick Gold did benefit from the 5.8% increase in realized price to $1,259 per ounce. The company’s revenues, however, fell 10% to $2 billion, missing analysts' estimate by $60 million. The company's earnings jumped considerably from $0.05 to $0.14 per share, but still marginally missed the analysts' expectation of $0.15 per share.

At first look, Barrick Gold’s earnings may seem disastrous as it missed the consensus on both revenue and earnings. However, if you dig deeper into the report, you’ll notice that Barrick Gold is actually making great progress. Barrick Gold is a highly-leveraged company as its growth was fueled by acquisitions.

However, Barrick Gold made the most of the debt-fueled acquisitions just before gold prices crashed. Now that the gold prices are recovering, it is important for Barrick Gold to not repeat the mistakes of the past and continue reducing debt. Barrick Gold’s management has taken a firm stance on reducing its debt. Not so long ago, Barrick Gold’s debt towered over $10 billion. However, the company has managed to bring it down to $9 billion after having paid off $968 million this year.

The company plans to capitalize on the high gold prices by reducing debt consistently and aims to slash it further by $1 billion this year. A $2 billion reduction in debt will be in-line with the company’s guidance and will significantly improve the company’s balance sheet going forward.

Although there’s still a long way to go before Barrick Gold improves its financial condition, I think the consistent progress will be reflected in the share price.

Conclusion

Despite the fact that Barrick Gold has racked up over 200% gains in 2016, I think the stock still has more upside to offer. Increasing profitability will help the company repay its debt, which will be beneficial for investors in the long run. Thus, I think Barrick Gold is still a buy.
Published on Aug 5, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...