A Few Reasons Why You Can Still Buy Barrick Gold

Barrick Gold (ABX) has been a great performer so far this year, racking in gains of over 200%. However, it seems like Barrick Gold’s rally has cooled down as the stock has been trading sideways for the past few weeks. That being said, Barrick Gold recently reported a good quarter, and I reckon its rally should resume soon.

Q2 was a profitable quarter

Barrick Gold reported its second quarter results on 27th July. The company shared earnings per share of $0.14, $0.01 less than the consensus estimates.
Barrick Gold’s revenue came in short as well. At $2.01 billion in sales, Barrick Gold missed the consensus estimates by $60 million.

However, stockholders should notice that despite missing estimates on the revenue as well as EPS front, the most significant figure, free cash flow surged to $274 million in the second quarter making it the fifth successive quarter of positive free cash flow. This figure shows a surge of $93 million compared to that reported in first quarter.

As a matter of fact, Barrick Gold is making great progress. At present, the company’s major problem is meagre financial health. Barrick extended belligerently, through debt powered acquisitions, just before gold prices buckled. Although the company has sold interest in several mines to lessen its loans, it still accounted a debt of around $10 billion at the end of 2015.

The massive debt has certainly weighed severely on the Barrick Gold stock, exhausting its value. However, the company has successfully reduced its debt load as its net debt now sits at approximately $6.38 billion. Moreover, the company shared that it is on its way to decrease its total net debt by $2 billion this year after reducing it by $3.1 billion previous year.

As an outcome, the company’s cost profile is getting better successively which clearly means that it might report even better levels of free cash flow in the imminent quarters. Apart from these, Barrick Gold has recently decreased this year’s sustaining capital guidance by $125 million to the range of $1.1 billion to $1.2 billion, cash cost guidance by $5 per ounce to the range of $540 to $570 per ounce.

More significantly, Barrick Gold also shared that the company will explore the sale of its 64 percent stake in Acacia Mining. This is good news, as the company’s stake in Acacia is presently worth $1.9 billion grounded on Acacia’s market capitalization.

Given that Barrick Gold is reducing debt at a rapid pace, it should be able to meet its target this year. If this continues, Barrick Gold’s debt will become negligible in the next few years, which will boost the company’s earnings massively, making it a great pick for long-term investors.
Published on Aug 11, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

Posted in ...