Barrick Gold Corp. (ABX, Financial) will release its third quarter results after market close on Oct. 26.
For the third quarter of 2016, analysts estimate an average earnings per share of 21 cents, approximately up 91% from the same quarter a year ago. Analysts estimate an EPS range between 25 cents (high) and 14 cents (low).
Source: Yahoo Finance
If analysts forecast a significant increase of EPS, the same thing cannot be said about the revenue. For the third quarter, analysts estimate a 3.70% decline on year-over-year basis of revenue. The average estimate is $2.23 billion and ranges between a high of $2.43 billion and a low of $2.04 billion.
Source: Yahoo Finance
If analysts' expectations are correct, an increase in EPS despite a decline in sales compared to the same quarter last year can be explained by the increase in the price of gold and is therefore an improvement of Barrick's gold margin.
The average quarterly price of gold in the third quarter was $1,334.932 on the London bullion market, a jump of $209.936 per troy ounce, or +18.7%, compared to the same quarter in 2015.
What can we expect from third quarter 2016 operations?
If in third quarter 2015 Barrick produced approximatley 1.66 million ounces of gold at an all-in sustaining cost (AISC) of $771 per ounce when the gold price was $1,124.996 per troy ounce (-12.4% year-over-year) on the London bullion market, Â than in the third quarter when the average price was $1,334.932 per ounce (+18.7% year-over-year), Barrick may have produced more than 1.66 million ounces of gold at an AISC between $782 and $790 per ounce, taking into account the Canadian miner's first half operating results and fiscal year 2016 gold production and costs guidance. For 2016, Barrick expects to produce between 5.0 to 5.5 million ounces of gold at an AISC between $750 per ounce and $790 per ounce. The company expects the AISC “to be highest in the third quarter, reflecting a shift in the timing of certain sustaining capital expenditures to the second half of the year,” according to the latest financial report.
Barrick lowered its 2016 capex's guidance to $1.25 billion to $1.40 billion from $1.35 billion to $1.55 billion at the end of the first quarter, which is below its original guidance range of $1.35 billion to $1.65 billion.
Thanks to a +18.7% year-over-year basis of gold price, the gold margin may be between $545 and $553 Ă‚ per ounce, at least 56% more than the gold margin in the third quarter of 2015. Therefore, substantial increases in the cash flow from operations and free cash flow are also expected.
The twelve-day suspension of the Veladero mine from a cyanide spill on Sept. 8 is not considered to have had an impact on overall quarterly production, as Barrick may have offset the decrease in Veladero's production by increasing production at Goldstrike, Cortez and Turquoise Ridge.
As of today, the analysts' recommendation rating is 2.6. The rating ranges between 1.0 (Strong Buy) and 5.0 (Sell). Thirty-nine percent of analysts recommend to hold this gold stock; 25% of analysts consider Barrick a buy.
The average price target is $22.57. The price ranges from a high of $28.60 and a low of $13. Its current price is $16.92.
The company's successful strategy to strengthen its balance sheet through debt reduction has been the driving factor behind analysts' estimates on Barrick's target price and buying recommendations.
Barrick is successfully achieving a debt reduction target. In 2015, the miner reduced the debt by $3 billion and plans to further reduce it by another $2 billion in 2016. Additional cash will come from the sale of Ă‚ the company's stake in the Kalgoorlie mine, plus the potential divestment of other assets (64% stake in Acacia, 50% stake in Zaldivar, the copper mine in Chile and the Lumwana copper mine in Zambia) and from a total of $2.4 billion in cash and equivalents. According to analysts at TD Securities, Barrick could use part of its cash and equivalents, together with incoming free cash flow, to cut its overall debt to $5 billion in 2017.
Approximately 56% of the company's outstanding debt of $8.8 billion matures after 2032.
At the moment, the enterprise value/EBITDA is 7.07 and the price/book (mrq) is 2.69.
Disclosure: I have no positions in Barrick Gold Corp.
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