For the quarter, Barrick reported EPS of 22 cents, a 175% increase from the comparable period of 2015. It beat expectations by two cents. Analysts estimated EPS to be 20 cents on average, ranging between a low estimate of 11 cents and 27 cents. The difference between the actual EPS and the estimate produced a positive surprise of 10%.
For the year, the miner generated $818 million in earnings, or 70 center per share, a 137.8% increase on a year-over-year basis.
The company attributed the improvement in adjusted earnings to "higher gold and copper prices, higher gold and copper sales volumes (excluding the impact of divested sites) and lower operating costs.”
Concerning revenue, the world’s largest gold producer generated sales of approximately $2.32 billion, a 3.6% increase on a year-over-year basis. Barrick beat the expectations on revenue by $5 million. Analysts forecasted revenue of $2.27 billion on average for the year.
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The company produced 5.52 million ounces of gold in 2016, a 9.8% decrease on a year-over-year basis, at cost of sales applicable to gold of $784 per ounce and at an all-in sustaining cost of $732 per ounce.
Gold production for the year was slightly lower than the upper limit of the guided production. Barrick guided between 5.25 and 5.55 million ounces of gold for the year.
The company's copper production for 2016 was 415 million pounds. This represents an 18.8% decrease on a year-over-year basis, but is in line with the guidance of 380 million to 430 million pounds.
Full-year cost of sales was $1.43 per pound of copper, in line with the guidance range of $1.35 to $1.55 per pound. The AISC of $2.05 was within the guidance range of $2 to $2.20 per pound.
In 2016, the cash flow generated from operations was $2.64 billion, leading to free cash flow of $1.51 billion after capital expenditures of $1.13 billion. Out of the funds for capital expenditures, $977 million was used for mine maintenance and $145 million was used for project advancements.
The Canadian gold producer closed fiscal 2016 with $2.4 billion in cash and securities and $7.9 billion in total long-term debt. Barrick is one of the most indebted gold mining companies in the industry, with a long-term debt to equity ratio of 111.55 versus the industry average of 37.47. Approximately $5 billion of the total long-term debt will mature after the end of 2032. Less than $200 million in debt will mature before 2019. Approximately $2.7 billion in debt can be easily repaid by the company between 2019 and 2032.
Starting in 2013, Barrick gradually began reshaping its debt, making it more affordable to cover through its debt reduction strategy. The company has been able to cut its total outstanding debt with cash generated from operations and the proceeds generated from the sale of noncore and high-cost assets.
During 2016, the company said that "it reduced its total debt by $2.04 billion, or 20%, slightly exceeding its $2 billion target for the year” and it “intends to reduce its total debt by $2.9 billion, to $5 billion, by the end of 2018—half of which the company is targeting in 2017.”
Barrick achieved this target using cash flow generated by its operations. Debt reduction remains a top priority for 2017 as the company aims to strengthen its balance sheet further.
As of Dec. 31, 2016, Barrick had 2,006,898,000 tonnes of gold ore in proven and probable mineral reserves grading at 1.33 g/t. It also had 449,379,000 tonnes of copper ore grading at 0.598% in proven and probable mineral reserves. The gold mineral reserves contain 85,950,000 ounces of gold and the copper mineral reserves contain 5,920.9 million pounds of copper.
Proven and probable reserves are those resources that have demonstrated economic viability.
For 2017, Barrick has guided production of 5.60 to 5.90 million ounces of gold at cost of sales of $780 to $820 per ounce and an AISC of $720 to $770 per ounce.
Barrick distributed an annual dividend of eight cents through quarterly payments of two cents. The quarterly dividend has been increased 50% to three cents for a dividend yield of 0.62%.
Barrick Gold closed at $19.32 yesterday, up five cents or 0.26% from the previous close, with a price-sales (P/S) ratio of 2.65 and a price-book (P/B) ratio of 2.99. The enterprise value is $28.41 billion and the EV/Ebitda ratio is 7.04.
Since gold is not expected to trade over $1,250 per ounce during the first six months of 2017, Barrick is currently the best bet in the gold stock industry. It can mine gold for the lowest operating cost in the industry and can economically mine gold from its reserves at $1,000 per ounce.
The prevailing recommendation rating on Barrick Gold is between hold and buy. The average price target is $19.92, a 3.1% upside from the current share price. The target price ranges between a low of $13.77 per share and a high of $25.25 per share.
Disclosure: I have no positions in Barrick Gold Corp.
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