Barrick Gold Corp. (ABX, Financial)(TSX:ABX, Financial) announced its preliminary operating results for full-year 2016 on Wednesday.
The company produced 5.52 million ounces of gold in 2016, a 9.8% decrease on a year-over-year basis and 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.
Cost of sales applicable to gold is expected to be at the lower end of the $800 to $850 per ounce guidance range.
Concerning full-year all-in sustaining costs (AISC), the company expects to be at or below $740 per ounce of gold. Guidance for AISCs was between $740 to $775 per ounce of gold.
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.
Barrick said full-year cost of sales applicable to copper is expected to be $1.35 to $1.55 per pound, with an AISC of $2 to $2.20 per pound.
Complete operating and financial results for full-year and fourth-quarter 2016 will be released by the company on Feb. 16.
For the fourth quarter, analysts estimate Barrick will generate EPS of 19 cents. This figure ranges between a low estimate of 11 cents and a high estimate of 27 cents.
Source: Yahoo Finance
With gold trading at $1,221.707 per troy ounce on the London Bullion Market, an 8.3% decline from the previous quarter, it is likely Barrick will generate EPS of approximately 15 cents or lower.
Furthermore, expenses to maintain the condition of mine sites are expected to be between $280 and $330 million, 22% higher than the prior quarter (see table below).
Source: Barrick Gold Corp.’s quarterly reports, FED Bank of Saint Louis, Investing.com and Yahoo Finance.
I think the company will generate EPS in line with second-quarter 2016 even though the world’s largest gold miner produced more in the last quarter of the year. In addition, the realized copper price per ounce will be higher in the fourth quarter compared to prior quarters.
Moreover, considering a ratio between gold revenue and copper revenue of 4:1, the analysts’ estimate on total revenue and the average price of gold and copper on the markets over the last quarter, I estimate the miner sold approximately 176 million pounds of copper. This figure is unlikely, however, because Barrick sold 50% of its Chilean copper mine, Zaldàvar, to Antofagasta PLC (LSE:ANTO) in December 2015.
Before the transaction, production from Zaldivar accounted for approximately 43% of the company’s total copper production for 2015.
Therefore, I expect a negative surprise of approximately 20% in EPS from the last quarter of 2016. Consequently, this can have a significant impact on the market value of the stock.
Barrick Gold is currently trading at $17.77, down 30 cents or 1.6% from the previous close, with a price-sales (P/S) ratio of 2.48 and a price-book (P/B) ratio of 2.76. The enterprise value is $26.94 billion and the EV/Ebitda ratio is 6.68.
Since gold is not expected to trade over $1,250 per ounce during the first six months of the year, Barrick represents 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 $19.82, a 9.7% upside from the current share price. The target price ranges between a low of $13.51 per share and a high of $28.15 per share.
Disclosure: I have no positions in Barrick Gold Corp.
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