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Harsh Jain
Harsh Jain
Articles (150) 

Barrick Gold Has Massive Upside Potential

Miner's low AISC makes it a better player compared to rivals

February 17, 2017 | About:

Barrick Gold Corp. (NYSE:ABX), the largest gold mining company globally, performed amazingly well in 2016 as the stock was up more than 100%. Moreover, the stock has displayed strong upward momentum heading into 2017. It is up approximately 25% year to date on the back of improving gold prices.

The primary factor behind the company’s amazing performance in 2016 was its aggressive focus on reducing its capital expenditure along with debt repayment. Throughout the past year, the company’s main priority was to rationalize its operations so that it could still generate considerable free cash flow even if the gold price plunged significantly.

Despite the fluctuating gold price, the company reported strong fourth-quarter results on Feb. 15. In the most recent quarter, the company detailed earnings per share of 22 cents, exceeding the analyst estimates by two cents. Revenue came in at $2.32 billion, again exceeding the consensus by $50 million. That figure represents a surge of 3.6% year over year.

Moreover, the company’s capital expenditures dropped to $1.12 billion, down from $1.71 billion in 2015, due mainly to dissociated non-core assets and reduced outlays at various operating mines.

As a matter of fact, over the past 12 quarters, Barrick's revenue has been declining at an average of nearly 15%. It finally managed to report positive growth in the fourth quarter. Furthermore, the company successfully turned itself into one of the lowest cost gold miners.

Among all the gold miners, Barrick Gold has the lowest all-in sustaining costs (AISC). In 2016, the company’s AISC came in at $730, down from $831 in 2015 and $864 in 2014. Moreover, it plans to further decrease the AISC in the years ahead.

Barrick Gold, with the help of its industry-leading AISC, managed to remain profitable during the tougher times of the year. Its profit margin currently sits at 44.7%, up from nearly 36% in fiscal 2015.

Furthermore, Barrick endures to reduce its debt load at a rapid pace. In 2016, the company repaid $2 billion in debt, which was driven primarily by selling its non-core assets.

Summing up

Although Barrick Gold surged more than 100% in 2016, it still has huge upside potential. In the gold mining industry, the company has the lowest AISC, making it a more efficient player compared to its competitors.

As an outcome, Barrick Gold appears to be in a great position to survive in a feeble gold price environment. Investors should hold the stock for long-term gains since its future prospects look healthy.

Disclosure: No position in the stocks mentioned in this article.

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GuruFocus has detected 2 Warning Signs with Barrick Gold Corp $ABX.
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