Will Barrick Gold Continue Inching Upward?

Miner has the best-in-breed all-in sustaining cost

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Feb 22, 2017
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Among all the gold miners, Barrick Gold Corp. (ABX, Financial) has done a commendable job of reducing its capital expenditures, enhancing production in significant mines and streamlining its operations. Because of this, the miner has been able to grow well while other miners were struggling to survive in the feeble environment.

The miner’s downturn started at the beginning of 2014 mainly due to the flagging gold price and frail balance sheet. However, the company positively turned around its fate in 2016 as the stock was up approximately 100%. Moreover, the stock continues to show positive momentum this year; it is up nearly 20% year to date.

Recently, Barrick Gold reported strong fourth-quarter results. The company successfully managed to surpass analyst estimates on both the bottom-line and top-line front. The miner shared earnings per share of 22 cents, 2 cents more than the estimates; its revenue came in at $2.32 billion, $50 million more than the estimates.

The company’s primary goal is to escalate its free cash flow per share, irrespective of the gold price. In 2016, the company produced a record level of yearly cash flow of $1.51 billion. Although the gold price surged just 8% in the prior year, Barrick Gold managed to improve its free cash flow by 221%. That figure clearly reflects the miner’s ability to thrive in the weak gold price environment.

Moving onward, Barrick Gold has turned itself into one of the lowest cost gold miners. In fiscal 2016, the miner managed to substantially reduce its all-in sustaining cost (AISC) as its AISC came in at just $730 per ounce, down considerably from $831 per ounce in fiscal 2015.

Most significantly, the company paid $600 million in debt repayment in the prior quarter and kept its promise of reducing its debt by $2 billion in 2016. Despite having a comparatively weak balance sheet, the company managed to substantially decrease its debt load which is worth noticing.

The miner has a debt of approximately $8 billion on its books which the company plans to reduce by nearly $3 billion in the next two years.

Conclusion

Although Barrick Gold delivered huge returns to investors in 2016 its future prospects still look bright. One of the most significant things that make it a better option compared to its rivals is its best-in-breed all-in sustaining cost.

Moreover, the miner has additional plans to further reduce its AISC which will help it survive in the feeble gold price environment. Investors should hold the stock for long-term future gains.

Disclosure: I don't hold a position in the stock mentioned in this article.

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