Barrick Gold Corp. (ABX, Financial) will release its operating and financial results for the second quarter of fiscal 2017 after the market closes on July 26.
For the second quarter, analysts forecast the world's largest gold producer will post adjusted EPS of 18 cents on average. This estimate is the average of 18 analysts surveyed and represents a 28.6% increase from last year. Estimates ranged between a low of 14 cents and a high of 27 cents.
Source: Yahoo Finance
Ă‚ Second-quarter revenue is forecasted to come in at $2.08 billion on average.
Source: Yahoo Finance
The revenue estimate is the average of six analysts surveyed. Revenue estimates range between a low of $1.99 billion and a high of $2.29 billion. The estimates also reflect a 3.2% increase from the comparable quarter of 2016.
According to my method of estimating Barrick Gold’s earnings for the second quarter, which is calculated using the information in the table below, I forecast the company will close the quarter with EPS between 15 and 16 cents. Therefore, the Canadian miner will miss analysts’ expectations by two to three cents, generating a negative surprise between 11% and 17%.
My reasoning is based on a key concept: how much the company earns per ounce of gold sold (gold price per ounce minus the all-in sustaining cost (AISC) per ounce). According to my calculations, the current gold margin per ounce yields earnings of 25.53%. That means 25.53% of the gold margin per ounce of the metal sold drops to the bottom line of the income statement as adjusted earnings per ounce of gold.
The gold margin per ounce is calculated based on the average realized gold price and the AISC Barrick reported at the end of the second quarter of fiscal 2016. Then, I divided the earnings per ounce of gold sold (actual EPS of 14 cents by 870 ordinary shares) by the gold margin per ounce.
Approximately 870 ordinary shares of Barrick Gold equaled one ounce of gold in second-quarter 2016. This figure is based on the production the miner reported at the end of that quarter. Therefore, investing in 870 shares of Barrick Gold during the second quarter of 2016 was like buying one ounce of gold.
Applying the same percentage (25.53%) for the second quarter of 2017 to the average gold price and Barrick's guidance for the quarter, I obtain an earnings figure ranging between $124.59 and $137.35 per ounce of gold sold. Dividing this figure by 847 ordinary shares (gold production forecasted for the second quarter divided by the volume of shares outstanding), I obtain an EPS estimate ranging between 15 and 16 cents. This is a two to three-cent difference from the EPS of 18 cents forecasted by analysts.
In my estimates, I only consider gold because copper represents only a small percentage of the company’s business and approximately 8% to 9% of the miner’s total revenue. The income generated from copper can variate my estimates by one to 1.5 cents.
For the second quarter, Barrick Gold is expected to produce approximately 110 million pounds of copper at an AISC between $2.10 and $2.40 per pound. The price of copper averaged around $2.58 per pound in the second quarter of 2017.
As of the most recent quarter, Barrick had $2.28 billion in cash and $7.75 billion in total debt, which leads to a total debt-equity ratio of 69.96 versus an industry average of 50.07.
The interest coverage ratio of 1.66 is above the threshold of 1.5, suggesting it is able to cover interest expenses on outstanding debt.
GuruFocus gives Barrick a financial strength rating of 5 out of 10 and a profitability and growth rating of 6 out of 10.
Barrick Gold is currently trading around $15.43 per share with a market capitalization of $16.56 billion, a price-book (P/B) ratio of 2.10, a price-sales (P/S) ratio of 1.92 and an EV/Ebitda ratio of 4.78.
The analysts’ average target price per share is $20.25, ranging between a low of $15 and a high of $24.23. The recommendation rating is 2.6 out of 5.
According to the EVO (enterprise value to one ounce of gold reserves), the financial markets value one ounce of proven and probable gold reserves at $312.04.
When the EVO metric is considered, Barrick Gold is cheaper than Goldcorp Inc. (GG, Financial) but more expensive than Newmont Mining Corp. (NEM, Financial).
Disclosure: I have no positions in any stock mentioned in this article.
