S&P Global Ratings has upgraded the long-term corporate credit of Barrick Gold Corp. (ABX, Financial) to a rating of BBB from a previous rating of BBB-. The new rating indicates a stable outlook for the Canadian gold company.
The upgrade is preceded by another rating increase: On March 1, Moody’s Investors Service upgraded Barrick Gold Corp’s long term corporate credit to a Baa2 rating.
S&P said the rating was due to “improvement in Barrick’s financial risk profile following sustained strength in the company’s earnings and cash flow over the past two years alongside material debt repayment.”
The S&P highlighted the cost profile of the Canadian miner and observed that “Barrick’s cash cost position, estimated in the mid-$500 per ounce (net of byproduct revenues) in 2018, is in the lower half of the industry's cost curve and more advantageous than that of most of its closest competitors over the past few years.”
In three years, Barrick Gold has cut in half its debt load of $6.4 billion, as of Dec. 30, 2017. Of that, more than 75% matures in 2033 and approximately $1.3 billion is due between 2020 and 2032. A portion of $100 million matures earlier than 2020.
The company aims to further trim the debt to approximately $5 billion before the end of the current fiscal year.
To reach this target, the company will mainly use cash on hand, which was approximately $2.23 billion on Dec. 30, 2017 and operating cash flow. Further optimization of its portfolio of assets will also be an option.
Barrick also says that it “will continue to pursue debt reduction with discipline, taking only those actions that make sense for the business on terms favorable to the vompany’s shareholders.”
GuruFocus says that the overall financial strength of Barrick Gold Corp can be summed up with a 5 in 10 rating. That is a result of an interest coverage of 4.84, which is well beyond the 1.5 threshold (here the higher the better); a debt to revenue ratio of 75.3% versus an industry of 58.1% and an Altman Z-Score of 0.82. When the Altman Z-Score is less than 1.81, it means that the company is in a distressed zone. However, take that with a grain of salt since the Barrick Gold Corp’s financial burden is characterized by a comfortable repayment schedule. Furthermore, the company has more than ample liquidity and an over than industry average operating profitability. Those two things, perhaps supported by a favorable commodity in 2018, are crucial for debt reduction.
Barrick Gold Corporation closed at $12.17 per share after regular hours trading on March 22 on the New York Stock Exchange. There was a 1.46% drop from the previous trading day with a volume of 13,281,265 shares traded versus an average volume of 13.07 million shares traded over the last 10 days. For the three months through March 22, an average 13.28 million shares volume was traded.
Barrick Gold Corp is up trending again since the beginning of March. But for the 52-weeks through March 22, the stock lost 37% underperforming the Van Eck Vectors Gold Miners ETF (GDX) by 31%.
The gold stock is still trading below the 50, 100 and 200-SMA lines. The 52-week range is $11.07 to $20.36 per share.
Other indicators on Barrick Gold Corp tell that the price-book ratio is 1.56 times versus an industry median of 2.06 times and the EV-to-Ebitda ratio is 4.07 times. The industry has a ratio of 9.9 times.
The Ebitda margin, based on Ebitda on revenue over the trailing 12 months, is 59.2%. That is an indicator of Barrick Gold Corp’s operating profitability. The industry has a median of nearly 25%. In 2017 gold averaged $1,257.12 per troy ounce on the London Bullion Market. While year-to-date the bullion is already at $1,328.42 an ounce, Barrick Gold Corp’s ability to produce return also depends on copper for approximately 10% to 15%. Copper Futures averaged $2.806 per pound in 2017. The contract through which the base metal is negotiated is up-trending and averaging $3.161 per pound year-to-date.
The Relative Strength Indicator (14-days) is 44.41 of a 30 to 70 range.
The recommendation rating is 2.8 and the average target price is $16.18 per share. A total of 24 analysts produced recommendations on Barrick Gold while 21 commented on the price target.
(Disclosure: I have no positions in any security mentioned in this article.)
