Yahoo Finance Why Barrick Gold Is a Long Term Pick
- By Harsh Jain
Barrick Gold Corporation (ABX) performed amazingly well in 2016, as the stock almost doubled in 2016. Moreover, the stock is off to a decent start this year, as the gold price is also displaying strong upward momentum. Since Donald Trump was elected, the dollar has been strengthening, which is obviously a bad sign for gold stocks.
However, Barrick Gold is arguably the most cost-efficient among all the gold miners. The gold miner abridged its all-in sustaining cost (AISC) estimate multiple times in 2016, with the midpoint of its forecast now at $760 per ounce, $449.70 per ounce less than the prevailing gold price.
Warning! GuruFocus has detected 2 Warning Signs with ABX. Click here to check it out.
The intrinsic value of ABX
Moving ahead, the company also anticipates that as soon as its new sources of production becomes operational, it can further push its all-in sustaining cost below $700 an ounce, which would certainly result in extremely large margin buffer for the company. Though Barrick Gold is aiming for an all-in sustaining cost of less than $700 by 2019, it looks ready to endure a significant dip in gold prices.
The gold miner's key to success comprises a mixture of economising as well as shrewd production extension. As a matter of fact, the company has decreased its capex by over three quarters in only four years.
On the other hand, one of the most significant things to notice is the gold miner's ability to efficiently repay its debt. At the end of FY 2014, the company had approximately $13.1 billion in debt. However, the company repaid $3.1 billion in FY 2015 and is on its way to pay another $2 billion in debt in the current fiscal year.
If the company successfully repays $2 billion in debt this year, it will be left with almost $8 billion in debt. The company has made a smart strategy by belligerently focusing on debt reduction, as less debt results in more financial flexibility and less interest expenses.
Another thing to keep in mind is the partnership with Cisco Systems (CSCO), which took place in 2016. Barrick Gold believes that uniting the prospective of digital technology will unlock new valuable opportunities, which would help it to increase its free cash flow per share.
Together, Barrick Gold and Cisco will work to build Barrick's Cortez mine into its flagship digital operation. However, the positive impact of this partnership will not be fully visible this year, but it will certainly result in huge financial gains in the years ahead.
Summing up
Barrick Gold surged approximately 100% in 2016, but the growth is still not over for the company. The gold miner's strategy of improving its production from lower-cost assets has demonstrated to be a tailwind for the company in the previous year. Moreover, sensible spending together with focus on debt reduction has made Barrick Gold a profoundly striking gold stock.
As a result, stockholders should continue to hold the stock for huge returns in the imminent years.
Disclosure: No position in the stocks mentioned in this article.
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This article first appeared on GuruFocus.
Warning! GuruFocus has detected 2 Warning Signs with ABX. Click here to check it out.
The intrinsic value of ABX
