Barrick: On the Bargain Rack

11/10/2016 7:00 am EST


Jason Simpkins

, Outsiders Club

This recommendation is the biggest name in the gold mining business, and right now it’s resting on the bargain rack, suggests Jason Simpkins, editor of Outsider Club.

Barrick Gold (ABX) just about doubled to start the year as gold prices posted a tremendous rally. However, over the past three months, it’s lost about a fifth of its value.

What I like about Barrick is how much it’s achieved over the past year in terms of cutting its costs and reducing its debt. This has increased profit shored up on the company’s balance sheet.

Barrick reported a $175 million profit, or 15 cents a share, compared with a year-earlier loss of $264 million, or 23 cents a share. Excluding impairments and other items, profits rose to 24 cents a share from 11 cents a share a year earlier.

The company upped its 2016 production forecast as well. Barrick now expects to produce 5.25 million ounces to 5.55 million ounces of gold, up from 5 million and 5.5 million ounces.

At the same time, the company has lowered its costs. Barrick now estimates all-in sustaining costs (AISC) at $740 to $775 per ounce, down from a previous target of $750-$790. And it’s aiming for AISC of $700 per ounce or lower by 2019.

Debt has been reduced by $1.4 billion year-to-date and the company said it is on track to meet its 2016 reduction target of $2 billion.

Barrick ended the quarter with $2.65 billion in cash and $8.54 billion in debt. In three to five years, it wants to cut that burden to less than $5 billion.

It isn’t all strawberries and cream, of course. Barrick shed assets to reach this new level of efficiency. That’s led to a steep drop in production, which totaled more than 6 million ounces in 2015. Third-quarter production shrank 17% to 1.4 million ounces.

Revenue dipped to $2.3 billion from $2.32 billion, while free cash flow fell to $674 million from $866 million.

All in all, Barrick is in a strong position. Its costs, debt, and output are all headed in the right direction.

And the company is stable enough to withstand the kind of volatility we continue to see in gold prices. Maybe that’s why George Soros recently dropped $264 million into Barrick.

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By Jason Simpkins, Editor of Outsider Club

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