Barrick Gold Corp.: Could it Surge Another 100%?

Here’s why the rally in Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) could run much higher.

| More on:
The Motley Fool

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) has doubled off its September 2015 lows, and investors are wondering if the stock can extend the run to much higher ground.

Let’s see what’s going on at the world’s largest gold miner.

Financials

Barrick just reported Q4 2015 adjusted net earnings of US$344 million, or US$0.30 per share. Free cash flow came in at US$387 million.

The strong performance capped off a busy year in which Barrick managed to reduce its US$13 billion in debt by more than US$3 billion through a series of assets sales, new partnerships, and streaming deals.

The company produced 6.12 million ounces of gold in 2015 at all-in sustaining costs (AISC) of US$831 per ounce. That’s the lowest cost structure among the big miners, and the numbers came in at the bottom of the company’s initial guidance of US$830-870 per ounce.

The fourth quarter saw production of 1.62 million ounces of gold at AISC of just US$733 per ounce.

The company finished 2015 with a consolidated cash balance of about US$2.5 billion.

Guidance for 2016 and beyond

Few analysts believed the company would pull off the US$3 billion in debt reductions when the ambitious target was announced last year, but the results are in the books, and investors are more inclined to believe management on the latest plans.

Barrick intends to reduce long-term debt by another US$2 billion this year through the sale of additional non-core assets and the creation of new partnerships. The company also plans to use free cash flow and part of the cash balance to pay down its obligations.

Barrick has less than US$250 million in debt due before 2018, and about half of the existing US$10 billion in debt isn’t due until after 2032, so previous concerns about a possible cash crunch are a non-issue in the near term.

Production is expected to be 5-5.5 million ounces in 2016 at AISC of US$775-825 per ounce. The lower output is a result of non-core assets sales that occurred last year. Further reductions in both output and AISC are expected in 2017. Barrick says production in 2018 will be 4.6-5.1 million ounces of gold at AISC of less than US$700 per ounce.

Should you buy Barrick?

Gold prices are now above US$1,200 per ounce, which means margins are starting to look pretty good given the attractive cost structure. Even at five million ounces, every US$100 increase in the average price of gold translates into an additional US$500 million in cash flow.

At current prices, Barrick is already a cash machine. If gold manages to continue its recovery, the vault is going to fill up very quickly, and a broad move by investors back into the sector could send the share price soaring much higher.

With the debt-reduction plan on track and a more positive gold environment shaping up, investors might want to consider starting a small position in the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker owns shares of Barrick Gold.

More on Metals and Mining Stocks

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

If Gold Prices Continue to Climb, These 3 Stocks Could Skyrocket

Market certainty and geopolitical tensions typically enhance the demand for gold, and this rise is reflected in a wide range…

Read more »