Barrick Gold Corp.: Could This Stock Hit $30 in 2016?

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) has already doubled this year. Can the stock move even higher?

| More on:
The Motley Fool

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) continues to move higher, and investors who missed the surprise rally are wondering if there is more upside on the way.

Let’s take a look at the mining giant to see if it deserves to be in your portfolio.

A turnaround story

Last year Barrick launched an ambitious plan to reduce its massive US$13 billion debt pile by US$3 billion. Few pundits thought the company could succeed given the troubled state of the market and the firm’s history of mismanagement.

As the year progressed, investors began to see some light at the end of the tunnel. Barrick managed to find buyers for non-core assets, negotiated streaming deals on some production, and raised cash through new partnerships.

In the end, the company hit its debt-reduction targets, and the market is starting to believe the company will continue to make progress. This year, Barrick is looking to shave another US$2 billion off the debt load, and that should be attainable given the recent surge in gold prices and the return of investors to the mining sector.

Cost control

Lowering debt is one aspect to the recovery at Barrick, but the more impressive part going forward is the company’s cost structure.

Barrick produced 6.12 million ounces of gold in 2015 at all-in sustaining costs (AISC) of US$831 per ounce. In Q4, the company produced 1.62 million ounces of gold at AISC of $733 per ounce, making it the low-cost producer among the big miners.

For 2016, production guidance is set at 5-5.5 million ounces at AISC of US$775-825 per ounce. The lower output is the result of asset sales over the past year.

By 2019, Barrick believes AISC will drop below US$700 per ounce.

That’s pretty impressive, and the margins are already attractive at the current gold price of US$1,250 per ounce.

Free cash flow

Barrick recorded 2015 free cash flow of US$471 million, with $387 million coming in the fourth quarter. It was the first time in four years that free cash flow was in the black.

With gold prices as much as US$200 higher than they were in Q4, the numbers for Q1 2016 should be good, and a sustained rise in the price of gold over the course of the year, or beyond, is going to start generating some serious cash given the company’s large production.

Should you buy?

The stock is up more than 100% year-to-date, so the easy money has been made, but we could be in the early innings of larger recovery.

Why?

The company’s costs are falling, and with production of five million ounces, a mere $200 jump in the average price of gold over the year would add a cool US$1 billion to the coffers. That’s a lot of torque, and a sustained move higher in gold prices could potentially push Barrick up another 50% toward the $30 mark by the end of the year.

I wouldn’t back up the truck, but if you believe in the gold story, Barrick is a solid pick.

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

stock market
Metals and Mining Stocks

2 TSX Mining Stocks to Buy as Gold Prices Surge Past $2,000

Bullish on gold? Investing in quality mining and royalty stocks such as Barrick Gold is a solid bet in 2023.

Read more »

Metals
Metals and Mining Stocks

Better Metals Buy: Gold Stocks vs. Lithium Stocks

Gold is the evergreen choice as a hedge against inflation and weak markets. In contrast, battery metals may offer unique…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, March 22

The Federal Reserve’s interest rate decision and economic projections are likely to keep the TSX highly volatile today.

Read more »

gold stocks gold mining
Metals and Mining Stocks

Gold Stocks Are Gaining Steam: Are They a Buy at Current Prices?

Gold stocks will likely steal the limelight this year, making up for their last year's underperformance.

Read more »

edit Sale sign, value, discount
Energy Stocks

2 Cheap Canadian Stocks You Can Buy for Less Than $50

You can buy Suncor Energy stock, and this gold stock at cheap valuations today

Read more »

A golden egg in a nest
Bank Stocks

How to Protect Your Retirement Portfolio From a Banking Crisis

The US banking crisis has created a market sell-off. Know how safe your money is and protect your retirement portfolio…

Read more »

Initial Public Offering (IPO) concept image, businessman selecting stock trading interface
Metals and Mining Stocks

Lithium Royalty IPO: Is it the Best Way to Invest in Lithium?

Lithium Royal stock went public on the TSX after it raised $150 million via an IPO. Is LIRC stock a…

Read more »

gold stocks gold mining
Tech Stocks

These Stocks Are Half-Priced, But Are They Actually Worth Buying?

Two top growth stocks have fallen by 50% in the last 12 months, and only one of them is worth…

Read more »