Barrick Gold ABX – the biggest producer of gold on the planet – is having an impressive run this year after being beaten up in 2015. The mining giant has seen its shares catapult more than 165% year to date (thanks largely to a rally in gold prices), placing it among the top-performing precious metals stocks.Barrick Riding High on Gold RallyThe last year had been a tough one for Barrick which saw its shares decimate roughly 30% as a slump in gold prices wreaked havoc on producers of the metal. However, the company is in rebound mode this year as reflected by a significant appreciation in its stock price, buoyed by a recovery in gold prices. After having a rough ride last year, 2016 has been positive so far for gold. The yellow metal has been the bright spot among precious metals with prices climbing roughly 19% year to date. Gold prices recently jumped to their highest level in nearly two weeks as the weakest monthly U.S. jobs growth since Sep 2010 faded all hopes of a Fed rate hike this month.A slew of factors also contributed to the recovery in gold prices this year including concerns over the global economy, dollar weakness, slowdown in China, volatility in equities and introduction of negative interest rates by several of the world’s central banks (including Japan) that have spurred safe-haven demand for gold.
Low-Cost ProducerBarrick, a Zacks Rank #3 (Hold) stock, is making a significant progress with its cost and efficiency improvement programs. The company’s initiatives including overhead expenses reduction and portfolio optimization are expected to generate meaningful cost savings in 2016.Barrick has also implemented a simplified operating model which is expected to increase efficiency, maximize free cash flows and contribute to cost reduction. The company achieved more than $50 million in savings in 2015 through lower general and administrative costs and overhead expenses. It expects to realize $100 million in overhead savings in 2016.Moreover, Barrick remains committed to cut mining costs. Its all-in sustaining costs (AISC) fell roughly 24% year over year to as low as $706 per ounce in the first quarter of 2016. Enhanced efficiency through ongoing operating and capital cost savings actions led to lower AISC in the quarter.The company’s AISC for the quarter was also lower than its major peers such as Goldcorp GG with $836 per ounce, Newmont NEM with $828 per ounce, Kinross Gold KGC with $963 per ounce, Iamgold IAG with $1,084 per ounce, Gold Fields GFI with $961 per ounce and AngloGold Ashanti AU with $860 an ounce. In fact, according to a recent report by SNL Metals & Mining, Barrick had the lowest AISC in the first quarter, lower than the group median of $836 per ounce.Barrick also cut its AISC guidance for 2016 to $760-$810 per ounce from its earlier view of $775-$825 per ounce factoring in the impact of lower fuel prices, favorable currency rates and benefits from productivity & efficiency actions. The revised guidance also reflects a decline from $831 per ounce recorded in 2015.Deleveraging Plan on TrackBarrick is also shedding non-core assets to optimize its portfolio and strengthen its balance sheet. The company, in late 2015, completed the sale of a 50% interest in the Zaldivar copper mine in Chile to Antofagasta Plc. and also closed the divestment of its 70% interest in the Spring Valley project and its 100% interest in the Ruby Hill mine to subsidiaries of Waterton Precious Metals Fund II Cayman, LP.Moreover, the company wrapped up the sale of its 50% interest in the Round Mountain mine and 100% of the Bald Mountain mine in Nevada to Kinross Gold earlier this year, receiving $610 million in cash for these non-core assets.Barrick reduced its total debt by 24% in 2015 and exceeded its original debt-reduction goal of $3 billion. The company plans to pare its total debt by at least $2 billion in 2016 using cash flows and proceeds from assets sale. This would, in turn, lower interest expenses.
During first-quarter 2016, the company reduced its total debt by $842 million that represented 42% of its debt reduction target for 2016. As such, Barrick seems to be on track to achieve its debt target.A Few Worries While Barrick’s fortunes look brighter in 2016 given the tailwind from gold’s rebound, the miner is not without its problems.Amid a low gold price environment, Barrick met its revised gold production guidance for 2015 producing 6.1 million ounces of gold for the year. However, its gold production outlook for 2016 reflects a year over year decline, partly due to assets sale. The company expects to produce 5-5.5 million ounces of gold this year. Its guidance also reflects declining output through 2018.Barrick also continues to see pressure on its top line, as reflected by a double digit drop in revenues in the first quarter. Lower expected production could put pressure on its sales in 2016.Decreasing gold reserve is another concern for Barrick. Its gold reserves fell to 91.9 million ounces at the end of 2015 from 93 million ounces at the end of 2014, reflecting depletion through production and processing as well as divestments of assets.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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