Barrick Gold: An Attractive Investment Option
- By Harsh Jain
Barrick Gold Corp. (ABX) ended 2017 in the red as shares of the gold miner dropped around 10%. The company's downturn started after reaching its multiyear high in mid-2016 due to declining gold prices as well as high debt on its balance sheet. Moreover, the stock is off to a bad start heading into 2018 as it is down nearly 12% year to date.
Barrick Gold reported fourth-quarter results on Feb 14. For the quarter, the gold miner posted earnings per share of 22 cents, beating the consensus estimate by one cent.
Warning! GuruFocus has detected 2 Warning Signs with ABX. Click here to check it out.
The intrinsic value of ABX
Revenue came in at $2.23 billion, again topping the consensus by $20 million. Despite beating estimates, the reported revenue represents a decrease of almost 4% year over year. That figure, however, is comparatively better than the 13.5% drop in the third quarter.
For the full year, the company's revenue was $8.37 billion. Its full-year operating cash flow plunged to $2.05 billion, down from $2.65 billion a year ago. Its free cash flow also declined to $669 million from $1.5 billion in 2016.
The company's total gold production in 2017 was 5.3 million ounces, down from 5.52 million ounces in 2016. In addition, the company is predicting its eighth successive drop in annual gold production as it expects to produce a total of 4.5 million to 5 million ounces of gold this year.
Currently, the gold miner is aggressively focusing on achieving and maintaining a robust balance sheet. The company reduced its debt by more than $1.5 billion last year. The significant debt reduction was primarily driven by selling its non-core assets. The company also expects to cut its debt by another $1.4 billion this year. Most significantly, the miner currently has just $100 million of debt due before 2020.
Another positive for the company is its all-in sustaining cost (AISC), which is an important metric for miners. Barrick is one of the industry's lowest-cost producers. In 2017, the company's all-in sustaining cost was $750 per ounce. In addition, the AISC has been under $780 per ounce over the past two years.
Source: MarketInsider
Apart from this, gold prices are also showing positive signs of upward momentum and currently sit at $1,330 per ounce. Although Barrick's management recently guided for a comparatively higher AISC in the upcoming quarters, it will not likely surpass $815 per ounce.
An AISC at this level in a rising gold price environment still represents a stable platform and should help the company to grow well in the near future. In addition, the decline of the U.S dollar could elicit more gold buying, which would serve as a major upside catalyst in the near term.
Summing up
Barrick Gold was one of the worst-performing major gold miners last year, but it could soon find its way back into the green. The company is uniquely positioned to benefit in a rising gold price environment.
The stock is down almost 44% from its multiyear high and currently trades at a trailing price-earnings (P/E) ratio of 6.9, suggesting it is deeply undervalued. It also offers a healthy dividend yield of almost 1%.
As a result, I recommend long-term investors consider buying the stock at its current market price as it can deliver huge returns in the years ahead.
Disclosure: No positions in the stocks mentioned in this article.
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
