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Barrick Shares Hit 52-Week Low on Lower Gold Prices

Zacks Equity Research

Shares of Barrick Gold Corporation ABX hit a new 52-week low of $6.52 on Aug 26 and eventually closed modestly higher at $6.55.

Year-to-date, Barrick's shares have recorded a negative return of around 38%. The stock has lost roughly 63% over a year.

Factors to Consider

Barrick's adjusted earnings for the second quarter of 2015, reported on Aug 5, fell year over year on lower gold and copper pricing but managed to match the Zacks Consensus Estimate. Although sales fell on lower gold production, it exceeded expectations. Consequently, the company cut its gold production guidance for 2015 while maintaining its copper production outlook.

A weak gold pricing environment and still soft global economic conditions are concerns for Barrick. Gold prices tumbled to their lowest level in more than five years last month as the U.S. dollar strengthened amid expectations of an interest rate hike by the Federal Reserve. Moreover, gold prices slipped around 2% to a one-week low of $1,117.35 an ounce yesterday after an interest rate cut by China to lift its economy boosted the U.S. dollar and led to a rebound in global markets from Monday's bloodbath.

Barrick’s average realized gold prices fell roughly 8% year over year in the second quarter, hurting its revenues. The company has decided to slash its quarterly dividend by 60% in an effort to beef up financial flexibility and cope with the gold price slump.

Moreover, Barrick still has a debt-laden balance sheet. Its total debt was around $12.8 billion at the end of the second quarter, roughly six-times of its cash position. While Barrick is looking for opportunities to cut debt by at least $3 billion by the end of 2015 (using proceeds from non-strategic assets sale), the current low gold pricing environment might constrict its ability to materially deleverage its balance sheet.

Nevertheless, Barrick is making significant progress with its cost and efficiency improvement programs. The company’s initiatives including reduction of overhead expenses and portfolio optimization are expected to generate meaningful cost savings. The company has taken significant actions to cut costs, improve productivity and boost free cash flows in anticipation of a possibly weaker gold pricing environment in the back half of 2015.  

Barrick is also shedding non-core assets to optimize its portfolio. It has announced $2.45 billion in assets sale and joint ventures so far.

Barrick currently carries a Zacks Rank #3 (Hold)

Stocks to Consider

Some better-ranked stocks in the mining industry are Pretium Resources Inc. PVG, Denison Mines Corp. DNN and OCI Resources LP OCIR, each carrying a Zacks Rank #2 (Buy).

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