Barrick Gold , 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 skyrocket roughly 100% year to date, thanks largely to strong rally in gold prices. While Barrick’s fortunes look brighter in 2016 given the tailwind from gold’s rebound, the miner is not without its problems.
A Shining Year for Gold So Far
The year 2015 had been a rough ride for gold with the shiny metal navigating an unsupportive macro environment. A stronger dollar, slump in oil prices and the climb in U.S. equities led to a more than 11% fall in gold’s value last year. With the Federal Reserve finally ending an era of near-zero interest rates with the December lift-off, gold sank to six-year lows. A steep fall in prices also led to multibillion dollar write-downs by gold miners.
However, 2016 has started on a positive note for gold. The yellow metal has been the bright spot among precious metals with prices shooting up roughly 17% year to date, making it the most attractive safe haven asset at present.
A slew of factors contributed to the recent rally in gold prices including concerns over the global economy, dollar weakness, 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.
Gold prices also got a lift after the Fed left benchmark interest rates steady (in the band of 0.25%-0.50%) on Mar 16 and cut its short-term rate hike expectations to two quarter-point rises from the initial outlook of four hikes citing continued risk from an uncertain global economy and volatile stock markets. The outlook triggered a sharp fall in the U.S. dollar against a basket of rival currencies, providing a boost to bullion.
Barrick in Recovery Mode, But Woes Remain
The 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.
Barrick, 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 with all-in sustaining costs for 2016 are expected to be $775-$825 per ounce, down from $831 per ounce in 2015. The company is aiming to cut as much as $2 billion in expenses by end-2016.
Barrick 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 Corporation (KGC - Free Report) earlier this year, receiving $610 million in cash for these non-core assets.
Barrick also reduced its total debt by 24% in 2015 and exceeded its original debt-reduction goal of $3 billion. In 2016, the company plans to pare its total debt by at least $2 billion using cash flows and proceeds from assets sale.
Despite these positives, Barrick remains exposed to certain 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 at all-in sustaining costs of $775-$825 per ounce. 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 both the fourth quarter and full-year 2015. 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.
Moreover, despite its actions to de-lever its balance sheet in 2015, Barrick still remains saddled with huge debt load, ending 2015 with total debt of nearly $10 billion (roughly four times of cash).
Looking Beyond Barrick
In light of Barrick’s mixed prospects, we suggest you to look beyond this gold behemoth and zero in on some other miners in the space that are good options for investment right now. These top-ranked companies are well-placed to leverage the recent rebound in the gold market.
Finding a stock with the best scores in all categories can better your chances and rate of return. It is here that we ask you to have a look at our new VGM Style Score where ‘V’ stands for Value, ‘G’ for Growth and ‘M’ for Momentum. The VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, growth and momentum, across the board.
We have used the Zacks Stock Screener to narrow down on stocks sporting a solid Zacks Rank along with VGM Score of ‘A’ or ‘B’. We highlight the following 4 gold mining stocks that could be worth putting your money in.
AngloGold Ashanti Ltd. (AU - Free Report)
This South Africa-based company is involved in gold mining and exploration. The stock sports a Zacks Rank #2 (Buy) and has a VGM Score of A.
The company has been witnessing positive estimate revisions over the last 60 days, as the Zacks Consensus Estimate for 2016 and 2017 has climbed around 80% and 85%, respectively, over the same time frame. The stock has expected earnings growth of 252% for the current year.
Golden Star Resources, Ltd. (GSS - Free Report)
Canada-based Golden Star owns and operates gold mines in Ghana as well as other parts of the world. The stock sports a Zacks Rank #2 and has a VGM Score of A.
The stock has been seeing positive estimate revisions over the last 60 days. The Zacks Consensus Estimate of loss for 2016 has narrowed roughly 58% over the same time frame. Moreover, the Zacks Consensus Estimate of earnings for 2017 has climbed around 50% over the same period.
Harmony Gold Mining Company Limited (HMY - Free Report)
South Africa-based Harmony conducts underground and surface gold mining and is also engaged in related activities such as exploration, processing, smelting and refining. The stock has a Zacks Rank #2 and a VGM Score of A.
The stock witnessed positive estimate revisions over the last couple of months. The Zacks Consensus Estimate for 2016 and 2017 has climbed to earnings of 29 cents and 53 cents a share, respectively, from loss of 21 cents and 9 cents per share, respectively, 60 days ago. The stock has expected earnings growth of roughly 281% for the current year.
Sibanye Gold Ltd. (SBGL - Free Report)
Sibanye is a South Africa-based gold producer. It is the owner and operator of four major operations, Driefontein, Cooke, Beatrix and Kloof. The stock has a Zacks Rank #2 and a VGM Score of B.
The earnings estimates for the stock are trending up, as the Zacks Consensus Estimate for 2016 and 2017 has shot up 492% and 306%, respectively, over the past couple of months. The company has expected earnings growth of a staggering 1,161% for the current year.
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