On Sep 28, Zacks Investment Research upgraded Barrick Gold Corporation (ABX - Analyst Report) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Barrick’s second-quarter 2016 adjusted earnings per share (excluding one-time items) of 14 cents were in line with the Zacks Consensus Estimate. Earnings surged 180% from the year-ago quarter figure of 5 cents per share. Revenues plunged 9.8% year over year to $2,012 million in the reported quarter and missed the Zacks Consensus Estimate of $2,036 million.
Recently, Barrick announced that it will partner with Cisco Systems, Inc. (CSCO - Analyst Report) for the digital reinvention of the former’s business. The collaboration will bring together state-of-the-art technology and expertise to unleash the full potential of mining along with enhancing productivity and efficiency. Harnessing the digital technology potential will help the company to grow its free cash flow per share and will also add value across its business. This will enable it to become a leading twenty-first century company by increasing productivity and efficiency at its mines, along with improving decision-making and performance across every area of its business. Digital technology will also enable the miner to lessen its environmental impact and be even more transparent with its local partners especially indigenous communities, local governments, and NGOs.
Barrick has a healthy liquidity position and generates healthy cash flows. It is poised to take advantage of attractive development, exploration and acquisition opportunities. The company continues to make high return investments in its businesses.
Barrick is expected to benefit from major exploration programs. The company maintains a significant focus on Nevada for growth opportunities. A considerable portion of its exploration budget for 2016 has been allocated to the Americas, with an extensive focus on Nevada. At Goldstrike, the miner has started development of new areas to access deeper reserves that are expected to come into production by end-2016.
For the Turquoise Ridge mine, the company is currently conducting an expansion of the underground mining. At Cortez, it is conducting a feasibility study for expanded underground mining in the Deep South zone and is also advancing a feasibility study for an underground mine at its Goldrush deposit.
The miner is making significant progress with its cost and efficiency improvement programs. Barrick’s initiatives including overhead expenses cut, portfolio optimization and headcount reductions are anticipated to generate meaningful cost savings. Additionally, the company is implementing a simplified operating model which will increase efficiency and contribute to cost reduction.
Barrick reduced its total debt by 24% in 2015 and exceeded its original goal of $3 billion. The company has already reduced its total debt by $968 million in 2016, representing nearly half of its debt reduction target for the year. Currently, the miner has less than $150 million in debt due before 2018 and roughly $5 billion of its $9 billion outstanding debt will mature after 2032. In 2016, the company plans to reduce its total debt by at least $2 billion. Barrick estimates to save roughly $180 million in interest expenses on an annualized basis.
However, the volatile gold price environment is concerning. Last year, a stronger dollar, slump in oil prices and the climb in U.S. equities led to more than 11% plunge in gold’s value in 2015. Barrick had slashed its quarterly dividend by 60% in an effort to improve financial flexibility and cope with the gold price slump. While gold prices have recovered in 2016 to cross the $1,300 an ounce threshold, volatility prevails.
Stocks to Consider
Some better-ranked companies in the mining space include New Gold Inc. (NGD - Snapshot Report) and Newmont Mining Company (NEM - Analyst Report) .
New Gold has an expected earnings growth of 491.7% for the current year and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Newmont also flaunts a Zacks Rank #1 and has an expected earnings growth of 91.3% for the current year.
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