Markets
DNN

Barrick to Gain from Cost Actions Amid Weak Gold Pricing

An image of a pen on a graph
Credit: Shutterstock photo

On Aug 17, we issued an updated research report on gold giant Barrick GoldABX .

Barrick's adjusted earnings for the second quarter of 2015, reported on Aug 5, fell year over year on lower gold and copper pricing, and matched the Zacks Consensus Estimate. Sales fell on lower gold production, but beat expectations. The company cut its gold production guidance for 2015 while maintaining its copper production outlook.

Barrick is making 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. It 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 has implemented a simplified operating model which is expected to increase efficiency, maximize free cash flows and contribute to cost reduction. It expects to realize $50 million in savings in 2015 through lower general and administrative costs and overhead expenses, further increasing to $90 million in 2016. Moreover, the company also remains committed to cut mining costs with all-in sustaining costs for 2015 are now expected to be $840-$880 per ounce, down from $860-$895 per ounce expected earlier. Barrick is aiming to cut as much as $2 billion in expenses by end-2016.

Barrick is also expected to benefit from its major exploration programs. The company maintains a significant focus on Nevada for growth opportunities. A significant portion of its exploration budget for 2015 ($180-$220 million) has been allocated to North America.

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.

However, 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.

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 roughly $12.8 billion at the end of the second quarter, roughly six-times of its cash position. While Barrick is looking 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.

Barrick is a Zacks Rank #3 (Hold).

Stocks to Consider

Other companies in the mining space worth considering include Denison Mines Corp. DNN , Avino Silver & Gold Mines Ltd. ASM and OCI Resources LP OCIR , with all holding a Zacks Rank #2 (Buy).

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 >>

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

BARRICK GOLD CP (ABX): Free Stock Analysis Report

DENISON MINES (DNN): Free Stock Analysis Report

AVINO SILVER&GD (ASM): Free Stock Analysis Report

OCI RESOURCES (OCIR): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

DNN ASM

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More