Barrick Gold Raised to Buy on Strong Q2 & Strategic Initiatives

On Oct 14, Barrick Gold Corporation ABX was upgraded to a Zacks Rank #2 (Buy).

Going by the Zacks model, companies carrying a Zacks Rank #2 have better chances of performing above the broader market over the upcoming quarters.

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 for the digital reinvention of the former’s business. The companies intend to focus on R&D and utilize both their expertise to make Barrick’s mines as well as offices more digital. Digitalization at the mines is expected to increase productivity, precision as well as speed of maintenance and metallurgy. An enterprise-wide analytics hub will permit performance management along with financial and operational benchmarking. New digital tools will also enhance scenario planning and portfolio management. Further, the technology will improve Barrick's environmental and safety performance. The use of digital technology will increase Barrick's permitting activities, thereby improving transparency to stakeholders.

Barrick has a healthy liquidity position and generates healthy cash flows. It is poised to capitalize on attractive development, exploration and acquisition opportunities. The company continues to make high return investments in its businesses.

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 anticipated 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 also 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 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.

BARRICK GOLD CP Price and Consensus

BARRICK GOLD CP Price and Consensus | BARRICK GOLD CP Quote

Stocks to Consider

Some better-ranked companies in the mining space include Newmont Mining Corporation NEM and New Gold Inc. NGD both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Newmont has an expected earnings growth rate of 89.5% for the current year.

New Gold has an expected earnings growth rate of 475% for the current year.

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