Canada’s Barrick Gold Corporation is facing an uneven path as it tries to reclaim its former stock price and revenue. Amid positive restructuring actions taken after several tumultuous years, including a change in leadership, the company faces a challenging progression ahead.
Coming off of a third quarter ending September 30 2016 that showed less gold produced from its various mines, at only 83% of what it claimed a year prior, Barrick has also posted a minor decrease in net income of 3%. Meanwhile, the total comprehensive income is down by a staggering 26% from last year.
The decrease in gold production comes on the heels of the company selling some mines. The mines were sold in order to service debt. Such a decrease in gold production means that the revenue, at least at this stage, has also decreased.
As well, the reduced revenue comes as the company sold less gold than it did previously (though still more than expected for this quarter).
As well, by increasing its discounted cash flows the company is looking to once again increase its net value. As the company sheds profits and restructures itself in order to better produce gold and service it’s debt, the Barrick Gold Corporation has some challenges ahead.
Paying down the company’s debt remains a priority for Barrick and it has made strides in this area. Barrick has aims to pay down $2 billion in debt this fiscal year and, according to the Q3 report, is on track to do so, paying $461 million this quarter.
Yet Barrick remains at the mercy of the gold market, a notably volatile commodity if ever there was one. This reflects the dramatic change in Barrick’s stock price over the past few years, which had a ceiling of just over $50 and difference of almost $40.
When questioned about the change in stock price, Barrick Senior Vice President Andy Lloyd pointed out the volatility in the market, stating that “[o]ur share price will always be highly correlated to the price of gold, regardless of how well the company is executing on its strategy.” When asked about how Barrick’s new leadership affected the stock price, Lloyd said “virtually every market commentator has credited Mr. [John] Thornton with driving an unprecedented turnaround at the company.” Thornton is the chairman of the company.
Nour El-Khadri, a business professor at the University of Ottawa, believes that the restructuring has been mildly successful and quite strategic. By shedding high cost operations Barrick is looking to increase its profit by decreasing some of its more expensive costs.
Looking forward, Barrick will always have the volatility of gold to deal with. S&P Global, however, expects that the price of gold will increase through 2018. And though it is rated at BBB- S&P Global expects the company to “generate credit ratings that are considered strong for the current rating over the next two years.” The ratings agency also believes that a favourable gold price environment and improvement in Barrick’s cost position can translate into better debt repayment and a freer cash flow.
El-Khadri is somewhat optimistic about the future for the company, which he calls “promising.” As Barrick redesigns its whole business process by reducing its inefficiencies and by partnering with the tech giant Cisco El-Khadri says that the company can expect to have better results for investors. But with all of this being said, El-Khadri doesn’t expect gold to rise over the short term. The comeback continues.
Barrick Gold Stock Price by Nate7 on TradingView.com
Source: TradingView
(To read the annotations from this financial statement, please click on the “Notes” tab at the top.)