NEW YORK ( TheStreet) -- Canada's Barrick Gold ( ABX) -- the world's biggest producer of gold -- posted a narrower second-quarter loss on Thursday, and its projection for lower production costs and capital spending are reasons for cautious optimism.
Its shares traded at $18.25, up 17 cents, on Friday morning. Year-to-date, the stock is up 3.5%, compared with a 4.5% rise for the Standard and Poor's 500 Index.
Barrick's net loss of $269 million, or 23 cents per share, includes an impairment charge of $514 million for the company's Jabal Sayid copper project in Saudi Arabia due to a long delay in developing the mine. Barrick has agreed to sell 50% of its stake in the project to Ma'aden, a Saudi Arabian mining company, for $210 million.
Excluding the impairment charge, Barrick's earnings were $245 million, or 14 cents per share. Analysts were expecting earnings of 16 cents per share. Revenue fell 24% to $2.43 on lower gold prices and output.
Barrick lowered its cost estimates for gold production from $950 per ounce to $920 per ounce. This lower cost should boost the company's profit margin in coming quarters
The company also lowered its estimate for capital spending for the year from $2.5 billion to $2.3 billion. The lower spending will lessen Barrick's need to raise funds to maintain and develop projects such as its Pascua-Lama mine, which is located on the border of Chile and Argentina. The project was shut down back late 2013 because of environmental and regulatory issues and has yet to reopen. Barrick has incurred $300 million in ramp down costs this year for the mine.
Last month, CEO Jamie Sokalsky announced he will leave the company in September. He will be succeeded by two co-presidents. Peter Munk, the company's founder, left earlier this year.
At the time of publication, the author held no position in the stock mentioned.
TheStreet Ratings team rates BARRICK GOLD CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate BARRICK GOLD CORP (ABX) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Net operating cash flow has decreased to $488.00 million or 46.19% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, BARRICK GOLD CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Metals & Mining industry average, but is greater than that of the S&P 500. The net income increased by 96.8% when compared to the same quarter one year prior, rising from -$8,555.00 million to -$269.00 million.
- ABX, with its decline in revenue, underperformed when compared the industry average of 1.5%. Since the same quarter one year prior, revenues fell by 24.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- ABX's debt-to-equity ratio of 0.99 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.29 is sturdy.
- You can view the full analysis from the report here: ABX Ratings Report