Barrick Gold (ABX +7.36%), a leader among gold-mining stocks, is set to release its fourth-quarter earnings on Feb. 15. Finding yourself interested in the gold industry but equally worried that you'll be overwhelmed by the report -- unable to dig through and find the nuggets of insight? It's not uncommon, so let's prepare by keying in on three things we can expect management to address.
Shoring up the balance sheet
Having repaid $1.4 billion in debt through the first three quarters of fiscal 2016, Barrick only had to repay another $600 million to meet its debt-reduction target of $2 billion for fiscal 2016. If successful, Barrick will have met another of its debt-reduction goals: ending fiscal 2016 with $8 billion in net debt -- an approximate reduction of 38% from the $13.1 billion it had at the end of fiscal 2014.
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Besides confirming that Barrick has met its targets, investors can look for commentary on the company's intended sale of its 50% interest in the Kalgoorlie mine in Australia. One element of the company's debt-reduction strategy has been the selling-off of its non-core assets -- such as projects in Australia. For example, among several transactions down under, Barrick completed the sale of the Cowal mine for cash consideration of $550 million in July 2015. According to Bloomberg, the transaction, valued at $1.3 billion, has hit a snag as the potential buyer is facing delays in securing financing.
Monitoring the flow
One of Barrick's successes through the first nine months of fiscal 2016 was its ability to generate free cash flow. In fact, according to Morningstar, it generated $1.13 billion in the first three quarters of fiscal 2016, more than the $1.08 billion it generated in all of fiscal 2015.
During a recent press release, which confirmed that the company had achieved its gold production guidance for the fourth quarter and fiscal 2016, management suggested that the free cash flow growth would continue into the fourth quarter. In the release, Kelvin Dushnisky, Barrick's president, stated, "Through the acceleration of best-in-class initiatives, we are driving down costs, expanding margins, and maximizing free cash flow across the portfolio."
Perhaps investors should be more wary of how much the company's free cash flow will grow, though. On its Q3 conference call, management downwardly revised its capex guidance for fiscal 2016, expecting it to now total between $1.2 billion and $1.3 billion for fiscal 2016. Through the first three quarters, however, capex spending has totaled $800 million, according to Morningstar. Investors will want to see if the company's capex spending is within management's estimates and how it affects Barrick's free cash flow growth.
Keeping an eye on costs
Continuing its success in reducing all-in sustaining costs (AISC), management had forecast, during its February 2016 Investor Day presentation, for AISC to total between $775 and $825 per gold ounce for fiscal 2016 -- lower than the $864 and $831 per gold ounce it reported in fiscal 2014 and 2015, respectively. During the recent production update, though, management suggested that the company had exceeded its expectations, estimating AISC to total between $740 and $775 per gold ounce. To put this in perspective, Newmont Mining, one of Barrick's peers and the holder of the other 50% stake in Kalgoorlie, estimates that its fiscal 2016 AISC will total between $870 and $930 per gold ounce.
Besides checking Barrick's AISC for fiscal 2016, investors may also look to see if management reports on any progress with the digitization of its Cortez mine -- one of the company's core assets, located in Nevada. Collaborating with Cisco Systems, Barrick plans to implement digital technology at Cortez first before expanding its deployment to the other projects in its portfolio. Management expects the initiative to increase the company's free cash flow per share in the years to come.
Investor takeaway
When Barrick reports earnings, there will be no shortage of facts and figures flying around. Looking to maintain focus on the more salient issues, investors should look for commentary on the divestment of Kalgoorlie. Not only would selling the asset help reduce the company's debt, but it would also further assist the company in reducing its AISC.
In addition, investors should investigate the company's capex spending. In last February's investor day presentation, management, had forecast capex spending for fiscal 2016 to total between $1.35 billion and $1.65 billion. Does the company's recent downward revision mean that capex spending in fiscal 2017 will be higher than the $1.50 billion to $1.75 billion forecast in that same presentation? If not, is the company forgoing planned projects? Investors' inquiring minds want to know.
