Barrick Gold's Improved 5-Year Outlook Leads To Upgrade

Stephen Walker of RBC Capital upgraded Barrick Gold Corp (USA) ABX to Outperform from Sector Perform as he expects shares to benefit from strong FCF generation in 2017 and 2018, enabling the company to pay down its debt and advance organic growth projects.

5-Year Outlook

Walker sees gold production of 5.7 Moz at AISC of $722/oz in 2017 (prev. 5.2 Moz at $754/oz), then the expected step down to 5.1 Moz at AISC of $733/oz in 2018 and 4.6M oz longer term.

Meanwhile, Barrick Gold expects to produce at least 4.5 Moz/year through 2021 and targets sub-$700/oz AISC by 2020, versus RBC’s conservative estimate of about $750/oz.

“With a production decline discounted into the share price, we believe Barrick can more effectively create shareholder value with production below 5Moz,” Walker wrote in a note.

Improved Cash Flow

Given near-term improvement in production, the analyst projects sufficient operating cash flow at $1,100/oz gold for Barrick to fund its planned capital spending program and reduce their debt by $2.9 billion, to the $5 billion target by YE2018.

Further, a stronger balance sheet reduces need for non-core asset sales. In fact, the market anticipates  Barrick focus on internal development projects that meet its return hurdles, rather than seek external M&A opportunities.

At last check, shares of Barrick Gold were up 0.79 percent to $19.17. The analyst raised his price target to $23 from $19.

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