Barrick Gold (NYSE: ABX) recently released Q4 earnings. Reporting earnings per share -- adjusted for non-recurring costs -- of $0.22, the company narrowly exceeded analysts' expectations of $0.21 per share. But there's much more to a company's quarterly performance than just one number, so let's dig in and mine the report for some of the more interesting nuggets.
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Setting a record
To conclude that Barrick's recent performance was mediocre because it only beat analysts' earnings estimates by $0.01 would be foolish. A look at the cash flow statement suggests that the company performed exceptionally well. In the fourth quarter, Barrick generated $385 million in free cash flow -- a nominal decrease from the $387 million it reported during the same period last year.
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Expanding our focus to the company's full-year 2016 earnings, we find Barrick Gold generated a record $1.5 billion in free cash flow -- a 221% increase over the $0.5 billion it generated in fiscal 2015, excluding $610 million in proceeds from a streaming transaction that was used for debt repayment.
On the company's conference call, Catherine Raw, Barrick's chief financial officer, attributed the increase to three factors: "focus on the quality of ounce rather than the quantity, a more disciplined approach tocapital, and the benefit of rising gold prices."
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In addition to churning out a record amount of cash, Barrick succeeded in reducing expenses. In the fourth quarter, Barrick reported all-in sustaining costs (AISC) of $732 per gold ounce. Again, when we look at this in terms of the full-year's results, the company's achievement in controlling costs becomes more apparent.
Reducing its AISC by 12% year over year, Barrick reported AISC of $730 per gold ounce for fiscal 2016 -- beating its own estimate. During an investor presentation in February 2016, management guided for AISC to total between $775 and $825 per gold ounce for fiscal 2016.
The reduction in AISC is expected to grow at an even greater clip in fiscal 2017 than previously expected, according to management. The reduction was effected, in part, by efficiencies brought with the digitization of the company's Cortez mine in Nevada. Whereas Barrick had guided for AISC to total between $740 and $790 in fiscal 2017 during the February 2016 presentation, management revised this estimate lower during its Q4 earnings presentation. Management now estimates AISC will total between $720 and $770 per gold ounce.
Reducing its debt by $600 million in the fourth quarter, Barrick achieved its goal of reducing its net debt by $2 billion in fiscal 2016. With net debt of under $8 billion, Barrick estimates it will will pay down approximately $3 billion more in debt throughout fiscal years 2017 and 2018. Having shored up its balance sheet, Barrick recognized annualized interest savings of $100 million for fiscal 2016, bringing its total savings to $235 million over the past two years.
Investors have another reason to celebrate the company's effective execution of its debt-reduction strategy. With less than $200 million in debt due by 2019 and approximately $5 billion due after 2032 -- among other factors -- management believes the company maintains a strong financial position. Reflecting its confidence in the business, management announced a 50% increase in the company's quarterly dividend, to $0.03 per share.
Reducing debt and growing free cash flow are just two reasons why Barrick Gold had a lot to celebrate, not only regarding its Q4 performance, but FY 2016, as well. The company proved that its strategy of selling off non-core assets -- seven of which it divested in 2015 -- in an attempt to streamline its portfolio, has been a success.
Arguably, one of the company's greatest achievements in fiscal 2016 has been its ability to reach free-cash-flow breakeven of less than $1,000 per ounce -- something that it expects to achieve in fiscal 2017, as well. In other words, even if the price of gold -- approximately $1,220 per gold ounce as of this writing -- falls below $1,000, Barrick will continue to report positive free cash flow, suggesting that the company is well positioned to weather future downturns -- and profit handsomely when gold prices rise.
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