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Barrick Gold Corporation’s (ABX) Gains Ground on Financial Results and Debt Reduction but It’s Not Out of the Woods Yet

Barrick Gold Corporation’s (NYSE:ABX)’s stock is slowly regaining ground on the back of some positive news from the company. Based on the second quarter financial results, the company managed to improve its cash flow and reduce its debt, mainly through asset sales. On the back of the news the stock advanced and on Monday gained some 9%. On Friday, analysts at Barclays said the debt reduction represents a positive sign for the company and upgraded the stock to ‘Equal Weight’ from ‘Underweight’, but cut the price target to $10 per share.

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The company reported revenue of $2.23 billion for the second quarter, down by 9% from the prior year. Adjusted earnings per share declined to $0.05, from $0.14 a year earlier. However, the results were in line with the estimates, which also fueled the appreciation of Barrick’s stock. In addition, earlier this year, the company announced plans to cut its net debt by $3 billion by the end of the year. At the end of the second quarter, Barrick Gold Corporation’s (NYSE:ABX) was able to raise around $2.45 billion from the partial to full sale of the Cowal, Porgera, and Zaldivar mines and retired around $250 million of debt, which means that the company managed to cover around 90% of the $3.0 billion target.

A look at Insider Monkey’s data show that at the end of March 41 hedge funds held positions in Barrick Gold Corporation’s (NYSE:ABX) with a total value of $1.40 billion. The aggregate value of holdings is slightly higher $1.09 billion worth of stock held by 45 funds at the end of the previous quarter. Despite the fact that the aggregate value of the holdings increased by a relatively small amount, hedge funds still hold more than 11% of Barrick’s outstanding stock, which is a bullish sign. In the following part of the article we will take a closer look at the hedge fund activity surrounding the company in the last couple of months.

As a side note, we should mention why we consider that hedge fund sentiment on a company is important. Most retail investors consider that because hedge funds file their 13Fs with a delay of up to 45 days, these filings cannot provide any insights regarding investment opportunities. However, in our backtests we used a 60-day delay to be on the safe side and still obtained positive results. Nevertheless, we determined that most popular picks among hedge funds underperformed the S&P 500 Total Return Index by around 7.0 basis points per month. On the other hand, their top small-cap ideas were able to beat the market by almost one percentage point. Based on these backtests, we launched our small-cap strategy, which involves imitating a portfolio of 15 most popular small-cap picks among hedge funds. This strategy returned 123% in the last 35 months, beating the S&P 500 ETF (SPY) by around 65 percentage points (read more details here).

As the current round of 13F filings is not over yet, we cannot fully assess the sentiment of hedge funds regarding Barrick as of the end of June. However, in its 13F for the second quarter, Eric Sprott‘s Sprott Asset Management disclosed holding 421,600 shares of the company, which represents an increase of almost 303,700 shares over the quarter. Moreover, at the end of March, the largest shareholder of Barrick in our database was First-Eagle Investment Management, which owned 29.2 million shares, followed by David Greenspan’s Slate Path Capital with 16.65 million shares. 

On the other hand, during the second quarter, Ken Griffin‘s Citadel Advisors closed its entire position in Barrick Gold Corporation’s (NYSE:ABX), which previously contained 940,375 shares and disposed of ‘Put’ options underlying some 1.29 million shares. Citadel disclosed holding ‘Call’ options underlying 599,900 shares as of the end of June, down by 23% on the quarter.

Barrick Gold Corporation’s (NYSE:ABX) is still at risk, especially with declining gold prices. Despite the gains in the last couple of days, the stock is down by 33% year-to-date, and is trading close to its 52-week low of $6.52. Another sign that the company is not out of the woods yet, is the decision of the Board of Directors to cut dividends by 60% to $0.02 per share. Moreover, with analysts not expecting a rebound in the gold prices anytime soon, the stock of Barrick represents a rather uncertain investment.

Disclosure: none

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