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Gold/Mining/Energy : Barrick Gold (ABX)

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To: unrealistic_thoughts who wrote (3544)7/7/2015 2:17:42 AM
From: unrealistic_thoughts   of 3558
 
Ok, I have a thought on Barrick Gold, and it's stored right here :

finance.yahoo.com
Operating Cash Flow (ttm):2.03B
Levered Free Cash Flow (ttm):17.73M

Barrick borrowed a TON of money, just like ALL of the companies founded by that Canadian guy, Peter Munk. If you look up Peter Munk you will notice that all of his companies were sold or mergered for pennies on the dollar because he tends to borrow money like crazy to make acquisitions but never really creates any value.

Anyway, the problem now is that Barrick has HUGE loans equal to 1.2x the value of the company, and even though they have $2.03B of operating cash flow every year, they need EVERY SINGLE PENNY to pay the interest on the way-too-many-loans that the company is carrying. If you look at the stats above, even though they have $2.03B in operating cash flow, all but $17M of it goes towards paying their loans.

They hired a whizkid CEO from the vampire-squid company, goldman sachs, and he took a close look at company finances and said, "I want $10M a year in salary to run this turkey" and the investors said "no". So they are faced with selling off assets to try to reduce debt. The only way they survive is if they can sell assets for more than they are worth. They either need to swindle the purchasers, or perhaps gold goes back to $1500 per oz and they survive. Every time they sell an asset the stock goes down because now you own a smaller company. It looks good because there is a bump in operating income but they immediately pay off their loan and all that operating income disappears in a poof of smoke! When the last asset is sold they will have $0 of operating cash flow and $0 of loan service, and the company will be worth $0, apparently.

So it seems like a very poor investment. Peter Munk ruined the company half a decade ago, like he did with all his other (e.g. Realty) companies. They will need a miracle to get out of their death spiral.
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