Analyst Actions: Barrick Gold Corp Target Lowered $2, But Keeps Outperform at Credit Suisse


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New PV Agreement - NAV decline but overhang alleviated; Lowering Target Price to $36 (from $38)

Pueblo Viejo Dominican Corporation (PVDC) reaches an agreement in principle with the Dominican government: "The joint venture owned 60% by Barrick and 40% by Goldcorp reached the agreement in principle after eight months of negotiations with the government. Revenues to the government will be brought forward through a number of proposed changes. The changes could include (i) elimination of the 10% return embedded in the initial capex before the 28.75% NPI kicks in; (ii) an extension to the period over which PVDC will recover its capital investment; (iii) a delay of application of NPI deductions; and (iv) a reduction in depreciation rates."

Net impact of the changes is an economic benefit of $1.5B to the government over the life of mine: "This benefit is based on a 5% discount rate and $1,600/oz gold price. This is a $0.9B attributable impact to ABX and $0.6B impact to GG. Credit Suisse NAV for both ABX and GG is calculated based on a $1,580/oz flat gold price. The preliminary NAV impact is a 2.6% reduction to our ABX NAV and 2.1% reduction to our GG NAV."

While details are limited for detailed modeling at this point, we estimate the near term cash flow impact is more significant than NAV impact: "We estimate a 50/50 split of the pre-tax cash from 2013-2016 would reduce ABX's cumulative operating cash flow by 6% from 2013-2016 and GG's cumulative cash flow by 6.2%. Please refer to full report for details."

We reduce our TP to $36 (from $38), maintain our Outperform rating: "Our TP is based on an even weighting of our NAV valuation, reduced to $35 (from $36) and OpCFa based TP reduced to $37 (from $40). While we've reduced our TP by $2, the agreement alleviates an overhang and we expect a negative outcome was already at least partly reflected in ABX's share price."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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