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."