On Sep 26, we upgraded world's largest gold miner
) to Neutral. While we take into account uncertainties
surrounding its Pascua-Lama mine, we are encouraged by the recent
improvement in the gold price environment.
Why the Upgrade?
Barrick slipped to a loss in second-quarter 2013, reported on
Aug 1, hit by a sizable impairment charge and a double digit
decline in gold price. However, both adjusted earnings and sales
beat Zacks Consensus Estimates. Both gold and copper production
increased year over year in the quarter.
Barrick maintained its gold production guidance for 2013. The
company cut its budgeted capital spending and costs by around $2
billion for 2013 and also trimmed its cost guidance for the
Barrick, a Zacks Rank #3 (Hold) stock, should gain from the
recent recovery in gold prices. The yellow metal got a fresh
lease of life following the Fed's decision to continue with its
$85 billion a month bond buying program.
Gold recovery is picking up steam as reflected by the rebound
of prices to a $1,300 plus territory after touching a three-year
low of $1,180.71 in Jun 2013. The prevailing geopolitical and
macroeconomic uncertainty may support gold demand as investors
look to avoid risky investments, which augurs well for gold
miners like Barrick. Improving physical demand, tensions in the
Middle East and uncertainties surrounding U.S. budget and debt
ceiling are expected to support gold prices.
Barrick also has a sound liquidity position and generates
healthy cash flows, which positions it well to take advantage of
attractive development, exploration and acquisition
opportunities. The company continues to make high return
investments in its businesses.
However, uncertainty surrounding the Pascua-Lama project is
weighing on Barrick's stock price. The company's prospects hinge
heavily on the Pascua-Lama mine which overlaps the border of
Chile and Argentina.
Barrick, in April 2013, halted construction work at
Pascua-Lama after a Chilean court issued a preliminary injunction
citing environmental concerns. It was fined roughly $16 million
by a Chilean regulator for environmental violations.
Barrick will have to complete the project's water management
system according to its environmental permit to the satisfaction
of Chile's environmental regulator. As such, construction at
Pascua-Lama has been delayed and Barrick now expects first
production from the mine by mid-2016 compared with the earlier
expectation of second-half 2014.
Other Stocks to Consider
Other companies in the mining space with favorable Zacks Rank
Gold Fields Ltd.
Alamos Gold Inc.
Lake Shore Gold Corp.
). All of them hold a Zacks Rank #2 (Buy).
BARRICK GOLD CP (ABX): Free Stock Analysis
ALAMOS GOLD INC (AGI): Free Stock Analysis
GOLD FIELDS-ADR (GFI): Free Stock Analysis
LAKE SHORE GOLD (LSG): Free Stock Analysis
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