On Feb 28, we downgraded gold mining giant
Barrick Gold Corporation
) to Underperform based on higher expected costs and somewhat
depressed production outlook for 2013.
Why the Downgrade?
Estimates for Barrick have been declining since it reported
fourth-quarter 2012 results on February 14. The company slipped
to a loss in the quarter, hit by hefty tax impairment charges
related to its copper business.
Adjusted earnings fell year over year but beat the Zacks
Consensus Estimate. The company saw increased cash costs across
its gold and copper businesses. Its production guidance for 2013
reflects a year over year decline.
Following the release of fourth quarter results, the Zacks
Consensus Estimate for 2013 fell 6.8% to $4.50 per share. On a
similar note, the Zacks Consensus Estimate for 2014 also declined
3.8% to $4.83 per share. The bearishness appears to reflect
higher expected costs and lower output. With the Zacks Consensus
Estimates for both 2013 and 2014 falling, the company now has a
Zacks Rank #5 (Strong Sell).
Cause for Concern
Barrick, on Feb 14, said that it expects gold production is in
the band of 7 million to 7.4 million ounces, indicating a decline
from the level it achieved in 2012. Lower anticipated productions
from South America and Africa are expected to mask higher overall
output from North America.
Production from the company's flagship Goldstrike mine is
expected to fall due to lower throughput resulting from the
modification of autoclaves. Productions are also expected to be
lower across Cortez, Lagunas Norte and Veladero mines.
Barrick's prospects are also hindered by rising costs. The
company had to contend with a considerable increase in cash costs
in 2012. Total cash cost jumped 27% year over year to $584 per
ounce of gold. Copper C1 cash costs also climbed 27% year over
year in 2012.
Total cash costs for 2013 have been projected in the range of
$610-$660 per ounce of gold, reflecting an annualized increase,
mostly due to higher labor costs and lower ore grades.
BARRICK GOLD CP (ABX): Free Stock Analysis
BANRO CORP (BAA): Free Stock Analysis Report
SEABRIDGE GOLD (SA): Free Stock Analysis
SANDSTORM GOLD (SAND): Get Free Report
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Gold Mining Stocks That Warrant a Look
While we prefer to stay away from Barrick, other gold mining
stocks worth considering are
Sandstorm Gold Ltd.
Seabridge Gold, Inc.
). All of them are Zacks Rank #2 (Buy) stocks.