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Neutral on Barrick Gold - Analyst Blog

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We maintain our Neutral recommendation on Barrick Gold Corporation ( ABX">ABX ), the largest gold mining company in the world. The company has a portfolio of 25 operating mines with quite a number of advanced exploration and development projects located across four continents.

Barrick Gold posted record third-quarter 2011 results driven by higher gold and copper prices along with higher copper sales volumes. The third quarter reported a net income of $1.37 billion or $1.37 per share.

Adjusted net income was up 52% year over year to $1.39 billion or $1.39 per share compared with $912 million or $093 per share in the prior-year quarter, above theZacks Consensus Estimate of $1.30. Total revenue rose 43.7% year over year to $4.0 billion in the reported quarter.

Barrick Gold is fully leveraged to gold prices, which are likely to remain strong due to a decline in mine supply (which comprises about 60% of the total supply in the gold industry). Strong growth in the world money supply is also supportive of gold prices.

Barrick Gold anticipates that it will benefit from major exploration programs, which are advancing at Cortez, Turquoise Ridge, Ruby Hill and Spring Valley in North America, on early stage targets in the El Indio belt in South America, and atPorgera and on regional targets in the Australia Pacific region.

The Pueblo Viejo andPascua-Lama projects are anticipated to contribute 1.4-1.5 million ounces of average annual production over the first five full years of operation while loweringBarrick's overall total cash costs by about 20%. Production at the Cortez project is anticipated to increase to 1.30-1.45 million ounces at total cash costs of $235-$265 per ounce in 2011.

It is estimated that theBuzwagi project in Tanzania would produce 200,000 oz of gold annually. However, for 2011,Buzwagi production is expected to be higher after successfully addressing production difficulties that began in 2010 due to fuel theft.

Barrick Gold generates strong cash flows, which positions it well to take advantage of attractive development, exploration and acquisition opportunities as they arise. In 2010, the company increased its annual dividend from $0.40 per common share to $0.48 per common share and also moved from a semi-annual dividend to a quarterly dividend. This 20% increase in dividends reflects the company's ability to generate substantial cash flows from operations in a high gold price environment.

However, we believeBarrick Gold is non-diversified with more than 70% of revenue coming from gold sales. Although the elimination of the hedge book has increased its leverage to gold prices, it has also resulted in significant negative retained earnings on its balance sheet.

The slowdown in the global economy, especially in India, could weaken demand for gold. India, which absorbs about 50% of world production, has witnessed sluggish GDP growth. Furthermore, the stronger dollar and negligible rate of inflation could impede the demand for gold. In addition, deficit financing and restructuring plans announced by the central banks to lift the global economy involves the sale of gold, which could again hurt prices.

Barrick faces stiff competition from AngloGold Ashanti Ltd . ( AU ) and Newmont Mining Corp. ( NEM">NEM ).

We maintain our Neutral recommendation onBarrick Gold. Currently, it holds aZacks #3 Rank (Hold) on the stock.

BARRICK GOLD CP ( ABX ): Free Stock Analysis Report

ANGLOGOLD LTD ( AU ): Free Stock Analysis Report

NEWMONT MINING ( NEM ): Free Stock Analysis Report

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


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

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