Exposure To Country Risk: The Barrick Gold Edition

May.12.13 | About: Barrick Gold (ABX)

Barrick Gold (NYSE:ABX) has a market capitalization of $20.36B which presently puts this company in second place in a ranking of largest gold producers. At the moment Barrick is trading at a forward P/E ratio of 5.6. Analysts seem to tread cautiously despite this extremely low P/E ratio and provide low and median price targets of $22 and $30 respectively with shares of the company trading at $20.31 at the time of writing. Barrick has been plagued by problems in recent times, most notably the issues surrounding the construction of the contentious Pascua-Lama mine at the border between Chile and Argentina. In 2012 Barrick Gold produced a total of 7.42M ounces of gold in mines scattered around 8 countries. The table below gives an overview of attributable production, reserves and resources at Barrick's mines and projects (we used a silver-to-gold ratio of 50 and only considered precious metal content).

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Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. In a series of recent articles we investigated the country risk of various mining jurisdictions in which US-listed precious metal miners are active. We collated country risk ratings for these countries from eight different sources and averaged these ratings into compounded country risk scores. Compounded country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The most recent results from this work can be found in this article. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article.

Earlier in the year we used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies based on 2011 production results and reserve statements. As 2012 data becomes available we are providing updates and in the present article we would like to do so for Barrick Gold. Consolidating Barrick's production and reserve data and computing summations for each country of exposure results in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).

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Observations

The country risk rating for Barrick Gold based on production computes to 33.01 slightly down from last year's rating of 33.68. This rating indicates moderate risk levels about half way between Goldcorp (NYSE:GG) (30.07) and Kinross Gold (NYSE:KGC) (37.13).

Country risk ratings increase to 37.25 when considering reserves. This rating is quite similar to Goldcorp's rating (37.42) in this category. The reason for this increase in Barrick's case is a proportionally higher contribution from the Pueblo Viejo mine in the Dominican Republic, and Pascua-Lama (25%) and Veladero in Argentina. The country risk rating decreases when considering resources due to proportionally higher contributions from operations in Nevada.

Risk levels for 2012 are comparable to last year's data for production-related and reserve-related ratings. The country risk rating based on resources is noticeably lower than last year due to the loss of the Reko Diq project in Pakistan. This development is illustrated by the diagram below.

Note: last year's statistics did not differentiate between different resource classes.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.