Barrick Gold (NYSE:ABX) recently announced that it is forming a joint venture for its Jabal Sayid Copper Project in Saudi Arabia. In exchange for $210 million, Ma'aden acquires 50% of the Jabal Sayid JV corporation. Barrick has had trouble meeting Saudi Arabian regulatory requirements, and Ma'aden has expertise in operating mines in Saudi Arabia so the deal makes perfect sense.
I have written a few negative pieces on Barrick, with this being the most recent. Generally I have criticized the company for the following:
- Too much debt.
- A lousy history of capital management.
- An over-emphasis on copper.
- Disregard for geo-political risk.
- A lack of growth.
This deal is a step in the right direction, albeit a small one, with respect to three, or perhaps four of these criticisms. First, by raising $210 million in capital the company can strengthen its balance sheet, although keep in mind that $210 million is virtually negligible with respect to a $13.2 billion debt load. Second, this is good capital management. Third, this divests part of a copper asset. Fourth, it divests an asset in a risky jurisdiction.
So basically I think this is a great deal. But before I get behind the company, I want to see something more drastic, especially with respect to the first, third and fifth points. The company still has way too much debt and too much copper exposure for a gold company, keeping in mind that people invest in gold companies primarily for safety. It also may have some growth in the pipeline, but a project such as Donlin is years away from production, and Pascua Lama has been a disaster with environmental issues and ever rising capital costs. Given these points investors should continue to stay away and look towards other opportunities in the space.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.