So far this year gold´s price has climbed over 10%. And given market circumstances (the sheer number of recession-ravaged countries, continued crisis for the euro and industrialization from China in particular), it is set to rise further in 2012. This article scrutinizes the recent performance and future predictions for the largest cap gold company in the industry, Barrick Gold Corporation (ABX).
Barrick Gold Corporation Common in 2012
Since the start of February, Barrick's share price has fallen from $49.26 to $47.03 at the time of writing, though this figure is still higher than end of December 2011 figures, when Barrick's stock price closed the year at $45.25. The world´s biggest gold company announced that it would be issuing a quarterly dividend of US15 cents, payable on March 15.
Barrick just announced its Q4 financial results with net earnings growing 15%. The company is tipped by many analysts for further growth in 2012. Barrick has announced strong profit margins in 2011 and 2012. This, coupled with expansion in 2012 and 2013, has prompted numerous analysts to tip Barrick as a good long-term stock investment. Another reason for strong analyst backing is that Barrick has a number of upcoming projects in 2012, notably the Pueblo Viejo mine in the Dominican Republic. This mine will begin production this year, whereas in 2013 another new mine will be constructed: The Pascua Lama mine on the Argentina-Chile border.
This analyst argues that Barrick is not valued as highly as it should be by investors, given its 900% earnings per share growth since 2004. The company has started to issue a dividend in order to attract investors, most of whom are seemingly more swayed by ETFs such as the iShares Gold Trust (IAU) or the SPDR Gold Trust (GLD). However, despite pros such as dividend payouts, one risk of investing with a mining company like Barrick or Goldcorp Incorporated (GG) was pointed out by Jamie Sokalksy, Barrick's chief financial officer. Gold production will "be slightly lower" with costs predicted to be 15% higher, limiting growth potential in the near future.
Investing in a gold mining company brings risk that ETF investments don't. There are the huge costs of production and abiding by susceptible-to-change country-specific government regulations. This is particularly important concerning Barrick as it is constructing three new gold mines in different countries. However, with new sources of production, Barrick´s production levels will rise considerably once these mines are up and running. Also, Barrick's profit margins should increase greatly. The Dominican Republic and Pascua Lama mines will produce 1.5 million ounces of low-cost gold. With this production increase, the company will hope to be able to issue higher dividend payments to shareholders. Indeed Dahlman Rose analyst Adam Graf thinks that "Barrick [has] the capacity this year to double [its] dividend and then again, even more so next year". For this reason, Barrick is seen perhaps as a good long-term investment.
Lest gold investors forget the volatility of 2011, falling to $1,530, it is susceptible to a fall. However, most analysts, including Louise Yamada, are in agreement that gold is on the rise in 2012. What will matter significantly though will be mining companies' plans for growth in 2012 and beyond. Barrick is heavily invested in opening up new mines in three different locations. Holders of this stock and investors considering buying should be keeping a close eye on how costs are kept in check and that each project runs smoothly so as not to unexpectedly heighten costs or delay development. Pueblo Viejo and Pascua Lama will cost 3.8 billion dollars and 5 billion dollars, respectively. Can three different projects in different locations be expected to be completed without any incident which may cause a delay and raise costs? Their construction is expected to raise production levels to 9 million ounces of gold annually, further increasing Barrick's position as the largest market cap gold mining company.
If Barrick's new mine projects are constructed on time and within budget, taking into account that the company is actively raising its dividend payment to shareholders and that gold in general is expected by many to rise in 2012, Barrick could represent a profitable investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
