Barrick Gold (ABX), which is the world's largest gold company, was recently barred from carrying out its activities in the San Juan province of Argentina, high up in the Andes. The Argentine Supreme Court recently ruled that certain parts of a glacier protection law should apply in the San Juan province of Argentina, where Barrick is building a large mine.
Barrick has maintained that it has never mined anywhere close to glaciers, and respects the environment more than a government could ask for. In this article, I will highlight Barrick's strengths and show how this development will not dampen Barrick Gold's future, and show why this stock is still a strong investment.
Barrick's stock fell by 63 cents to $38.87 on Tuesday, July 3rd, after the supreme court of Argentina decided to stop many of Barrick's activities at Pascua Lama, the world's highest-altitude gold mine. Barrick had discovered 18 million ounces of proven gold reserves, and the project was valued at $5 billion. Does this event signal the end of Barrick's mining activities in Argentina? Not really.
Greenpeace Argentina and the Foundation for Environmental and Natural Resources have long protested mining activities in the Andes, citing several reasons best known to those who are rabidly against any sort of development. It is rather clear that Barrick Gold has followed every rule in the book and the lower courts have previously allowed Barrick to continue its mining activities. The reason why the Supreme Court of Argentina ruled against Barrick is because of the green lobby that has been pressuring certain influential people in the government, and also in the legislative bodies. The mining area not only rests within Argentina, but also spills into Chile, where Barrick runs a very successful business.
Peru and Chile have extremely complex mining legislation that target environmentalists and investors. Argentina, on the other hand, does not have tactful laws that target environmentalists, while also providing the security investors want. The Argentinean government has always played the role of a weak middleman, wherein it easily comes under the influence of the increasingly unreasonable green lobby, yet craves the investment dollars. At this point in time, it is difficult to ascertain how far this legislation is going to affect Barrick Gold. Barrick has maintained that it will continue mining in areas that were cleared for the purpose and agreed upon by the government. Barrick has every right to fight the injunction.
Barrick's attorneys have committed to fighting the unreasonable way the Supreme Court has ruled, and we may probably see a huge outcry from other mining corporations in Argentina as well. At the end of the day, all that Barrick needs to do is prove to the green activists, the government, and the world, that it has always remained environmentally friendly and has never intended to encroach upon the glaciers. It may be difficult for the mining giant to fight Argentinean bureaucracy, but it is certainly not impossible. Argentina cannot afford to stay in the dark ages either, when Chile, Peru, and other competitors have pulled way ahead in terms of mining revenue.
Barrick is currently trading around $39, and its closest competitor, Goldcorp (GG) is also trading around $39. Barrick's estimated annual growth rate is 34.75% for the next 5 years, and Goldcorp's 50-year annual growth rate is estimated at 11.14%. Barrick also has higher earnings per share, which is good news for investors. News like the Argentinean ruling can come as a shock to investors, but that should not really dampen anyone's spirits, because that is exactly how things work in the mining industry. One can't really predict when legislation will change or when governments will turn against mining corporations. In spite of these insecurities, Barrick is doing extremely well when compared with its competitors like Goldcorp. The fact that Barrick has a 5-year growth estimate of 35% while maintaining its position as the world's largest gold mining company makes me want to support the company with all the investments that I possibly could afford.
Other competitors like VALE (VALE) and Rio Tinto (RIO) are busy concentrating on coal in countries like Mozambique, which is a good thing for Barrick. It only has to compete with Goldcorp, and considering the numbers, it seems like Barrick will outrun its competitors easily. The confusion set off by the Argentinean court is not to be taken seriously as it will eventually clear up. Argentina has no choice but to let Barrick continue its mining activities sooner or later, as not doing so would be a breach of contract.
In hindsight, there would have been a problem if Barrick did not follow all the environmental guidelines that were laid out initially. Yet, the company has not only followed those guidelines, but has stuck to the area that was predefined in the contracts. Legally, Barrick is still in a strong position, and environmentally, it has done no harm to the glaciers of the Andes. It is in the interest of the Argentinean government to take a second look at the recent ruling. BHP Billiton (BHP) similarly had problems with the Australian government, as it did not use its mine for a long period of time, and also did not meet environmental standards. However, Barrick has met all the standards and has been following the guidelines. I urge investors to strongly consider buying Barrick today.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.