Barrick Gold (ABX) has had a tumultuous last few weeks that lead analysts to speculate about the company's future. In a move that shocked analysts and investors alike, Barrick recently ousted its former CEO, Aaron Regent, claiming this was a move to better poor share-price performance. Former Chief Financial Officer Jamie Sokalsky has now taken the reins.
Barrick's stock has been underperforming as of late, but this is not atypical for market conditions or in comparison to its competitors. The state of the mineral market is always a good microcosm to look at for the global economy at large, and with the international Recession and uncertainty in Europe, Barrick's lackluster performance is not too far from the norm right now.
For 2012, Barrick's gold production is expected to land somewhere between 7.3 to 7.8 million ounces at a net cash cost between $400 to $450 per ounce. The copper output for 2012 is hedged around $3.75 per pound.
After the first quarter of this year gold production came in at 1.88 million ounces, and copper came in at 117 million pounds. The first quarter dividend was raised to twenty cents per share, giving the stock a yield of more than 2%. Now in the third quarter of 2012, that dividend has remained the same. Barrick currently has a market cap of 40.34 billion and a price to earnings ratio of 8.95.
It is unusual to find a large mining company with a substantial growth profile, but Barrick provides that to its investors. The company has several major projects that are forthcoming in 2012, and this will provide a huge amount of cash flow to investors over the next few years as production gets going.
Barrick's 2012 exploration budget has $65 million devoted to Goldrush in Nevada, where there are currently eleven drill rigs. The company has been speculating upgrades and additions to this mine, as well as its Turquoise Ridge mine.
Barrick's exploration and development won't stop at this mine, however (its exploration budget hovers around $450 million). They intend to get the Pueblo Viejo development pipeline up and running for production by midyear, and Jabil Sayed will see production commence in the second half of the year.
The third experimental and exploratory project is currently underway in Pershing County, Nevada. Barrick Gold, along with Midway Gold (MDW), are attempting to see what they can gather at the Spring Valley Project. Barrick has budgeted $11.5 million dollars towards Spring Valley, so they clearly believe that gold can be found there. Earlier in the month Barrick reported that they had already found high quality gold in the area and were going to continue to pursue exploration there in hopes of finding more. The company will earn 60% interest on the Spring Valley project by completing expenditures worth $30 million before December 13, 2013.
Barrick Gold is predicted to outperform competitors this year. One of these competitors is Goldcorp (GG). The company has a market cap of 31.47 billion and a dividend yield of $0.05, or 1.39%. To date, Goldcorp is up 4% while Barrick is down 12%. If gold prices increase, then Goldcorp risks being outperformed by Barrick.
Federal Deposit Insurance Corporation (FDIC) recently proposed new regulations that change the measurement of risk-weighted assets (very important for the minerals market). This basically means one important thing: banks are now allowed to use gold reserves to lessen derivative risk with a zero percent risk rating. In laymen's terms? Gold is now as good as cash. Historically, gold has been a safe haven as well as an inflation hedge. This means that while investors might not be claiming for gold, it must then be the banks that are increasing the demand. As a result, stock prices for Barrick and its competitors will increase as demand increases. It is still too early to tell one way or another how this will impact the market. Will banks really open their arms to gold as riskless asset? On that we will just have to wait and see.
This increase in the demand of gold can be prey to seasonality. Jewelry is the most common form of gold use, and this demand does tend to fluctuate with the seasons. This demand normally dips in the first quarter of the year, but in the third quarter, the demand for jewelry seems to be increasing. Following this typical pattern, the gold market should remain relatively predictable for the time being.
A corporate shakeup is never a good thing for stock prices, but when poor stock prices are the reason a company gives its CEO the boot, things can hopefully only go up from here. As previously mentioned, the stock prices for gold should increase as the demand for gold increases. And with all the continued exploration work being done, one can only assume that these increases hold true. If not, you will without a doubt see some of the CEOs of Barrick's competitors out of a job. If that's the case, and these expectations do not hold true, stock prices would plummet in this particular case.
Despite the uncertain global markets, analysts like Barrick and where it is headed in addition to asserting that it is a fundamentally strong stock at the moment. The new CEO should help the company's direction and focus. The conditions of the gold market might not increase this year, but once international markets stabilize and banks ease, Barrick's stock prices could increase drastically.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.