Barrick Gold Corporation (ABX) is an appealing asset for a long-term defensive position against unpredictable U.S. and international macroeconomic conditions. Below, I will explain why current shareholders should hold onto this stock for the long term, while interested investors should consider this asset as Barrick Gold begins divesting assets under its new Capital Allocation Framework. Under the new leadership of CEO Jamie Sokalsky, former CFO, Barrick is focused on mitigating costs of non-core and costly operations, while increasing its focus on gold and copper assets in order to improve returns to shareholders.
Barrick Gold is most comparable to other gold mining firms based in North America like Goldcorp Inc. (GG), Newmont Mining (NEM), Agnico-Eagle Mines (AEM) and even Silver Wheaton (SLW), which has non-core gold assets. Barrick has the highest market cap among these firms, while it has some of the lowest price valuation ratios. Barrick's PEG ratio of around 0.33 and beta score of around 0.44 are also among the lowest of these firms. At around 0.56, Barrick has the highest debt-to-equity ratio among these firms, while Goldcorp has the lowest at around 0.03. With a current ratio of around 1.64 and a quick ratio if around 0.95, Barrick's metrics are sufficient, but still among the lowest of the North American gold mining firms.
Barrick's sales growth over the past five years is around 20.51%. This is only higher than Goldcorp's rate of 16.23%. Silver Wheaton has the highest sales growth over the past five years at around 35.72%, Agnico-Eagle Mines is the second highest at around 30.23%, and Goldcorp sales growth for the same timeframe is around 26.59%. At around 5.97%, Agnico-Eagle Mines has the best sales growth in the previous quarter year-on-year (YOY).
At around 4.04%, Barrick Gold has the smallest sales deficit in the past quarter YOY in comparison to Newmont Mining's deficit of 6.5% and Goldcorp's deficit of 15.87% in the same timeframe. At a deficit of around 18%, Newmont Mining is the worst performing stock among these firms YTD through the end of August 2012. Barrick's stock is performing at around a 17% deficit in the same timeframe. But, this stock has increased by around 14.9% since its last earnings release.
Barrick's recent earnings release covered achievements and setbacks in key operations, while reaffirming and reevaluating appropriate aspects of its initial guidance. In the second quarter, total revenue decreased to $3.28 billion from $3.42 billion YOY. Revenue in the first half of 2012 increased to $6.92 billion from $6.5 billion YOY. Net earnings in the second quarter decreased to $750 million from $1.16 billion YOY. In the second quarter, Barrick Gold production was 1.74 million ounces and sales volume was 1.69 million ounces, both decreased 12% YOY. This was due to lower production at Goldstrike, Cortez and Veladero. Total cash costs for gold increased 38% YOY to $610 per ounce during the second quarter.
Barrick maintains it initial guidance for 7.3 to 7.8 million ounces of gold for 2012, production is expected to increase in the second half, as operations at Pueblo Viejo begin and production at Goldstrike and Lagunas Norte improve. The 2012 guidance for production costs increased from $550 to $575 per ounce due to increased costs at the Australia Pacific and at African Barrick Gold assets. The average realized price for gold during the second quarter was $1609 per ounce, a $103 increase per ounce, YOY.
Revenue from gold declined 6% YOY to $2.82 billion during the second quarter. Revenue from copper during the second quarter decreased 19% YOY to $396 million. In the second quarter, copper production increased to 109 million pounds from 93 million pounds, YOY. Barrick expects 25 to 35 million pounds of copper during 2012 from its Jabal Sayid asset, despite the one month delay earlier in the year.
The full year guidance for copper production was lowered to 460 to 500 million pounds due to decreased production at Lumwana. The reported revenues were due to higher copper volumes, offset by lower copper prices and lower gold volumes partially offset by higher gold prices during the quarter. Under the Capital Allocation Framework, Barrick is focused on maximizing risk-adjusted returns through exploration, divestures and acquisitions targeted towards organic growth. The annual production base for gold is expected to increase to 8 million ounces by 2015 and the annual production base for copper is expected to increase to 600 million pounds by 2013. Under a Lumwana and Zaldivar Sulfides expansion, the copper production base could eventually exceed 1 billion pounds per year.
The Pueblo Viejo asset is expected to contribute to commercial production during the fourth quarter of 2012. Barrick has 60% stake in this asset that is expected to yield 100,000 to 125,000 ounces of gold at $400 to $500 of total cash cost per ounce. Under the first five years of production, Barrick expects 625,000 to 675,000 ounces at $300 to 350 of total cash cost per ounce.
Barrick recently entered into talks with China National Gold in an attempt to divest its 73.9% stake in African Barrick Gold as a part of the Capital Allocation Framework. Second quarter production from this asset was 0.11 million ounces of gold at a total cash cost of $950 per ounce. The 2012 expectation for Barrick's share in this asset are .5 to .535 million ounces at $790 to $860 per ounce. Barrick has faced schedule delays and increased capital requirements for its Pascua-Lama asset, but remains committed to achieving initial gold production here by 2014.
Once in production, this asset can be one of the largest and lowest cost mines worldwide; Barrick expects 800,000 to 850,000 ounces of gold and 35 million ounces of silver from this location within the first five years of production. Barrick had success in key operations throughout 2012, and it is currently reviewing its portfolio to establish the most advantageous divestitures looking forward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.