Barrick Gold (ABX), the world's largest gold miner (as measured by production), currently ranks the highest in terms of reserves for gold and copper, with around 139 million ounces of gold and 12.7 billion pounds of copper. When compared to its nearest competitors such as Goldcorp (GG), with 24.62 million ounces of gold and about 3 billion pounds of copper, and Newmont Mining (NEM), with around 28 million ounces of gold and 1.7 billion pounds of copper as on 31st December 2011, it should be easy to imagine why I'm recommending this stock today.
Barrick Gold recently declared that they have achieved first production at the Pueblo Viejo mine located in the Dominican Republic. I understand that this mine is one of those rare mines which is expected to yield more than 1 billion ounces of gold per year at a total cash cost of $400 to $500 per ounce. In the final quarter of calendar 2012, the company expects to produce at an expected cash cost of $300 to $350 for Q4 2012, 625,000 to 675,000 ounces of gold from this mine alone. Furthermore, Barrick Gold is expected to produce 7.3 to 7.8 million ounces of gold in total for the remaining quarter of calendar 2012 at an estimated total cash cost of $550 to $570 per ounce. Barrick's average realized gold price of $1,608 per ounce more than beats out Goldcorp's $1,596 per ounce, for the quarter ending 31st June 2012.
Barrick does post some concerning numbers for investors, which I'd like to bring to the fore at this point. Regarding its operational activities in Pascua-Lama located on the border of Chile-Argentina; this is a project where production of gold has been much lower than expected, and that too at a cost higher than initially estimated ($8 billion, versus $3 based on earlier valuations). In addition, the production which was expected to begin in 2013 will now not begin until mid-2014.
The delay is primarily due to natural causes such as the challenges of working at a high altitude, inflationary pressures and a few other project complexities. As an analyst, I believe the causes are sufficiently outside the control of the management, and hence do not reflect negatively on the operations and management of the company. One of the world's largest mines with around 17.9 million ounces reserves for gold and 676 million ounces of silver, the company expected to produce around 850,000 ounces of gold and 35 million ounces of silver a year from this source.
On the technical front, Barrick Gold appears to be on a great run, as it has outperformed its peers in the industry. With a price earnings multiple of 9 times, which is well below the industry's nearly 15 times, the stock is valued cheaply by far, considering some of its peers such as Goldcorp and Newmont Mining are trading at nearly 28 and 120 times, respectively.
In addition, Barrick leads its peers in return on equity at 16.32% as compared to its competitors such as Newmont Mining at almost 5% and Goldcorp at 8.15%. Barrick ranks high in dividend yield, beating out competitors at 1.80% compared to the industry average of 1.27%. If you're still looking for more reasons, maybe the 20 of the 28 analysts who follow the stock have rated this stock a Buy, the others only a Hold, will push you over the edge.
Barrick's operating margin at 45.54% more than beats out peers such as Newmont Mining at 37.66% and Kinross Gold (KGC) at 31.21%, as well as the industry average of 30%. Consider that in view of the fact that the cash cost for Barrick's production of gold is the highest among the peer group at $613 per ounce. Operating margin for me speaks volumes as it indicates how well the company is performing its day to day operations. I am willing to deal with the higher cost as it is greatly dependent on the resource in question, geological and other considerations which indeed may be outside the control of the producer.
Barrick offers a solid investment opportunity if you are looking for a stable, high growth play on gold (other than physical or ETF). With an appealing price earnings to growth ratio (5 year expected) of around 0.12, you can bet your money that this valuation is more than attractive. Others, such as Goldcorp, reach up to 1.48, and even 7.86 in the case of Randgold Resources Limited (GOLD).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.