Barrick Gold: Higher Cash Costs Weaken Upside

Barrick Gold Corp.'s (ABX) higher cash cost guidance will likely dampen upside in the stock, says RBC Capital analyst Stephen D. Walker.  

Mr. Walker decreased his price target on Barrick shares from C$48 to C$45 and maintained his "sector perform" rating after increasing his 2008 average total cash cost forecast by C$30.  The analyst's new price target represents a roughly 12% premium on the stock, currently trading at C$34.06, down C$0.74 in afternoon trading Monday.

In a report to clients, Mr. Walker noted:

In the release of Barrick's Q2/08 results, management increased its 2008 average total cash cost guidance range to C$425 per ounce to C$445 per ounce (prior: C$390 per ounce to C$415 per ounce), citing energy and consumable cost pressures.

We have increased our 2008 average total cash cost estimate to C$441 per ounce (prior: C$411 per ounce), at the higher end of the new guidance range.

Mr. Walker left his 2008 gold production forecast for Barrick unchanged at 7.5 million ounces, to reflect management's view that production will trend towards the lower end of the company's guidance of between 7.6 million and 8.1 million ounces.

Comments

[MARK&SHARK:]

I have read 2-5 words of it,maybe you are right.
I looked at ABX ( BNY Jaywalk Research ) balance sheet,as being futures/options investor for the last 5 years (since then I never looked back to stocks in general,as investment) I like ABX as know the company since 1997 and have friends who invested since then and still hold it,of course they are not happy as stock didn't perform good lately.
So,ABX grew it's revenue in line with price of Gold since then as this is low risk run company,that sells it's metals on cash and forward markets.The recent price is very undervalued if one looks at Gold price today,the ABX must sell at 40-45 at least a share,but it looks that insiders and major nvestors or miss bigger picture or they expect GC to head sharply lower in the future.
Bottom line,ABX as equity investment is well protected from further fall in GC price the only problem is their aquisitions that were built on higher GC prices.If price of GC will rise (ABX don't see it now) the stock is well positioned to outperform other,weaker mining companies.
I would definitely buy ABX but would hedge my exposure with covered calls on ABX LEAPS.
Good luck,now I must trade other things.

2008 Aug 26 06:43 AM

[Dave G:]

While $40/oz is a higher cost, how significant is that in a market that moved up $20 in three hours - as it just has today. Predicting the price is all but impossible, as anyone following the experts recently has found out . The price of ABX is cheap as insurance against a systemic financial collapse.

Once again, the experts one year ago scoffed at this outcome- and now after one $trillion in interventions, there is no evidence that the over-leveraged banking/ government funding system can survive in its present form.

This stock - and the other high quality gold miners - should be trading at a premium, rather than a discount, to reflect the uncertainty of financial conditions around the world. My opinion is that investors are more a victim of de-leveraging across the board and official attempts that so far have been successful at suppressing the price of gold.

ABX remains the cheapest of all insurance policies against a collapsing $US dollar.

2008 Aug 26 10:47 AM