Current shareholders should hold Barrick Gold Corporation (ABX) for the long term. Interested investors should consider the global economic uncertainty and speculation surrounding recovery efforts as creating opportune entry points for this sector in 2012. Barrick is one of the leading firms in the gold mining industry and is taking steps to reduce its costs; Barrick is also improving its copper franchise. Developments in the eastern hemisphere thus far in 2012 bode well for gold investment in the near term, and for ROI in the long term as well.
Barrick's second quarter showed slower growth and higher operating costs; management projected an improved performance for the second half of 2012. Barrick projects its production base to be over 800 million ounces of gold by 2015, and over 600 million pounds of copper by 2013. Second quarter net earnings totaled $0.76 billion, decreasing from $1.16 billion YOY. Barrick's second quarter gold production totaled 1.74 million ounces, and copper totaled 109 million pounds.
Freeport-McMoRan Copper & Gold (FCX), Goldcorp (GG), Newmont Mining (NEM), and Kinross Gold (KGC) are gold mining firms that are comparable to Barrick. Barrick's price is around 9.6 times earnings, 2.6 times sales, and 1.6 times its book value. Barrick has the lowest price-to-earnings ratio among the firms; Newmont Mining's price is around 93.9 times earnings and Goldcorp is around 26.7 times earnings.
Freeport-McMoRan's 2.02 price-to-sales ratio and Kinross Gold's 0.88 price-to-book value are the lowest among the firms. Barrick's current ratio is around 1.6, while its 0.56 debt-to-equity ratio is the highest among these gold mining firms. Its annualized dividend is around $0.80 per share.
Barrick's $4.10 EPS and 29.1% EPS growth in 2012, are the highest among these firms; its 20.9% projected EPS increase in 2013 is the lowest among the firms. Barrick's sales have increased 20.5% over the past five years. Its ROE is around 17.7% and its profit margin is around 28%; its 42.9% operating margin is the highest among these firms.
Barrick's float short is around 0.90% and its short ratio is around 1.1. Barrick's beta is around 0.4, and its average volume is around 8.08 million. This stock has decreased 11.5% YTD and declined 3.5% over the past month, but has increased around 17.9% since its last earnings release.
Gold's price was increasing in late October on the back of investor optimism regarding stimulus efforts in Asia and Europe to stabilize the respective economies. New light shed on the potential for a Spanish bailout request also contributed to the latest gold market activity.
The Fed's effort to suppress interest rates through 2015, and to purchase $40 billion in MBS each month also led to positive sentiment for gold's near- and long-term performance in the market. Analysts expect funds that loaded up on gold before QE3 to sell in the near term in order to post favorable profits for the year's end.
The recent decline in Barrick's stock has presented an appealing opportunity for investors to initiate a position to realize capital appreciation. Barrick's position as the largest gold miner makes it one of the most attractive stocks in the gold mining sector.
The struggling economies around the world are generally bullish for these stocks; the recent resurgence in the US dollar is typically bearish for gold sector stocks. The current weakness in the gold sector creates an opportune entry point for interested investors. There are a number of indications to support a bullish outlook on gold and Barrick's performance for the long term.
The primary proponents for the positive outlook for 2012 and beyond are Barrick's leadership position in the sector, its improving operations, and commodity market developments, alongside macroeconomic and projections. Barrick's $7.2 billion acquisition bolsters the firm's copper productions.
Copper prices are set to rebound with the onset of increased economic growth from China's recovery efforts and stimulus package for infrastructure development. Barrick is also focused on divesting non-core assets in order to help streamline operations.
According to the World Gold Council, gold demand in 2011 totaled 4067.1 tons, the equivalent of $205.5 million, increasing 0.4% YOY; this was the highest amount of tonnage valued over $200 billion since 1997. The increase was primarily driven by investment sectors in Europe, China, and India. Second quarter 2012 gold demand totaled 990 tons, increasing 7% YOY.
Declining demand from technology, investment, and jewelry sectors due to high prices offset the increased demand from central banks. Central banks totaled 157.5 tons, accounting for 16% of total demand, increasing over 100% increase YOY. Second quarter gold demands total value was $51.2 billion, decreasing 1% YOY. The average second quarter price for gold was $1609.49, increasing 7% sequentially.
Second quarter technology demand decreased 5%, jewelry demand decreased 15%, and investment demand decreased 23% YOY, respectively. Investment demand declined partially due to lower ETF demand in regions like China and India. Technology demand declined due to increasing gold prices, weaker consumer demand, and more attractively priced alternative materials.
India's jewelry sector has the highest demand for gold, but it decreased 30% YOY in this region, and gold's price is currently flirting with all-time highs in this region. Gold demand in China totaled 93.8 tons, decreasing 9% YOY due to the slowing economic growth in the region.
Gold mine production for the quarter totaled 706.4 tons, increasing 3% YOY. Russia's contribution is increasing, the country accounts for 8% gold output worldwide. Gold prices in 2012 have ranged from $1540 to $1791.75 per ounce; the average price has been around $1656.18 per ounce; the average price in 2011 was $1572 per ounce. The latest round of QE3 led to the resurgence in gold prices; the circumstances in Europe and declining economic growth in China also led to the increase gold prices.
Kinross Gold's revenues have been benefited, while firms like Barrick, Goldcorp, and Newmont Mining need to manage costs before realizing increased earnings off the recent increases in gold prices. This serves as an opportune entry point for investors, as Barrick is currently streamlining its operations to reduce costs. As one of the leading gold mining firms worldwide, Barrick is an appealing investment for investors bullish on gold's long-term outlook.