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Barrick Gold: An Interesting Pick For The Second Half Of 2015
- Barrick Gold, with strong fundamentals, a prudent financial strategy and a low all-in sustaining cost, is an attractive stock to consider.
- A liquidity position of $6.7 billion gives the company strong financial flexibility for investment-driven growth when gold prices resume an uptrend.
- Barrick Gold is positioned to generate approximately $5 billion in annual operating cash flows if gold does move higher by 30% from current levels.
- The stock is worth accumulating at current levels, and accumulation can be accelerated toward the second half of 2015.
- As gold prices have been rebounding, a growing divergence can be seen between Barrick's share price and the price of gold.
- Barrick has been downgraded recently by a variety of investment banks, including JPMorgan Chase & Co., RBC, and Macquarie.
- However, Barrick reported some good news recently with an extension of its silver streaming agreement with Silver Wheaton.
- In spite of this agreement and given Barrick's many problems, it should continue to be avoided.
Update: Supreme Court Of Chile Rejects Barrick Gold's Appeal On Pascua-Lama
- The Supreme Court of Chile has declined to consider Barrick's appeal regarding sanctions imposed on the Pascua-Lama project by the country's environmental regulator.
- The news could set back development of Pascua-Lama even further.
- Barrick Gold will likely keep trying to develop and initiate production at Pascua-Lama, given the enormous amount of cash already spent on the project.
- Still, the issues at Pascua-Lama are well known and already priced into the stock; I think shares are a buy here.
- Barrick Gold recently reported that the Supreme Court of Chile didn’t approve its appeal.
- There is still a high level of uncertainty around the future of this mine.
- The low prices of gold and silver are also weighing in on this mine’s profitability.
Update: The Chilean Supreme Court Rules Against Barrick On Pascua Lama
- The Chilean Supreme Court ruled that it will not hear Barrick's appeal of a lower court decision regarding Pascua Lama.
- I had not anticipated this although it is not especially surprising.
- Pascua Lama has been a disaster for years now and investors should ascribe little value to it, and possibly negative value given it is draining capital.
- Barrick is so cheap that it is worth buying nonetheless, but there are superior options in the gold mining space.
- Barrick has been dealt another blow after Chile's Supreme Court ruled it would not hear an appeal on its Pascua-Lama fine.
- Because of this ruling, the initial $16 million fine can be raised up to twenty times higher, or between $130 and $300 million.
- The ruling puts further pressure on the Pascua-Lama project.
- Barrick's stock price and the price of gold appear to be diverging.
- Because of numerous unresolved problems, Barrick should continue to be avoided.
Has Barrick Gold Done Better In The Fourth Quarter?
- Barrick Gold’s revenue for the fourth quarter is expected to fall by 21%, year over year.
- The ongoing low gold prices are likely to reduce its profitability.
- Barrick Gold is likely to reach its annual production goals while maintaining low all in sustaining costs.
- Even more negative news has come out on Barrick, especially the closure of the Lumwana copper mine.
- By a wide range of metrics, Barrick looks weak and its overall outlook appears bearish.
- There are additional long-term problems Barrick faces with Pascua-Lama.
- Barrick remains a value trap that should be avoided.
Barrick Gold's Equinox Acquisition Is Officially A Bust
- Barrick announced yesterday that it was shutting down its Lumwana copper mine.
- The company made several mistakes when it purchased Equinox Minerals.
- Even if Lumwana comes back on line, Barrick still isn't going to get back much of the money that it spent on Equinox, as Lumwana is a high cost mine.
Update: Barrick Gold Is Putting Pressure On The Zambian Government
- Barrick Gold will shut its Lumwana copper mine down in Q2 2015.
- This is a surprise, as I didn't expect the Zambian government to have it in them to push a hefty royalty increase through.
- The investment thesis will only be minimally impacted, but an impairment charge on the value of Lumwana could result in a book value decrease of $1/share.
Update: Barrick Gold Suspends Its Lumwana Mine As The Royalty Rate Spikes To 20%
- Barrick Gold just announced that it is suspending its Lumwana Mine in Zambia due to a high royalty rate.
- I had not anticipated this back in October.
- Barrick is de-risking which is a positive development, but this means less production and less cash flow going forward.
- Barrick Gold has announced it will suspend operations at its Lumwana copper mine in Zambia as the country hiked royalty rates to 20%.
- Barrick also plans to report an impairment charge related to Lumwana in the fourth quarter.
- This news may appear negative, but Lumwana was a higher-cost operation that wasn't very profitable to begin with. It was also mentioned in the company's Q3 report.
Insiders Are Buying Shares Of Barrick Gold - Should You?
- Barrick Gold insiders are buying shares hand over fist as the stock price is at its lowest point in two decades.
- The stock is being weighed down by the company's high debt load and a lower gold price.
- However, Barrick owns several outstanding gold assets such as the Goldstrike, Cortez, and Pueblo Viejo mines; I also like several of the company's development assets.
- I think shares of Barrick provide investors with an excellent long-term buying opportunity as a result.
Update: Barrick Gold Completes Its JV Deal With Ma'aden For Its Saudi Arabian Jabal Sayid Copper Project
- Barrick Gold just finalized its JV with Ma'aden for its Jabil Sayid Project.
- I had anticipated this and lauded the consequent de-risking of this deal in a recent article.
- Barrick is not the best gold play out there by a long shot, but it may have reached a level where it offers compelling value.
- The Pascua Lama project is an endless money pit.
- With a Q3 debt/equity ratio of 1.83 and $12.9 billion in outstanding debt, Barrick is overleveraged.
- Gold prices will continue to depreciate this quarter.
- High management turnover indicates continued business turmoil.
- Barrick Gold just announced that Shaun Usmar will take over as CFO starting February 18th.
- I had not anticipated this.
- Barrick has been shaking up management for years now, with improvements coming inconsistently, and I remain skeptical that this is a viable investment.
- Barrick Gold is set for an enormous stock jump IF the Pascua Lama project flourishes.
- Barrick dropped $12 billion cash on Equinox and Pascua Lama, and while there is really nothing to show so far, the potential gains are staggering.
- The Equinox purchase was and always will be a bust, but there is a bright future for the Pascua Lama mine.
What It Really Costs To Mine Gold: The Barrick Gold Third Quarter Edition
- Barrick’s gold-equivalent production costs on both a core and a core non-tax basis fell noticeably in the third quarter.
- Third quarter cost decreases were due to a combination of increased production and lower nominal costs.
- Though the company had a very good quarter, investors should still be careful as it will be important to see the company maintain its cost structure moving forward.
Update: Barrick Gold Hopes To Proceed With Pascua-Lama
- Barrick Gold states that it hopes to proceed with the giant project.
- The company estimates that the development of the project will cost additional $4 billion.
- Deteriorating gold prices pressure Pascua-Lama's economics.
Gold Market Dynamics And Problems In Zambia Make Barrick Gold A Risky Investment
- Barrick Gold is taking a number of steps to increase production and lower costs, but weak gold pricing and demand make a turnaround difficult.
- Barrick is facing political issues in Zambia, and might be forced to exit the country after investing heavily.
- Barrick has huge debt.
Wed, Jan. 14, 6:25 PM
- Goldcorp (NYSE:GG) could soon join a group of large gold miners that have a net loss to show for their entire history as corporate entities, Financial Post's Peter Koven writes.
- GG warned this week that it expects to record a $2.3B-$2.7B impairment charge on its Cerro Negro mine in Argentina; since the miner’s retained earnings were $2.2B as of Sept. 30, they may be completely wiped out in its next quarterly report.
- That's not unusual in the gold industry, where writedowns have destroyed historic profits in recent years: Barrick Gold (NYSE:ABX) has retained earnings of -$7.8B, Kinross Gold (NYSE:KGC) has -$8.5B in historic losses, AngloGold Ashanti (NYSE:AU) has -$4B, and Agnico Eagle Mines (NYSE:AEM) has a mere -$740M.
- The writedowns are non-cash and have no impact on day-to-day operations, but they have damaged the reputations of gold miners and drove away investors who have proven tough to woo back, Koven writes.
Fri, Jan. 9, 10:41 AM
- Nearly every sell-side analyst calls Barrick Gold (ABX +1.5%) a Buy or a Hold after shares have lost ~40% in the past six months, but Macquarie downgrades the stock to Underperform with an $11 price target, saying ABX has limited options to repair its balance sheet and needs more time to regain investor confidence.
- ABX already has taken $14.2B in various writedowns, and the firm foresees another ~$2.5B impairment charge on the Lumwana mine in its Q4 results, but writedowns are old news and already baked into the stock price; a bigger concern, Macquarie says, is how ABX will improve its shrinking production profile and troubled balance sheet down the road.
- ABX is looking to boost output at its Goldstrike operation in Nevada by using a new commercial process to extract gold using calcium thiosulphate instead of cyanide, but Macquarie considers the process very complex and risky, and doubts ABX will reach its production targets anytime soon.
- Earlier: Barrick Gold downgraded at RBC following recent bump
Thu, Jan. 8, 11:36 AM
- Barrick Gold (ABX +1.1%) is downgraded to Sector Perform from Outperform with a $14 price target, down from $17, at RBC after rising more than 5% YTD, citing uncertainty about the miner’s debt and capital allocation.
- RBC notes that ABX’s debt-to-total-capital ratio is 45%, so its financial leverage is higher than average, and points to market concerns about how ABX will fund future capital and repay debt.
- The firm believes ABX needs to generate excess cash to reduce its ~$13B in long-term debt through the sale of non-core assets or from free cash flow, as well as create operating joint ventures for its copper and gold mines, or negotiate strategic financing agreements.
Tue, Jan. 6, 5:45 PM
- Silver Wheaton's (NYSE:SLW) amended agreement with Barrick Gold (NYSE:ABX) to receive silver from the Pascua-Lama mine benefits both companies, Cowen analysts say, helping ABX conserve cash while allowing SLW to hold optionality at $1,200/oz. gold.
- For ABX, the new deal provides three additional years to repair its balance sheet, find alternative financing, or wait for a higher gold price, as well as delaying the potential impact of a multimillion dollar payout to SLW; in return, SLW will maintain its optionality in Pascua-Lama, which - if the mine ever achieves production - could provide nearly 60M additional silver oz. over the asset’s first 10 years of mine-life at a cost of ~$4/oz.
- J.P. Morgan says the deal should have no material impact on ABX’s valuation since Pascua-Lama is seen by the market as an out-of-the-money option to which little value is assigned for now.
Tue, Jan. 6, 3:33 PM
- Gold (NYSEARCA:GLD) extends its recent gains on safe-haven buying, with Comex gold for February delivery gaining 1.3% to a three-week high $1,219.40/oz.
- As investors worry that the slide in oil prices is signaling potential problems with global growth, gold is enjoying a flight to safety which is offsetting the threat of an interest rate hike from the Fed.
- Precious metals miners are enjoying strong gains for the second straight day: GG +7.3%, ABX +2.5%, NEM +3.7%, SLW +3.3%, FNV +1.2%, EGO +3.8%, IAG +7.2%, GFI +4.2%, AUY +10.7%, KGC +11.5%, RGLD +1.7%, AGI +5.3%.
- ETFs: GDX, NUGT, GDXJ, AGQ, DUST, SIL, USLV, JNUG, ZSL, UGL, GLDX, DGP, GLL, UGLD, JDST, DZZ, SLVO, GLDI, DSLV, SLVP, DGL, DBS, SILJ, DGZ, RING, SGDM, DGLD, PSAU, TBAR, USV, UBG, GLDE, BAR, GYEN, GEUR, BARS, GGBP
- Gold (NYSEARCA:GLD) extends its recent gains on safe-haven buying, with Comex gold for February delivery gaining 1.3% to a three-week high $1,219.40/oz.
Mon, Jan. 5, 10:25 AM
- Silver Wheaton (SLW -0.3%) says it has again extended a silver streaming agreement related to Barrick Gold's (ABX -2%) halted Pascua-Lama project, giving it another 15 months of silver production from three of ABX’s other projects.
- SLW’s streaming agreement for Pascua-Lama started in 2009, when it agreed to buy 25% of the silver production from the project plus 100% of the production from ABX’s Lagunas Norte, Pierina and Veladero mines; when ABX suspended construction of Pascua-Lama to cut costs amid slumping gold prices, SLW began receiving additional production from the other three ABX mines.
- SLW now will be entitled to additional production from the three mines until March 2018.
Fri, Jan. 2, 8:47 AM
- Barrick Gold (NYSE:ABX) says Chile's Supreme Court has refused to hear its appeal of a lower court's decision involving fines imposed on the Pascua-Lama gold and silver project by the country's environmental regulator.
- The regulator fined ABX $16M near two years ago for not complying with environmental requirements, and says it will now re-evaluate the fines it imposed on the project.
- ABX halted development of Pascua-Lama, once its biggest new development project, in Oct. 2013 after struggling with political opposition, permitting issues, labor unrest, cost overruns and falling gold prices.
- ABX -1.3% premarket.
Dec. 30, 2014, 4:18 PM
- With the dollar falling against the yen and pound and a minor flight to safety afoot - Treasurys are higher, stocks have closed moderately lower - COMEX gold is up 1.4% today to $1,197/oz., and COMEX silver is up 2.6% to $16.20/oz. The gains have provided a lift to the volatile/beaten-down shares of gold and silver miners.
- Notable gold gainers: IAG +11.7%. ABX +3.6%. AUY +5.2%. NEM +3.6%. GG +4.6%. AU +4.2%. SBGL +4.9%. KGC +4.1%. AGI +5%. AEM +5.1%.
- Notable silver gainers: AG +7.6%. SVM +7.1%. SSRI +6.2%. SVM +6.4%. PAAS +3.9%. SVLC +5.2%. EXK +6.9%.
- ETFs with 3%+ gains: NUGT +10.1%. GDXJ +5.1%. USLV +9.7%. UBG +5.4%. USV +3.8%. SIVR +3.4%. AGQ +6.3%. BAR +3.2%. DBS +3.2%.
- The group rallied on Friday after the PBOC relaxed lending rules for banks, but sold off on Monday.
Dec. 26, 2014, 3:34 PM
- Spurred by hopes China's efforts to relax lending rules are a sign that broader (inflation-boosting) stimulus efforts are on tap, gold and silver prices are rallying, and taking the shares of miners up with them. COMEX gold is up 1.8% to $1,194.50/oz., and COMEX silver is up 2.5% to $16.11/oz. GLD +1.7%. SLV +2.2%.
- Gold stocks: AUY +3%. GG +4.6%. AGI +4.1%. ABX +3.4%. KGC +3.7%. GFI +3.7%.
- Silver stocks: SLW +2.3%. SSRI +6.9%. PAAS +1.9%. AG +3.6%. CDE +4.1%. HL +4.2%. SVM +6.8%. EXK +5.4%. TAHO +5.3%.
- Like many other commodities names, the group was hit hard a month ago when crude prices plunged in response to OPEC's decision to leave oil production unchanged.
- ETFs: AGQ, IAU, USLV, SIVR, SGOL, ZSL, UGL, DGP, GLL, UGLD, DZZ, SLVO, GLDI, DSLV, OUNZ, DGL, DBS, DGZ, DGLD, AGOL, TBAR, USV, UBG, GLDE, BAR, GYEN, GEUR, BARS, GGBP
Dec. 23, 2014, 12:58 PM
- The new tax laws in Zambia could turn out to be a positive for First Quantum Minerals (OTCPK:FQVLF) even as high-cost producers such as Barrick Gold (NYSE:ABX) begin to close operations, CIBC analyst Tom Meyer says.
- Zambia's budget, which included a revision to the mining tax scheme that would require open pit miners to pay a 20% mineral royalty tax, was passed on Dec. 17 and First Quantum’s stock has come under pressure since ~40% of the company’s operating base is located in the country.
- "As a low cost producer in Zambia, First Quantum could be a net beneficiary of the new system,” Meyer says, adding that a comparison of effective tax rates under the two systems "shows that the new system is increasingly favorable for the miners when the copper price is rising.”
Dec. 18, 2014, 9:07 AM
- Barrick Gold (NYSE:ABX) confirms it is suspending operations at the Lumwana copper mine in Zambia after the country passed legislation to more than triple the royalty rate on open-pit mining operations.
- "Despite the progress we have made to reduce costs and improve efficiency at the mine, the economics of an operation such as Lumwana cannot support a 20% gross royalty, particularly in the current copper price environment,” ABX says.
- ABX says it will record an unspecified impairment charge related to Lumwana in Q4; it says the operation’s current net carrying value is ~$1B.
- Earlier: Barrick Gold likely to suspend Zambian mine
Dec. 17, 2014, 6:50 PM
- Barrick Gold (NYSE:ABX) probably will take steps - perhaps as soon as tomorrow - to stop production at its Zambian operation after the country increased mining royalties, Bloomberg reports.
- Zambia's parliament approved the government's 2015 budget proposals, which will replace corporate income tax on mines with increased royalties and increase the rates on open-pit mines such as ABX’s Lumwana to 20% from 6%.
Dec. 3, 2014, 9:11 AM
- Barrick Gold (NYSE:ABX) says it has completed a 50-50 joint venture with Saudi Arabia's Ma'aden to run its Jabal Sayid copper asset in the kingdom, and the mine is now expected to begin shipping low-cost concentrate in early 2016.
- When fully operational, the mine is expected to produce 100M lbs./year of copper in concentrate in its first full five years, with the potential to increase to 130M lbs./year.
Dec. 1, 2014, 4:45 PM
- Gold futures surged 3.6% to reclaim the $1,200 level for the first time since late October, sparked in part by the downgrade of Japan’s sovereign debt rating and a retreat in the dollar, as well as India easing its import restrictions and some short covering.
- Gold had sold off initially amid news that Swiss voters rejected a referendum to force the Swiss National Bank to hold 20% of its reserves in gold, slumping to overnight lows near $1,140/oz. before rallying to settle at $1,218.
- As a result, gold miners were among the strongest sectors, with the Market Vectors Gold Miners ETF (NYSEARCA:GDX) finishing 7.7% higher; investors also may have reacted to takeover speculation, as weekend reports said Paramount Gold (NYSEMKT:PZG) was is in talks to be acquired by Coeur Mining (NYSE:CDE).
- Among the top precious metals miners: ABX +4.3%, AEM +6.9%, AU +9.1%, GG +8.2%, GFI +9.2%, SLW +7.2%, NEM +6.8%, AGI +7.7%, IAG +11.3%, AUY +7.4%, KGC +8.5%, NGD +13.7%, GOLD +6.4%, RGLD +7%.
- Other ETFs: NUGT, DUST, SIL, GLDX, SLVP, RING, SGDM, PSAU
Nov. 28, 2014, 1:21 PM
- Already hit hard over the last two years by declining prices, gold and silver miners saw more pain today as commodity stocks in general got hammered thanks to OPEC's decision not to slash crude production.
- Decliners: ABX -8%. GG -6.1%. AUY -9.8%. KGC -8.2%. GFI -9.9%. SLW -7%. NEM -5.8%. AGI -6.9%. PAAS -9%. AG -15.4%. SSRI -11.6%. CDE -11.4%. HL -8.8%. TAHO -7.8%.
- Previous: Precious metals slide alongside oil; Swiss vote ahead
Nov. 20, 2014, 3:13 PM
- Given the uncertain and volatile outlook for the dollar and thus gold prices, J.P. Morgan's commodities team suggests three "conservative" pair trades it expects to be profitable in a neutral or weaker metal price environment.
- The firm recommends buying Newmont Mining (NYSE:NEM) and selling Barrick Gold (NYSE:ABX), “driven by the idea that the deal where Barrick buys Newmont could be back."
- Buy Agnico Eagle Mines (NYSE:AEM) and sell New Gold (NYSEMKT:NGD), as JPM sees underground mines as more resilient than open pits, and AEM has fallen more sharply than deserved.
- Also, JPM likes buying Silver Wheaton (NYSE:SLW) and selling Coeur Mining (NYSE:CDE), as it believes royalty/streaming companies will be more robust in times of weak metals prices than pure-play miners.
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