On Dec 19, we reaffirmed our Neutral rating on world's largest gold miner Barrick Gold (ABX). While we take into account uncertainties surrounding its Pascua-Lama mine and a weak metal pricing environment, we are impressed by its cost management initiatives.
Lower metal pricing coupled with higher tax and interest expenses dragged down Barrick’s profit in third-quarter 2013, reported on Oct 31. However, adjusted earnings beat the Zacks Consensus Estimate. Revenues fell year over year, but beat expectations. The company saw higher gold and copper productions in the quarter. While Barrick lowered its gold production guidance for 2013, it raised its copper production outlook.
Barrick, a Zacks Rank #3 (Hold) stock, has a sound liquidity position and generates healthy cash flows, which positions it well to take advantage of attractive development, exploration and acquisition opportunities. The company continues to make high return investments in its businesses.
Barrick is also making significant progress with its cost and efficiency improvement programs. Both all-in and all-in sustaining costs fell in the third quarter. The company is on track to meet its all-in sustaining costs target for 2013 which it reduced in second-quarter 2013. Barrick is targeting roughly $500 million in annual cost savings through its cost reduction and other company-wide initiatives including overhead expenses and headcount reductions.
However, a weak gold pricing environment and challenging economic conditions are concerns for Barrick. Moreover, the recent move to temporarily suspend the Pascua-Lama project represents a setback for the company.
Barrick, in its third quarter call, said that it has temporarily halted construction activities at the Pascua-Lama mine (which overlaps the border of Chile and Argentina), barring the requisite activities for environmental protection and regulatory compliance.
Barrick noted that it will halt work in a manner that will allow efficient and effective re-start when conditions permit. The decision to re-start the project will depend on certain factors including metal prices outlook and reduced uncertainty related to legal and other regulatory requirements. As such, uncertainty surrounding the Pascua-Lama project may weigh on Barrick’s stock price.
Other Stocks to Consider
Other companies in the gold mining space with favorable Zacks Rank are Golden Star Resources, Ltd. (GSS), Pretium Resources Inc. (PVG) and AngloGold Ashanti Ltd. (AU). While Golden Star Resources holds a Zacks Rank #1 (Strong Buy), both Pretium Resources and AngloGold Ashanti carry a Zacks Rank #2 (Buy).