On Aug 13, we reaffirmed our Underperform recommendation on world's largest gold miner Barrick Gold (ABX). Our view reflects a weak gold price environment and uncertainties surrounding the Pascua-Lama mine.
Barrick slipped to a loss in the second quarter of 2013, reported on Aug 1, hit by a sizable impairment charge and a double digit decline in gold price. However, both adjusted earnings and sales beat Zacks Consensus Estimates. Both gold and copper production increased year over year in the quarter.
Barrick slashed its quarterly dividend by 75% and maintained its gold production guidance for 2013. It cut its budgeted capital spending and costs by around $2 billion for 2013 and also trimmed its cost guidance for the year.
Uncertainty surrounding the Pascua-Lama project is weighing on Barrick’s stock price. Barrick is investing heavily on the development of the Pascua-Lama mine which overlaps the border of Chile and Argentina.
However, Barrick, in April 2013, announced that it is halting construction work at the Pascua-Lama mine in Chile after a Chilean court issued a preliminary injunction citing environmental concerns. The company’s shares took a hit following the announcement of the suspension. Moreover, Barrick was fined roughly $16 million by a Chilean regulator for environmental violations.
Construction at the Pascua-Lama mine has been delayed and Barrick now expects first production from the mine by mid-2016 compared with the earlier expectation of second-half 2014.
The recent downturn in gold prices is also a cause of concern. Gold price fell sharply to touch a three-year low of $1,180.71 per ounce in Jun 2013. Worries over the Fed’s plan to taper its monetary stimulus led to the massive plunge. While gold prices recently rebound to a $1,300 plus territory, a rapidly strengthening dollar continues to serve as a headwind.
Other Stocks to Consider
Other companies in the mining space with favorable Zacks Rank are Avalon Rare Metals Inc. (AVL), BHP Billiton plc (BBL) and Denison Mines Corp. (DNN). While Avalon Rare Metals maintains a Zacks Rank #1 (Strong Buy), both BHP Billiton and Denison Mines hold a Zacks Rank #2 (Buy).
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