On April 12, Zacks Investment Research downgraded Barrick Gold Corporation (ABX) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Barrick Gold’s adjusted earnings missed the Zacks Consensus Estimate in the fourth quarter of 2013, reported on Feb 13. Revenues fell by double-digits year over year. Lower metal pricing hurt Barrick’s top and bottom lines in the quarter. The company expects gold production to decline year over year in 2014.
The volatile gold price environment is a matter of concern for Barrick. Gold prices dropped roughly 28% in 2013 to end the year at around $1,200 per ounce. The sell-off resulted from Fed’s announcement of a $10 billion cut in its monthly bond purchases in Dec 2013. While gold prices have rebounded to a $1,300 plus territory, a strong dollar and tapering fears continue to serve as headwinds.
Uncertainty surrounding Pascua-Lama is also weighing on Barrick’s stock price. The company, during fourth-quarter, temporarily halted construction activities at Pascua-Lama, except the requisite activities for environmental protection and regulatory compliance.
Barrick stated that it will halt work in such 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. The company expects to spend roughly $300 million on account of ramp-down and other expenses related to the mine in 2014.
Decreasing gold reserve represents another concern. Barrick’s gold reserves fell around 26% year over year in 2013 due to depletion, divestments and lower metals price assumption. The company also has a debt-laden balance sheet with total debt of roughly $13 billion at the end of 2013.
Other Stocks to Consider
Other companies in the gold mining space with favorable Zacks Rank are AngloGold Ashanti Ltd. (AU), Lake Shore Gold Corp. (LSG) and Golden Star Resources, Ltd. (GSS). While AngloGold Ashanti and Lake Shore Gold hold a Zacks Rank #1 (Strong Buy), Golden Star Resources carries a Zacks Rank #2 (Buy).