We have retained our Underperform recommendation on world's largest gold miner Barrick Gold (ABX). Our view reflects higher costs, weak gold prices and uncertainties surrounding the Pascua-Lama mine.
Barrick’s profit fell roughly 18% in first-quarter 2013, reported on Apr 24, hit by lower gold and copper prices and a decline in sales volumes. Adjusted earnings beat the Zacks Consensus Estimate whiles sales missed.
While gold production decreased year over year, copper production rose in the quarter. The company saw increased cash costs across its gold and copper businesses.
Barrick’s prospects are hindered by rising costs which continues to affect its results. Total cash costs for 2013 have been projected in the range of $610-$660 per ounce of gold, reflecting an annualized increase, mostly due to higher labor costs and lower ore grades.
Uncertainty surrounding the Pascua-Lama project is also weighing on Barrick’s stock price. Barrick is spending significantly on the development of the Pascua-Lama mine which overlaps the border of Chile and Argentina. Total capital cost target for the project has been pegged at $8 billion to $8.5 billion with $4.8 billion had already been spent (as of first quarter end).
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 recently fined roughly $16 million by a Chilean regulator for environmental violations.
The recent downturn in gold price is also a cause of concern. Gold price fell sharply to below $1,400 per ounce recently to hit a four-week low level. A rapidly strengthening dollar (versus euro) is weighing on the price of the yellow metal.
Barrick Gold currently retains a Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
Other companies in the mining industry with favorable Zacks Rank are Sibanye Gold Limited (SBGL), Xstrata plc (XSRAY) and Lake Shore Gold Corp. (LSG). All of them retain a Zacks Rank #2 (Buy).
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