Barrick Gold Corporation: Buy, Sell or Hold?
Commodities / Gold & Silver Stocks Oct 17, 2011 - 03:20 AM GMTBy: Bob_Kirtley
Barrick Gold Corporation (ABX) has a market capitalization of $48.21bln and is the largest gold mining company in the world. There are 999 million shares in circulation, 72% of the companies stock is held by the Institutions and it is reasonably liquid in that its average volume of shares traded is between 4 and 8 million per day, however, it can spike to 100 million shares on a very busy day.
Its sheer magnitude makes Barrick an attractive vehicle for the larger funds and investors to access and exit the gold market with ease. Smaller gold producers do not offer this facility as to move large amounts of funds into and out of them could possibly effect the stock price at an inopportune time.
Background:
Barrick is the gold industry leader, with a portfolio of 26 operating mines and advanced exploration and development projects located across five continents, and large land positions on some of the world’s most prolific and prospective mineral trends. The Company also has the largest reserves in the gold industry, with about 140 million ounces of proven and probable gold reserves. In addition, Barrick has 6.5 billion pounds of copper reserves and 1.07 billion ounces of silver contained within gold reserves as of December 31, 2010. In July, 2011, Barrick acquired Equinox Minerals which adds a further 4.5 billion pounds of copper reserves from the Lumwana mine and 1.2 billion pounds of copper reserves from the Jabal Sayid project.
For 2011, Barrick expects gold production of 7.6-8.0 million ounces at total cash costs and net cash costs of $450-$480 per ounce or $290-$320 per ounce, respectively. The Company also expects 2011 copper production of 455-475 million pounds at total cash costs of $1.55-$1.70 per pound.
The Company is targeting growth in annual gold production to 9.0 million ounces within five years, which includes production from the newly expanded Cortez mine, two advanced development projects, the Pueblo Viejo and Pascua-Lama projects, as well as additional opportunities around existing operations.
Going forward you might want to note that the Third Quarter Results will be released on October 27th, before the markets open.
The management team consists of high profile board members such Peter Munk, who is the Founder and Chairman of the Board of Barrick Gold Corporation and Aaron Regent who was appointed President and Chief Executive Officer of Barrick Gold Corporation since 16thJanuary 2009.
We will now take a look quick at how they have been performing over the last decade or so when compared to gold itself.
The chart above says it all, in our humble opinion and its not too good for Barrick.
It would have been more profitable to have owned gold than this stock.
This chart compares Barrick Gold Corporation and the price of Gold over the last 11 years or so. As we can see gold has outperformed the giant gold producer by a considerable margin.
It should also be noted that Barracks stock price traded at around $53.00 in early 2008 and today it can be purchased for $48.24. The companies recovery since the late 2008 sell off has been slow and doesn't reflect the progress made by the underlying asset, gold.
Barrick does however pay a dividend, but, at $.0.12 per quarter for the previous four quarters, which gives us a return of $0.48 for the year or approximately 1% of the stock price, it doesn't make up for the stocks poor performance.
So whats the problem? Well it appears to us to be too big to perform.
Once a mine enters the production phase it is only a matter of time before it is exhausted and the production slows to a point where it becomes uneconomical to continue. In Barrick's case this means that they have to replace their massive reserves through either organic growth and via new acquisitions, at some canter, just to stay were they are. This stock is a lumbering giant that does not have the ability to keep up with gold prices and therefore any leverage to gold is non-existent. Without a leveraged return there is no point in investing a gold producer as it brings with it a myriad of risks that you can avoid by owing gold itself.
On the positive side Barrick's P/E ratio is down to 12.58 which is a tad better than many of its competitors. Also, having such huge reserves should bode well for the company should gold prices rocket, as many expect them to do over the coming months and years. However, performance is all about comparison and there other vehicles which have outperformed Barrick so far and they could well do so in the future.
Conclusion:
In conclusion we do not own this stock, nor do we intend to acquire it in the future. If we did own it we would be looking to unload it during the next rally.
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