Harsh words on Barrick Gold prospects
Top gold producer Barrick Gold Corp (NYSE:ABX, TSE:ABX) lost 1.5% to $12.02 on Tuesday in volumes of more than 5 million shares, compared to a daily average of 3.2 million shares, reacting to a weaker gold price and an analyst downgrade.
The world's number one producer of the metal, expected to produce roughly 6 – 6.5 million ounces in 2014, is down more than 35% in 2014 with a market value of $14 billion on the Toronto stock exchange.
Barrick shares struck a 21-year low in July last year after peaking at a $54 billion market value in 2011.
A new research note Barrick by Credit Suisse argues the Toronto-based company may not be over the worst.
The investment bank has lowered its price target on ABX from $16 a share to $13. Even at this level, which at least is an advance on the ruling price, risks remain:
"We believe there are several risks to ABX's achievement of our $13 target price. ABX is subject to commodity price and foreign exchange risk as fluctuations in the gold, copper, silver and foreign exchange rates will impact profitability," analysts' said.
"ABX is also exposed to political risk with regards to the permitting and tax rates applicable to its current mines and development projects. ABX has about $13 billion in notional debt and is unhedged vs. the gold price. A significant negative fluctuation in the gold price vs. our estimates could require the company to hedge, sell assets or raise equity in the future to meet its debt obligations," they added.
The researcher singled out permitting and other risks regarding Pascua Lama which has been a drag on Barrick for years now.
The company recently said it is confident the stalled gold and silver project in South America will get built and put a new executive in charge of the project.
The Canadian miner has already spent $5 billion on the project, which could have a final bill in excess of $8.5 billion after a series of cost overruns.