In past few years, Barrick Gold‘s (NYSE:ABX) stock has not been able to replicate the returns generated by the underlying commodity gold. While the per ounce gold price has doubled from just about $800 in 2009 to more than $1,600 currently, the company’s stock has seen a mere 4% gain. This has led the company showing the door to its CEO Aaron Regent, whom many criticized for betting heavily on copper. The move could help the company reinforce its focus on gold and bring back the investors who discarded the stock citing a shift in strategy. Further, the company is all set to begin production from Pueblo Viejo and Jabal Sayid anytime soon. These events could trigger a upward movement in an otherwise staggering stock.
Our $53 stock price estimate for Barrick Gold is nearly 30% ahead of the current market price.
About three and half years ago, Aaron Regent was appointed with one task in his hand, to maximize the share price. While his decision to do away with the gold hedging policy boosted the company’s bottom-line manifolds, his bet to take more exposure on copper turned sour as black metal prices turned south after peaking out last year. Many investors criticized the company for its $7 billion acquisition of copper company Equinox Minerals last year, which proved extremely costly. The company may have to write off part of it going forward. 
Meanwhile, the company has promoted its CFO Mr. Sokalsky to the coveted position of CEO. We expect the company to reinforce its focus on gold and add more gold assets considering yellow metal has a better outlook than black metal. Amid the current economic uncertainty, gold demand is expected to remain buoyant. Further, gold prices are expected to touch $1,800 in near term with many expecting it to top $2,000.
While the copper demand will also improve following eventual economic recovery, copper prices are expected to remain under pressure as the new capacities go online in next few years. It coupled with soaring mining costs will depress the EBITDA margins going forward. It would be interesting to see if the company puts its copper assets on the block with its renewed focus on gold.
Commissioning of New Mines Could Take Stock Price North
Further, the next half will see two of the company’s biggest projects Pueblo Viejo and Jabal Sayid commencing production. This will give much needed boost the company’s stock.
- Pueblo Viejo (60% owned by Barrick): Located in the Dominican Republic, the facility holds close to 25 million ounces of gold, of which 15 million is attributable to Barrick. with an annual attributable capacity close to 600,000-675,000 ounces at a cash cost of $300–$350 per ounce. The mine will add about 100,000-125,000 ounces of gold at cash costs of $400-$500 per ounce starting in 2012. ((Pueblo Viejo, Barrick Gold))
- Jabal Sayid: The copper project in Saudi Arabia sits on an estimated 1.2 billion pounds of copper. The mine will produce approximately 35-45 million in 2012 and thereafter 100-130 million pounds of copper annually. Cash costs are expected to remain in the range of $2.15-$2.50 in 2012 and will decline to $1.50-$1.70 going forward. ((Jabal Sayid, Barrick Gold))
Aside from the operational and market outlook, investor’s perception of management plays an important role and can lead to the stock underpeforming its intrinsic value in our view. We believe the aforementioned events could improve the sentiment around Barrick Gold and help provide some catalysts for upside. But, one will also have to closely watch the European situation, which has been one of the biggest drivers of gold prices recently. Further, the U.S. Fed’s decision whether to opt for immediate quantitative easing will also have an impact on the company’s stock.Notes: