Gold giant Barrick Gold (NYSE:ABX) has faced a setback in its ownership row with Goldcorp (NYSE:GG) over a copper and gold mine in Chile as Ontario Superior court dismissed Barrick’s claim that Goldcorp illegitimately got ownership of mine and Barrick should have been owner of 70% stake in the mine.  The mine’s gold reserves are believed to be more than three times of Goldcorp’s total gold production in 2011. The ruling came at an inopportune time as mining companies are increasingly facing intense competition to find attractive sources of already limited natural resources.
We maintain our price estimate for Barrick Gold to $53, which is about 40% ahead of the current market price.
While the ruling won’t hurt Barrick Gold directly in short term as the mine is expected is start production only in 2017, a favorable ruling would have presented Barrick an opportunity to strengthen its gold reserve in South America. The mine has reserves of 8.4 million ounces of gold and 6.1 billion pounds of copper. You can understand the impact of gold shipments from South America on the company’s stock by making changes to the chart below
We, however, are bullish on the company’s prospects with the Pueblo Viejo project starting up in 2012 and the highly anticipated Pascua Lama expected to start production in 2013. We expect these mines to boost Barrick’s gold output by 5-8% annually over the next five years. Additionally, Barrick’s continued exploration on its newly discovered potential mining regions, Redhill and Goldrush, could lend further upside to our estimates.
Global economic instability has gold to new highs as investors look for safe investment options. We expect gold demand to remain buoyant in the near-term and remain the main source of revenue growth for Barrick Gold. Even as production numbers may decline in the immediate term, we believe the company’s aggressive move towards developing its planned projects and new discoveries will be highly beneficial in the long-term.Notes:
- Barrick Loses Bid To Block Goldcorp Chile Mine Purchase, Bloomberg, June 28 2012 [↩]