Barrick Gold: Revised $59 Price Estimate After Strong Earnings


Barrick Gold Corporation (NYSE:ABX) declared robust third quarter earnings a few days back, marked by healthy cash margins of nearly $1,300 per ounce as gold touched new highsduring the period. The company is moving aggressively toward developing its planned projects and new discoveries to take advantage of the still-buoyant gold price. Headquartered in Toronto, Barrick is the world’s largest gold mining company and competes with other mining companies such as Newmont Mining (NYSE:NEM), AngloGold Ashanti Ltd. (NYSE:AU), Goldcorp Inc. (NYSE:GG) and Freeport McMoran Copper (NYSE:FCX).

We have revised our price estimate for Barrick Gold to $59, roughly 15 percent above the current market price, to account for year-to-date performance and to reflect our strong near-term outlook for gold.

See our full analysis for Barrick Gold here

High commodity prices will continue to rake in profits for the company

Global economic instability has led to gold touching new highs as investors look for safe investment options. In the third quarter, the company’s cash margin was $1300 per ounce of gold that it sold. [1] Although gold is off its peak price of over $1900 per ounce in September, we believe that investor and domestic demand for gold remains high. We expect the gold price to remain strong in the near-term, allowing the company’s profits to remain strong.

The price of copper has corrected from its peak at the start of the year as the Chinese started to clear off their inventory of copper. While we do not expect a significant increase in copper prices as Chinese manufacturing growth has begun to slow down, we do still expect growth copper shipments in 2012. Barrick’s acquisition of Equinox Minerals has given it exposure and access to rich copper deposits and opportunities to expand its copper business.

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Steady production and new developments

The company’s third quarter saw smooth operations across all of Barrick Gold’s mining regions. Stable operations in the fourth quarter would help the company successfully achieve its target of producing 7.8 million ounces of gold in 2011. With the Pueblo Viejo project starting up in 2012 and the highly anticipated Pascua Lama expected to start production in 2013, we see Barrick’s gold output increasing by 5-8 percent annually over the next five years. Meanwhile, Barrick continues exploration on its newly discovered potential mining regions, Redhill and Goldrush, which could lend further upside to our estimates.

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Notes:
  1. Barrick Reports Q3 2011 Financial and Operating Results, Company Press Release, Oct 2011 []