Since the breakage of a pipe carrying the cyanide solution used in the heap leaching process at Argentina's Veladero mine on March 28 –Â which led the Argentinean authorities to restrict Barrick Gold Corp. (ABX, Financial) in the use of the solution –Â the shares of the biggest gold producer in the world tumbled on the stock market.
As you can see from the picture below, Barrick Gold has lost 13% since March 28 while its more direct peers were not as adversely affected. Newmont Mining Corp. (NEM, Financial) was unchanged, and Goldcorp Inc. (GG, Financial) fell less sharply with 9%.
Concerning Barrick Gold's other peers, the situation on the stock market over the same period was quite different: Yamana Gold (AUY, Financial) fell by 5%, Eldorado Gold Corp. (EGO, Financial) gained 7% and shares of Kinross Gold Corp. (KGC, Financial) increased by an amazing 22%.
The issue at Veladero mine not only caused shares of Barrick Gold to plunge on the stock market but also forced the Canadian gold mining company to suspend operations at the mine causing a loss in gold production with negative consequences on revenue and earnings for the following quarter and full-year 2017.
From Veladero mine, Barrick Gold expects to add to its total production of gold a volume of 630,000 to 730,000 ounces for 2017 – a significant volume if we consider that this is approximately 12% to 13% of the total Barrick Gold guided to produce.
Backed by this guided production of gold, Barrick Gold’s revenues are expected to come in at $2.14 billion for the second quarter and at $8.35 billion for the full year. Analysts expect the world's biggest gold producer to generate an EPS of 18 cents for the second quarter of 2017 and 74 cents for the entire year.
Any additional delay in the resumption of operations at Veladero can seriously damage the economics of the miner that may miss expectations on both revenues and earnings, leading to a further depreciation of the gold stock on the market.
Barrick Gold should update the shareholders on the situation at Veladero because no news release has been published on its Web site since the spill.
Barrick Gold is trading at $16.50 per share with a price-sales (P/S) ratio of 2.17, a price-book (P/B) ratio of 2.24 and a price-earnings (P/E) ratio of 13.65.
The analysts’ average target price per share is $21.52, which is a substantial 30.4% upside from the current market value despite operating issues at Veladero. The recommendation rating is 2.5 out of 5.
Disclosure: I have no positions in any stock mentioned in this article.
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