Barrick Gold Corporation (ABX, Financial) has announced a shutdown of existing infrastructure on the Pascua-Lama project’s Chilean side. The project is located between Chile and Argentina.
The shutdown, described in a release on its website, states that it is part of a re-evaluation process requested by the Environmental Court of Chile in 2014. The nation's Superintendencia del Medio Ambiente of the country ordered the shutdown. Barrick is expected to appeal the Chilean authorities’ sanction. Barrick says the resolution doesn’t disturb the evaluation of a current underground project that is underway at Pascua-Lama. Â
Following the news, Barrick Gold Corporation fell 0.74% on the New York Stock Exchange to $13.39 per ordinary share and is now trading its book value at 1.63% times versus an industry average of 2.01. The EV-to-Ebitda is 3.39 and well below the median of the industry of 10.14.
The share price represents an incredible opportunity to get exposure to the yellow metal by acquiring more interest in the biggest producer of gold in the world.
This fact is corroborated by the following chart of Yahoo Finance:
Source: Yahoo Finance
Barrick Gold Corp is trading below the 200, 100 and even the 50-SMA line. The RSI (14-days) has yet reached the so-called ‘oversold levels.' This means that there is still margin for the market value to decline, pulled by the negative news coming from Pasqua-Lama and a general negative market trend since the announcement of new Fed Chair Jerome Hayden Powell, was announced.
Barrick Gold Corp is the biggest producer of gold in the world with a portfolio of operations and resources that can hardly be replicated by another gold mining company. The company can mine the metal at profit starting from a price of $1,000 to $1,100 per ounce. This minimum price makes Barrick Gold Corp’s all-in sustaining cost per ounce of metal sold the undermost in the mining industry of the yellow metal. Also, the average concentration of metal in the mineral resources allows the Canadian miner a certain flexibility in adjusting operations to changes in the price of the commodity.
Paradoxically, the news of Barrick Gold Corp’s subsequent decision to shift Pasqua-Lama’s open pit operations to an underground project is making the stock to factor more, because the switch will make mining activities at the Chilean side of the deposit, reports the company, “less susceptible to weather-related production impacts during the winter season”.
As of Thursday Feb. 7, Barrick Gold Corp has an average target price of $18.12 per share, which is a mean of twenty-one $13 to $22.42 ranging estimates and a 35.3% growth from the current market valuation.
The recommendation rating is 2.7 out of 5. This means that the majority of analysts, precisely 14 out of a total of 25 surveyed, are for a hold recommendation rather than for a buy approach. I would opt for the second one, buying after a few more days of trading and not right now, because I believe the stock may depreciate a bit more as a consequence of the factors I have exposed in this article.
(Disclosure: I have no positions in any security mentioned in this article.)
