Barrick Gold Corp. ABX closed 0.68% down to $13.09 per share on Monday on the heels of the news that Macquarie has downgraded the stock from outperform to neutral.
A neutral rating means that Barrick Gold Corp. is predicted to move sideways in the near future. Experienced investors can profit from the stock anyway using specific trading strategies.
They can use trade strategies that correlate selling options contracts in Barrick Gold Corporation with buying options contracts on the index of which the Canadian producer is a component. One of these indices is the VanEck Vectors Gold Miners ETF GDX.
Investors can sell options contracts in Barrick Gold Corp while holding an existing long position on the stock.
Or, the trader can write put options while shorting the obligated shares of Barrick Gold Corporation.
Investors can also create a neutral position going long-shares, either on the VanEck Vectors Gold Miners ETF or on a direct competitor of Barrick Gold Corp. and then short on Barrick Gold Corporation
The table below illustrates the analyst ratings for Barrick Gold Corp. over the last seven months. The stock has been upgraded three times out of 10 and downgraded five times, while JPMorgan maintained its previous rating twice.
Following Macquarie’s issue, the mean recommendation rating on Barrick Gold Corp. is 2.8 in a range from 1 to 5. As of the month of October, 24 analysts were surveyed on Barrick Gold. Four analysts are for a strong buy, four are for a buy and 15 suggest holding the stock. One analyst predicts that Barrick Gold Corp. will underperform the market within the next 52 weeks.
Macquarie hasn’t released a price target. As a result, the average target price will stay unchanged at $13.75 per share. The value, which is an average of 19 estimates, represents a 5% upside from the share price at close Monday. The estimates range between a low of $11 and a high of $15.50.
Contrary to Macquarie's downgrade, reasons to be positive about Barrick Gold Corp. rest on its merger with Randgold Resources Ltd. GOLD. The merger announcement was released by both companies on Sept. 24. The combination of the two companies will create a giant in the mining industry with a market capitalization of approximately $23.2 billion according to the close price of Oct. 22.
The deal will for sure be value accretive for shareholders of Barrick Gold Corp. as the balance sheet of the Canadian gold producer will benefit from synergies. In terms of higher profitability, the merger will push the trailing 12-month Ebitda margin up to about 35-36% of total revenues when gold approximates $1,300 per ounce. Newmont Mining Corp. NEM, the largest producer of gold in the world, has a trailing 12-month Ebitda margin of nearly 36%.
A further reduction in the total long-term debt targeted by Barrick Gold Corp. before the end of 2018 will also be a value accretive. Its long-term debt totalled $5.7 billion as of June 30.
The company's partnership agreement with Shandong Gold Group Co. Ltd. also strengthens its outlook. The Chinese global mine operator will help make mining gold feasible at its Pascua-Lama property and advance the Greenfield project at the Alturas property. The Pascua-Lama property located between Argentina and Chile hosts about 21.3 million ounces of measured and indicated gold resources. That equals about 24% of Barrick Gold Corp.’s total measured and indicated mineral resources. The Alturas property in Chile hosts approximately 6.8 million ounces of gold contained in inferred mineral resources.
Barrick Gold Corp. has only one weakness: issues in Tanzania between its 63.8% equity interest in Acacia Mining PLC LSE:ACA and the African government. In addition, criminal charges brought by local authorities to some employees of Acacia Mining last week have increased the number of disputes it has with the government of Tanzania. Acacia Mining management is also seeing that operations in the African country are riskier than before for the safety and security of its miners. This also doesn’t help in dispelling investors’ concerns.
Barrick Gold Corp. derives about 6.4% of its annual total production of gold from its 63.8% equity interest in Acacia Mining.
Barrick Gold Corp. produces not only gold by copper. It is targeting 4.5 million to 5 million ounces of gold and 345 million to 410 million pounds of copper for full-year 2018.
The share price at close on Monday was above the 200-, 100- and 50-day simple moving average lines. The 52-week range is $9.53 to $16.10. The market capitalization is about $15.41 billion.
Barrick Gold Corp. has a price-book ratio of 1.63 versus an industry median of 1.74, and the EV-to-Ebitda ratio is 9.81 compared to an industry median of 9.3.
The 14-day Relative Strength Index is 75.21 out of a historical range between 30 to 70.
Disclosure: I have no positions in any security mentioned in this article.
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