Gold producer Barrick Gold Corp. (ABX, Financial) closed at $12.8 per share on Oct. 26 for a market capitalization of about $14.7 billion. The stock is more expensive than it was a few weeks ago. The share price – as is illustrated in GuruFocus chart below – is above the 200-, 100- and 50-day simple moving average lines. The share price at close on Friday was above the midpoint of a 52-week range of $9.53 to $15.52.
Other indicators show the price-book ratio is 1.69 versus an industry median of 1.74 and the EV-to-EBITDA ratio is 12.54 compared to an industry median of 9.3.
The 14-day relative strength indicator is 62.35, at the higher end of a 30 to 70 range. The indicator suggests the share price is approaching overbought levels.
As of October, most analysts recommended holding the stock. Of 24 total analysts surveyed, 15 recommended holding the stock, four strongly suggested buying and four recommended buying shares of Barrick Gold. Only one analyst believes the miner will underperform within the next 52 weeks of trading.
The average price target for the stock is $13.86 per share, which is the average of 19 estimates ranging from $11 to $16, reflecting a thin 8% upside from the market value at close on Friday. Furthermore, gold – Barrick's primary income source – is not forecasted to have a boost in the last three months of the year. It is unlikely the bullion will trade at such levels as to send the cumulative average above $1,300 per troy ounce again.
Therefore, I agree with the analysts who currently suggest being neutral on the stock. I also do not see any relevant short-term catalysts.Â
Third-quarter operations, which caused Barrick Gold to beat consensus on adjusted net profit by 3 cents on revenue of $1.84 billion, producing a 60% positive surprise, indicate the miner is improving throughput and ore grade at its assets in Nevada.
Barrick Nevada covers about 50% of the company's total production of gold, but those improvements will probably not be sufficient enough to move shares much higher. Revenue decreased 7.5% year over year in the third quarter.
Furthermore, the operating improvement is already factored into the company’s guidance on production and costs for full 2018. It is targeting the lower end of the guidance range of 4.5 million to 5 million ounces at an all-in sustaining cost of approximately $790 per ounce of gold sold.
Barrick Gold also produces copper, which accounted for nearly 18% of third-quarter revenue. The Lumwana asset in Zambia continues to improve its performance as a result of the installation of a more advanced crusher. However, the Canadian miner had already factored in the increased overall operating efficiency at the Zambian open-pit mine when it prepared its guidance targets for the year. As a result, Lumwana won’t really be a catalyst for the stock.
Barrick Gold Corp expects to reach an output of 345 million to 410 million pounds of copper from its reserves at an all-in sustaining cost of about $2.7 per pound.
Following the closing of a deal with Randgold Resources (GOLD, Financial), Barrick will dispose of some of the costlier and higher-risk assets of both companies to become a tier-one mine operator. While this will lower the risk profile of the combined company, it is a catalyst for the long run.
Tier-one mines should be the Cortez and Goldstrike assets in Nevada, the Kibali mine in the Democratic Republic of Congo, the Loulo-Gounkoto mine in Mali, the Pueblo Viejo mine in the Dominican Republic and the Goldrush and Turquoise Ridge mines in Nevada.
As of Sept. 30, Barrick Gold has about $1.7 billion in cash on hand and securities and total long-term debt of about $5.7 billion.
Disclosure: I have no positions in any securities mentioned.
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