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Barrick's (ABX) Cost Management Actions Should Bear Fruit

Zacks Equity Research

On Sep 16, we issued an updated research report on gold giant Barrick Gold (ABX). While the company should gain from its cost management initiatives, it remains exposed to a weak metal pricing environment.

Barrick’s adjusted earnings for the second quarter of 2014, reported on Jul 30, slid year over year and matched the Zacks Consensus Estimate. Sales fell by double-digits on lower metal pricing, and missed expectations. The company backed its gold production guidance for 2014 and narrowed its cost outlook for the year.

Barrick, a Zacks Rank #3 (Hold) stock, has a sound liquidity position and generates healthy cash flows, which positions it well to take advantage of attractive development, exploration and acquisition opportunities.

Barrick is making significant progress with its cost and efficiency improvement programs. The progress in its cost-controlling initiatives was witnessed in the second quarter with both all-in costs and all-in sustaining costs declining year over year. Barrick is optimistic to achieve roughly $500 million in annual cost savings by end-2014 through its cost reduction and other company-wide initiatives including reduction of overhead expenses and portfolio optimization.
Barrick is also expected to benefit from its major exploration programs. The company maintains a significant focus on Nevada for growth opportunities. Roughly 50% of its exploration budget for 2014 has been allocated to North America, mostly targeted for Nevada. The company is currently conducting a pre-feasibility study for the Goldrush project near the Cortez mine with expected completion in mid-2015.

However, a challenging gold pricing environment and still soft global economic conditions are concerns for Barrick. The company also has a debt-laden balance sheet.

Moreover, uncertainties surrounding the Pascua-Lama project may weigh on Barrick’s prospects. The company, during fourth-quarter 2013, temporarily halted construction activities at the Pascua-Lama mine. The decision to restart the project will depend on certain factors including the metal prices outlook. Barrick expects to spend roughly $300 million on account of ramp-down and other expenses related to the mine in 2014.

Other Stocks to Consider

Other companies in the gold mining space worth considering include AngloGold Ashanti Ltd. (AU), Asanko Gold Inc. (AKG) and Pretium Resources Inc. (PVG). All of them retain a Zacks Rank #2 (Buy).

Read the Full Research Report on PVG
Read the Full Research Report on ABX
Read the Full Research Report on AU
Read the Full Research Report on AKG


Zacks Investment Research