Barrick Gold: Risk-Reward Even - Analyst Blog

On Jun 18, we issued an updated research report on Barrick Gold ABX. The gold giant's cost management initiatives amid a weak metals pricing environment are impressive.

Lower gold pricing dragged down Barrick's top and bottom lines in first-quarter 2014, reported on Apr 30. Adjusted earnings beat the Zacks Consensus Estimate while sales missed. The company backed its gold production and cost guidance for 2014.

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 expected to benefit from its major exploration programs. The company maintains a significant focus on Nevada for growth opportunities. Over 50% of its exploration budget for 2014 has been allocated to North America, mostly targeted for Nevada.

Barrick is also making significant progress with its cost and efficiency improvement programs. The company witnessed progress in its cost-controlling initiatives in the first quarter with all-in sustaining costs declining by double gits year over year. Barrick is targeting roughly $500 million in annual cost savings through its cost-reduction and other company-wide initiatives.  

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

Moreover, uncertainties surrounding the Pascua-Lama project continue to 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 Agnico Eagle Mines Limited AEM, Alamos Gold Inc. AGI and Pretium Resources Inc. PVG. While Agnico Eagle carries a Zacks Rank #1 (Strong Buy), both Alamos Gold and Pretium Resources retain a Zacks Rank #2 (Buy).