Morgan Stanley Initiates Barrick Gold At Equal-weight, Positive On Management Cost Controls

Over the past year, Barrick Gold Corporation (USA) ABX has taken “appropriate steps” by reducing its debt load, divesting non-core assets, shrinking production and lowering costs, Morgan Stanley’s Evan L Kurtz said in a report. He initiated coverage of the company with an Equal-weight rating and a price target of $20.

The market has rewarded the improvements at Barrick Gold, with the shares gaining ~190 percent year-to-date, following which the stock appears fairly valued, analyst Evan Kurtz commented. In fact, most gold stocks have had a good run this year, and are pricing in gold well above spot.

Volumes To Decline

Barrick Gold is focusing on keeping production stable during 2016-2017, since volumes are expected to begin declining in 2018-2019. Kurtz added that the company has four large greenfield projects in its portfolio and the beginning of construction of these “could be taken negatively by investors,” given the track record and requirement of high prices to breakeven.

Management Cost Controls

Most gold company managements now seem to recognize that higher costs, capex and debt were among the main reasons for their significant underperformance over the last few years. Managements have sold or are selling non-core assets in an attempt to reduce their debt burden, while also optimizing cost and capex.

“Also, large projects have either been put on the back burner or are being advanced cautiously to reduce their initial scope and planned capex,” the analyst wrote. Management teams are focusing on boosting FCF by curtailing costs and sustaining capex.

“Our sense is that managements will continue to run gold companies with tight capital discipline until gold recovers meaningfully from the current levels,” the Morgan Stanley report added.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!