Barrick Gold... a Buying Oppurtunity (Pretty In-Depth for my standards))
(Please excuse my Grammer, I am a econ major, not a writer... Thanks!)
This is my second blog on a stock, I mostly do stock pitches on my picks and they are short and to the point.
My last Blog was on Express (Clothing retailer) www.express.com (EXPR), and that was because I felt very, VERY, strongly about it. And I was correct as it’s gone up 25% pct since February 23rd (date of article) and it’s outperformed the market by approximately 21.5% pct.
I fully expect this stock ABX, to do the same.
Here is the thing… A lot of how ABX moves has to do with Gold prices, but it really shouldn’t. Wow!!! Gold goes down 2 pct, big deal. This company profits in the Billions. Whoopy do da dey, Gold moves up 20 pct and this stock will move 5 pct? What’s up with that? But if Gold drops this drops with it just as much. This has more to do with investors day trading and investors not holding this for the long term. If Gold remained in a fixed price of 1500 a ounce, and there is no fear of dropping Gold Prices (that is what I believe is keeping this from skyrocketing) Then this stock easily gets to $60-$65 a share by the end of the year.
Unfortunately Gold Prices move around, fluctuating all over the place, but I fully expect Gold to reach a peak of $1700-$1800 by end of this year. We all know inflation is out of control (The fed incorrectly and deceivingly is using a basket method that hides inflation) and Gold definitely has another 10-20 pct gain left in its tank. After that I just don’t see it sustaining those prices. If I had to pick an average price of Gold from here on our for 2011, I am going to say $1620 an ounce.
Well, lets look at the numbers:
Quarter 1 EPS beat the estimates of .99 by .01. ABX sold about 95 kozs less that is produced, if it had, it would have had a EPS of 1.04.
Gold Production was in line with CS est, and Gold Cash costs of 437 an ounce was lower then the estimate of 472 an ounce. This is pretty significant. Copper cash costs were 1.25 a pound, which is below the 1.41 estimate, so they were able to produce the Copper at about 15 pct cheaper then expected. This will become significant once the Equinox acquisition takes hold. ABX will become an 80/20 Gold Copper ratio by 2015. Once the equinox copper is added to their production my estimate is it’ll be about 85-15 Gold to Copper. This will give them some needed diversification. Copper is in high demand, and while inflation is running rampant Gold Prices will continue to increase, but I would then expect Copper prices to hold or even drop as demand for it slows down (as building of houses and loaning of money decreases). Once China-India and these developing countries begin building again and stop worrying about inflation and it’s under control. (eventually it will happen) Copper demand will greatly increase.
Barrick Gold is positioned for even more acquisitions, I would think they would wait at least 6 months to acquire something so that they can fully concentrate on the Equinox integration, but Barrick has shown a uncanny ability to integrate in the past so I see no problems at all. They currently hold 4 Billion in cash, and their existing credit facilities of 1.5 billion and a new 5.0 Billion revolving facility and bridge loan. This flexibility allows them to go out there and really start being more aggressive with acquisitions.
This stock has a good dividend; its safe, good P/E ratio, and I expect good news to come for the rest of the year.
Revenue Growth per year is going to be about 8 to 9 pct for the next two years, and after that it’ll grow to 10-15 pct. For a company this large this is excellent.
Buying this is a sure way too make 10-15 pct in a few weeks.
Disclosure – I just bought shares today at 47.88...