Barrick Gold Corp (USA) (ABX)

theskyiscrape (< 20) Submitted: 6/08/07 7:37 PM : Start Price: $28.86 ABX Score: 35.96

Gold stocks have been out of favour and disconnected from the spot price of gold. This can be attributed to the fact that increasing costs of production have been out-pacing increases in the spot price. Barrick was in particularly worse shape relative to its peers, owing to its large proportion of hedging contracts. Barrick has recently bought its way out of all existing hedging on current producing mines, with the only hedging contracts being on some forward earning from mines which have yet to come to production.
Earnings are expected to rise sharply for Barrick, as it is now able to sell production gold at spot price. The demand/supply story for gold is also better than what may be believed by most. The supply side may appear to be sufficinet to meet demand, however this has been due to central banks selling their reserves. This activity can only last for a finite period of time, meanwhile demand from India, where gold is just as important for religious ceremonies as much as for aesthetics & a symbol of social status/wealth, and demand from China continue. Barrick commands ~10% of the worlds' annual production, has the worlds' largest reserves at ~123M ounces, and has just shy of $3B in cash to funds further exploration and acquisitions. This cash will prevent dilution of shareholder value, which Goldcorp (highly OVER-rated!!) is infamous for.
I have bought Barrick for my own portfolio recently, and while I'm not great at predicting bottoms and turn-around points (yes, I'm aware of my pitiful score), I personally believe that there is much more upside potential, than downside, for Barrick going forward.

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