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Some See Improvements In Barrick Gold(NYSE: ABX) Stock Action

 May 02, 2012 12:25 PM

(By  Fred Dunsel) Barrick Gold Corporation (NYSE:ABX) reversed a two-month slide last week, closing at $40.66, a 1% gain for the week. Last week's stock performance was a much-welcomed improvement after the stock has been falling from $49.46 since late February. The stock is currently down 10% for the year. The gold producer will be announcing its first-quarter results on before the market open on 2 May.

Last week's stock price gain was driven by Barrick Gold's sale of its 20.4% stake in Highland Gold (a Russian gold miner) for $128 million. As part of its divestment plan announced earlier in February, Barrick Gold said that Highland was "now non-core to Barrick's business operations and strategy", marking the end of the company's attempt to use Highland as a vehicle to enter Russia's challenging mining industry.

[Related -What Gold Miners Are Thinking Today]

This year, Barrick Gold is one of several gold companies that have suffered due to the recent downtrend in the industry. Analysts have also noted that Barrick Gold, at the company level, is experiencing significant cost inflation. In its most recent quarter, production cost rose by 14%, a trend that the company warned was likely to continue in the near term. This industry-wide inflation remains one of the key challenges faced by the company, as it tries to find its way amidst the uncertainties of the gold market.

However, as the world's largest gold mining company, Barrick Gold benefits from economies of scale. Such cost advantages would become particularly significant, especially in a turbulent gold market. In addition, Barrick Gold also has several new and expansion projects in next few years. While production is expected to remain flat this year with a forecast range of 7.3-7.8 million ounces (as compared to 7.68 million in 2011), the company is expected to produce 9 million ounces by 2016. In addition, both its silver and copper productions are expected to be ramped up. In its annual report, Barrick Gold stated that its silver production is expected to grow from 3 million ounces in 2011 to 50 million ounces in 2016.

[Related -One Thing Needs To Happen Before Precious Metals Start To Rally Again]

Nonetheless, as with many other gold mining companies, the price of gold in the coming months will be the key factor. With gold exploration accounting for more than 80% of its sales, Barrick Gold's performance will remain largely driven by the price of the precious metal.

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