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Analyst Blog

The world’s largest gold producer, Barrick Gold Corporation (ABX - Analyst Report), has rung in the changes after a below-par stock performance so far this year.

Yesterday, the company ousted Aaron Regent from his position as the CEO and also ended his tenure on the Board, appointing Executive Vice President and Chief Financial Officer Jamie Sokalsky in his place. Also, Barrick elevated director John Thornton to the post of Co-Chairman. The leadership changes announced by the company became effective right away.

However, Barrick’s stock dropped 3.8% post the announcement (which was made before markets opened), after showing signs of initial promise when it opened higher than the previous day’s close. Mr. Regent was dismissed for not being able to salvage the dismal stock price performance.

The company just about met the Zacks Consensus Estimate on earnings in its recently reported first quarter. Also, Barrick had failed to meet the Zacks Consensus Estimate on top line in the quarter, the reason for which can be attributed to lower gold production.

Although the company has managed to increase its earnings over the last two quarters and has also hiked its dividend, the optimism has not rubbed off onto its share price. Barrick’s stock is down 10.6% in 2012, underperforming the S&P 500 which has grown 4.57% since New Year's.

Mr. Sokalsky will now face the challenge of boosting up the company’s stock. Hence, he would have to turn his focus towards the company’s growth drivers, which in turn will help Barrick rake in better revenues and post higher profits over time.

Barrick’s prospects are driven by its aggressive expansion of copper reserves and replacing its gold reserves. The company is about to commence production at a number of mines such as Pueblo Viejo and Pascua-Lama in the near future, which will positively impact its production and cost profile.

Moreover, Barrick is an un-hedged gold producer and the company stands to benefit from the appreciation in gold prices. The same applies for its copper business, whose prospects have been further brightened by the acquisition of Equinox Minerals last year.

Also, the new CEO would have to contend with macroeconomic concerns as well. Barrick Gold derives its revenues from gold and copper sales, leaving it prone to any negative fluctuation in the prices of these metals. In addition, Barrick Gold’s financial health and operations also depend upon prices of other commodities and foreign exchange rates, thereby creating another factor which may negatively impact the company.

Moreover, Barrick Gold’s rivals, Newmont Mining Corporation (NEM - Analyst Report) and AngloGold Ashanti Ltd. (AU - Snapshot Report), are ramping up their operations and recently announced that they will be improving their mines and increase exploration activities.

Our long-term Neutral recommendation on Barrick Gold is backed by a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

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