The gold bar holds no sheen for Barrick Gold Corporation (NYSE:ABX)
This year, gold investors have literally been left in the lurch and it seems like there is no light at end of the gold tunnel. With gold slipping down a seemingly endless slope, 2013 has been a total nightmare for them. Since January, the precious metal has lost 25% and mining stocks have taken an even worse dive. Barrick Gold Corporation (NYSE:ABX) has dropped 56% and other companies like Goldcorp and Newmont Mining dropped 32% and 34% respectively. Though the prices do seem attractive, the falling price of gold is a potential threat to the profitability of gold mining companies. Question is, is this the right time to enter the market?
You will notice that ABX has dropped significantly lower than the other large gold miners. The primary reason for this is the delay in Barrick’s Pascua-Lama project. The Chilean government has suspended the project on account of environmental issues and the company had to face massive protest from locals as well as from environmentalists. Barrick will need to build a completely new water-management system in the area and this project will in most probability exceed its budget of $8.5B and with some luck may be able to complete it only by 2014 end. If the company manages to complete construction of the required water management system by 2014, the Chilean ore is expected to come in by mid-2016.
ABX plans on reducing the Pascua-Lama capital expenditure from 2013 to 2014 and the total cut is expected to be in the range of $1.5B-$1.8B and is directly linked to extension of the project schedule.
The debt doubt
The price at which Barrick is currently trading is one that has not been seen since 2000. Its book value has been sinking like a rock and it has $15B of debt which definitely has its debt-holders fuming. By the looks of it, ABX dividend is definitely at risk. Whats even worse is that the company’s debt-holders may just have to “encourage” it to issue new equity-capital. No matter which way you look at it Barrick Gold Corporation (NYSE:ABX) really does not seem to be a buy.