This article was written by Graham Ellinson, a Financial Analyst at I Know First currently studying Mathematics at Northumbria University Newcastle.

Gold The Safe Haven For Investors: ABX Stock Jumps 20.41%

“Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgit are mere memories.” — Richard Russell

Source: Szaaman via Wikimedia

Summary

• Barrick Gold announce acquisition of RanGold making them the largest gold mining company
• The price of gold plays a significant role in Barrick stock however it does have other operations such as its copper production
• Barrick Gold is working aggressively to tackle its long-term debt

Barrick Gold Corporation (NYSE: ABX) currently the largest gold mining company in the world. As of December, 31 2017 the company has 64.4 million ounces of proven and probable gold reserves. The stock performance of ABX it has jumped 20.41% in the past month alone. This has returned it back to Gold ETF (GLD) levels. Poor performance in the second quarter of 2018 saw profits go down by -16.51% from first quarter profit levels. Third quarter results are looking stronger following a press release containing preliminary production figures.

Barrick announced in September the acquisition of RanGold resources. This will create an entity worth $24.1 Billion. ABX now hold 5 of the world’s top 10 Tier One Gold Assets and will have the lowest total cash cost among Senior Gold Peers. This marks them out as the clear leader in profitable production and has generated significant attention from investors. Consequently, the market has reacted accordingly over the past month and ABX experienced a surge of interest driving its stock up. As seen in the graph above ABX stock recently outgrew that of GLD a clear optimistic sign of market approval over this new acquisition.  It is still important to note however, that the largest potential deal would be ABX’s Lumwana copper mine in Zambia, which could fetch $1.26B, and the company also could look to sell its 50% stake in Chile’s Zaldivar mine, its majority stake in Tanzania-focused miner Acacia, as well as Randgold’s Tongon, Massawa and Morila assets.

Under the new Barrick a diversified platform in key mining jurisdictions from Copper productions to exploration. Regular efficiency improvements in gold-mining have allowed Barrick to survive amid the fluctuating gold prices. One problem Barrick face is to accurately estimate returns on investments. This can be particularly tricky owing to the varying price of gold making it rather difficult to convince investors that they will gain the returns they seek. The growth of the copper mining has significantly contributed to the stabilisation of ABX stock allowing for greater manoeuvrability when reinvesting, as they are not solely constrained by the bucks and trends of gold.

Gold the safe haven for investors

Historically, speaking the price of Gold increases when the stock market goes down. Investors seek a safe and stable commodity in which to lie low and wait out the storm. Looking at the largest drops in the S&P 500 over the past 35 years in all but one case (in 1998) does Gold buck to trend and increase rather than follow the rest of the market.

Although when markets do crash gold initially goes down it tends to end the down period on a high. The gold market has many different influencing factors especially since many currencies are tied to or where traditionally fixed to the gold price meaning that the production and mining of gold only plays a relatively small factor in its price fluctuation. This means it is important factor in both Barrick’s production and exploration of gold-mining and the general price fluctuation of gold when considering purchasing Barrick stock.

Barrick’s track record of creating value through exploration

Since 1990, Barrick have found 129 million ounces of gold at an overall discovery cost of $29 per ounce, or roughly half the average finding cost across the industry. With some of the largest undeveloped gold deposits in the world and the lowest production cost in the industry Barrick stand out as the industry leaders in gold-mining. Barrick will have the highest production levels of any North American gold miner at 6.5 Moz per year. These high production levels are also backed by what will be the largest reserve base at 78 Moz. Newmont is the runner-up with 68 Moz.

Source: pxhere

An ongoing issue Barrick has faced is its debt. The debt was over $12.75 billion in quarter 4 2014 and has been cut to $6.39 billion (net debt $4.3 billion) at the end of the second quarter 2018. The debt reduction has been driven by selling the company’s non-core assets to optimize its balance sheet. However, despite the long-term debt, Barrick Gold is working aggressively on reducing its debt, which is a tailwind and it will eventually save the company hundreds of millions of dollars in interest expenses.

Current I Know First Bullish Forecast For ABX

The forecast for ABX is bullish for the one month, three month and year-long time frames.  The strongest being the year-long forecast with signal strength of 22.13 and predictability of 0.65. However, the one month and three month forecast are both strong buys with signals of 14.06 and 13.04 respectively, with predictability of 0.48 for the one month time horizon and 0.58 for the three month time horizon.

Click here for instructions on how to read the I Know First forecast prediction

Past I Know First Forecast Performance For ABX

The I Know First algorithm predicted this stock increase on 18^th September with a bullish 14 day signal of 4.23 and the predictability indicator of 0.45, over this time period ABX stock rose by 11.11%.

Click here for instructions on how to read the I Know First heatmap

Conclusion

The strong performance of ABX in the past month is illustration of the company’s ability to rise above unpredictable gold prices. Its continued focus on further driving down the cost of production with its research and exploration of gold mining will facilitate continued profitability for the company. Its recent purchase of RanGold is good news for investors and the market reacted accordingly. The long-term outlook for ABX is positive will still vast areas of unexplored mines with proven or probable gold reserves. Still recovering from its debt is something that may put off investors which is what may be resulting in ABX being undersold.

About

Barrick Gold Corporation (Barrick), incorporated on March 10, 1995, is a gold mining company. The Company is principally engaged in the production and sale of gold and copper, as well as related activities, such as exploration and mine development. The Company’s segments include Goldstrike, Cortez, Pueblo Viejo, Lagunas Norte, Veladero, Turquoise Ridge, Acacia Mining plc (Acacia), Pascua-Lama and Other Mines. Goldstrike, Cortez, Pueblo Viejo, Lagunas Norte, Veladero and Turquoise Ridge are its individual gold mines. The Company, through its subsidiary, Acacia, owns gold mines and exploration properties in Africa. It also holds interest in gold mines, including Porgera and Kalgoorlie, and copper mines, such as Zaldivar and Lumwana. The Pascua-Lama project is located on the border between Chile and Argentina. The Company has nine producing gold mines, which are located in Canada, the United States, Peru, Argentina, Australia and the Dominican Republic. It also holds an interest in a producing mine in Papua New Guinea. Its copper business includes a copper mine in Zambia, and its interests in copper mines in Chile and Saudi Arabia. It also has projects located throughout the Americas.