Goldman Sachs Adds Barrick Gold to Conviction Buy List
By Vittorio Hernandez | August 11, 2014 1:08 PM EST
File photo shows a labourer working on gold bars at a plant of a gold refiner in Istanbul
The list is a roster of stocks that Goldman's researchers expect to outperform. It is based on the size of the potential return or the high chances of realisation of the return.
Andrew Quail and his team from Goldman gave four reasons behind the upgrade rating for Barrick.
First is the improved operational profile of the miner as it expects Barrick's high-quality core assets to contribute from 80 percent to 100 percent of the total cash flows, which could lead to lower overall cost. This will turn the miner's free cash flow positive, starting in the third quarter of 2014, and generate over $5 billion of FCF from 2014 to 2018.
The third reason is the continued portfolio optimisation as Barrick continues its divestment this year and when combined with FCF generation is expected to lower the miner's net debt and further improve its financial flexibility. The last is the expected growth in Barrick's copper production as it enjoys a restart at Lumwana ahead of the schedule and commissioning of its Jabal Sayid project in the fourth quarter of 2015, which could lead to higher copper production.
Following the upgrade, Goldman also raised the price target of Barrick shares to $22 from $21, while RBC also increased its price target for the yellow metal miner to $25 from $23.
Meanwhile, the Sydney Morning Herald reports that there is still the possibility that the mega-merger between Barrick Gold and Newmont Mining could still push through even if disagreement over how to handle their Australian assets caused the merger talks to fall in April.
"I wouldn't shut the door on it - we are focusing on running our business as effectively and efficiently as we can going forward and we will see what happens next," Newmont Chief Executive Gary Goldberg said.
He said during a presentation at the Melbourne Mining Club that the merger deal failed due to lack of redundancies between the two miners, clarifying that he was not referring to axing jobs but commonalities in their respective business cultures.
Newmont owns 100 per cent of Boddington, 50 per cent of the Super Pit and the Tanami goldmine in the Northern Territory.
With Barricks's upgrade from Goldman, the possible merger with Newmont and gold prices hitting a 3-month high over the weekend to $1,322.60 per ounce, Barrick's stocks should appear to be an attractive option for retail investors.
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